2025 (1) TMI 971 - AT - Income Tax

Tribunal Upholds Exemption for Assessee; Emphasizes Substantive Compliance Over Procedural Lapse in Form Submission.

The Tribunal upheld the CIT(A)'s decision to grant the assessee exemption under sections 11 and 12 of the Income Tax Act, despite the procedural lapse of ... Exemption u/s.11 and 12 - assessee has not furnished the Audit report in Form No.10BB within the stipulated time in Rule 16CC - HELD THAT:- We find the CPC rejected the claim made by the assessee u/s.10(23C) only on technical issue, which is uncalled for CIT(A) has rightly considered all the aspects viz, registration u/s.12A and application of income for the charitable purposes while granting exemption u/s.11. We therefore find that the order passed by the CIT(A) is in conformity with the principles of natural justice. We therefore uphold the same and dismiss the grounds raised by the Revenue. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions addressed in this judgment are:Whether the assessee's failure to submit the Audit Report in Form 10BB, as opposed to Form 10B, invalidates their claim for exemption under section 10(23C) of the Income Tax Act.Whether the CIT(A) was correct in granting the exemption under sections 11 and 12 of the Income Tax Act, despite the procedural lapse regarding the audit report.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Exemption Claim Under Section 10(23C)Relevant Legal Framework and Precedents: The Income Tax Act mandates that certain trusts must submit an Audit Report in Form 10BB to claim exemptions under section 10(23C). The 10th proviso to section 10(23C) specifies this requirement.Court's Interpretation and Reasoning: The Tribunal noted that the Centralized Processing Center (CPC) rejected the exemption claim solely on the technicality of the form used. The Tribunal found this rejection to be unwarranted, emphasizing that the technicality should not overshadow the substantive compliance with the law.Key Evidence and Findings: The assessee submitted an Audit Report in Form 10B, certified by a Chartered Accountant, instead of the required Form 10BB. The CIT(A) considered the substantive compliance, including the trust's registration under section 12AA and its application of income for charitable purposes.Application of Law to Facts: Despite the procedural lapse, the Tribunal upheld the CIT(A)'s decision, recognizing the trust's compliance with the substantive requirements for exemption under sections 11 and 12.Treatment of Competing Arguments: The Revenue argued that the filing of Form 10BB is mandatory. However, the Tribunal prioritized the principles of natural justice over procedural technicalities, supporting the CIT(A)'s decision.Conclusions: The Tribunal concluded that the rejection of the exemption claim based on the form used was unjustified, upholding the CIT(A)'s decision to grant the exemption under sections 11 and 12.Issue 2: Granting of Exemption Under Sections 11 and 12Relevant Legal Framework and Precedents: Sections 11 and 12 of the Income Tax Act provide exemptions for income applied towards charitable purposes, provided certain conditions are met, including registration under section 12AA.Court's Interpretation and Reasoning: The Tribunal agreed with the CIT(A) that the assessee met all substantive criteria for exemption under sections 11 and 12, including the application of more than 85% of its income towards charitable purposes.Key Evidence and Findings: The assessee was registered under section 12AA and had submitted an Audit Report in Form 10B. The CIT(A) found that the trust's expenditures exceeded the required threshold for charitable activities.Application of Law to Facts: The Tribunal supported the CIT(A)'s finding that the trust's compliance with sections 11 and 12 was sufficient to grant the exemption, despite the procedural issue with the audit form.Treatment of Competing Arguments: The Revenue's argument focused on the procedural requirement of Form 10BB. However, the Tribunal emphasized the trust's substantive compliance with the law.Conclusions: The Tribunal concluded that the CIT(A) correctly granted the exemption under sections 11 and 12, aligning with the principles of natural justice and equity.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'Denial of exemption would be unfair and against the principles of natural Justice and equity.'Core Principles Established: The judgment reinforces the principle that procedural lapses should not override substantive compliance with tax law, especially when it involves charitable organizations.Final Determinations on Each Issue: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to grant the exemption under sections 11 and 12, despite the procedural issue with the audit report form.