2025 (4) TMI 1265 - AT - Income Tax

Trust exemption cannot be denied solely for late filing of Form 10B without revenue prejudice

Gujarat Technological University Versus Commissioner of Income Tax (Exemption), Ahmedabad

The ITAT Ahmedabad set aside a revision order u/s 263 that denied exemption u/s 11 and 12 to a trust solely due to late filing of Form 10B. Following the ... Revision u/s 263 - exemption u/s 11 and 12 denied to assessee only on account of late filing of Form No. 10B - HELD THAT:- In the case of Brahmchari Wadi Trust [2025 (3) TMI 1012 - GUJARAT HIGH COURT] held that where delay in filing Form No. 10 by assessee-trust had occurred due to internal administrative problems of assessee-trust, since assessee-trust for past many years had substantially satisfied conditions for claiming exemption u/s 11, exemption u/s 11 could not be denied for non-filing of Form No. 10 in time. Delay in filing of Form 10B in the instant case has caused no prejudice to the interest of the Revenue, since such delay is only a procedural lapse. Accordingly, we are of the view that the present 263 order is liable to be set-aside. Appeal of the assessee is allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in the appeal are:(a) Whether the revision proceedings initiated under Section 263 of the Income Tax Act, 1961 ('the Act') were valid and justified, particularly whether the conditions for invoking the extraordinary jurisdiction under Section 263 were satisfied;(b) Whether the assessment order passed under Section 147 read with Section 144 of the Act was erroneous or prejudicial to the interest of the Revenue, justifying revision under Section 263;(c) Whether the revision proceedings under Section 263 could be initiated on the issue of allowance of exemption under Section 11 of the Act, especially when that issue was not the subject matter of reassessment proceedings under Section 147;(d) Whether revision under Section 263 can be invoked on a debatable issue such as allowability of exemption under Section 11;(e) Whether revision proceedings under Section 263 can be initiated when the assessment order is subject matter of an appeal, in light of Explanation 1(c) to Section 263;(f) Whether the appellant was eligible to claim exemption under Section 11 of the Act, despite delay in filing Form 10B (audit report) and whether such delay amounts to a procedural lapse or a substantive defect affecting eligibility;(g) Whether the delay in filing Form 10B prejudiced the Revenue and justified denial of exemption under Section 11;(h) Whether the CIT (Exemptions) erred in setting aside the assessment order as erroneous and prejudicial to the Revenue solely on the ground of delayed filing of Form 10B.2. ISSUE-WISE DETAILED ANALYSISIssue (a) & (b): Validity of Revision Proceedings under Section 263 and Whether Assessment was Erroneous or Prejudicial to RevenueThe legal framework governing revision under Section 263 requires satisfaction of two conditions: that the assessment order is erroneous and that it is prejudicial to the interest of the Revenue. The Court examined whether these conditions were fulfilled before the CIT (Exemptions) invoked revision jurisdiction.The CIT(E) initiated revision on the ground that the Assessing Officer allowed exemption under Section 11 despite non-filing of Form 10B before the conclusion of assessment, which was considered a procedural lapse. The CIT(E) held that allowing exemption without the audit report was erroneous and prejudicial.The appellant contended that the delay in filing Form 10B was only procedural and did not cause any prejudice to the Revenue, as the form was eventually filed on 20.07.2023, after the assessment order dated 15.03.2022. The appellant relied on judicial precedents holding that procedural lapses in filing Form 10B should not disentitle exemption under Section 11 if substantive conditions are met.The Court noted that the assessment order under Section 147 read with Section 144 was passed in accordance with the jurisdictional High Court decisions and that no error or prejudice arose from the delayed filing of Form 10B. The Court emphasized that revision under Section 263 is not warranted merely on procedural lapses without prejudice to Revenue.The Court concluded that the CIT(E) erred in invoking Section 263 as the assessment order was neither erroneous nor prejudicial to Revenue on the facts.Issue (c), (d) & (e): Scope of Revision Proceedings under Section 263 on Exemption under Section 11 and Impact of Pending AppealThe Court considered whether revision under Section 263 could be initiated on the issue of allowability of exemption under Section 11, which was not the subject matter of reassessment under Section 147. The Court observed that Section 263 is an extraordinary jurisdiction and cannot be invoked on debatable issues or issues already under appeal.Explanation 1(c) to Section 263 bars revision proceedings if the assessment order is subject to appeal. Since the assessment order was pending appeal, the Court held that the CIT(E) lacked jurisdiction to initiate revision proceedings.The Court emphasized that allowability of exemption under Section 11 involves interpretation of facts and law and is a debatable issue, hence not amenable to revision under Section 263.Issue (f) & (g): Eligibility to Claim Exemption under Section 11 Despite Delay in Filing Form 10BThe Court examined the legal requirements for claiming exemption under Section 11, which include filing of Form 10B (audit report) within prescribed time. The appellant had filed Form 10B late but before the conclusion of appellate proceedings.The Court extensively relied on judicial precedents from the jurisdictional High Court and ITAT, which held that delay in filing Form 10B is a procedural defect and should not disentitle exemption if substantive conditions are fulfilled. Key precedents cited include:Brahmchari Wadi Trust case, where delay due to internal administrative problems did not disentitle exemption;Shri Parshwanath Bhakti Vihar Jain Trust case, where delay due to illness of accountant justified condonation;Sarvodaya Charitable Trust case, where exemption was not denied merely on limitation bar for Form 10B;Vardhman Stanakvasi Jain Shravak Trust ITAT decision, holding late filing of Form 10B before appellate conclusion does not disentitle exemption;Shiksha Foundation ITAT decision, which emphasized absence of mala fide intention and condonation of delay;Other High Court decisions emphasizing that substantive eligibility should not be defeated by procedural lapses.The Court noted that the appellant had satisfied all substantive conditions for exemption under Section 11 and that the delay in filing Form 10B did not prejudice Revenue.Issue (h): Whether the CIT(E) Erred in Setting Aside Assessment Order Solely on Delayed Filing of Form 10BThe Court found that the CIT(E) had set aside the assessment order as erroneous and prejudicial solely on the ground of delayed filing of Form 10B. The Court held this to be erroneous in law, given the procedural nature of the delay and absence of prejudice to Revenue.The Court observed that the CIT(E) failed to consider the appellant's explanation and the settled legal position that procedural lapses in filing Form 10B should not result in denial of exemption.The Court concluded that the revision order under Section 263 was liable to be set aside and the assessment order restored.3. SIGNIFICANT HOLDINGSThe Court held that:'Delay in filing of Form 10B in the instant case has caused no prejudice to the interest of the Revenue, since such delay is only a procedural lapse.''The claim of application of income cannot be denied to the assessee only on the ground that the assessee/the auditor of the assessee omitted to file form 10B (auditor's report) along with return of income, when the same was submitted to the tax authorities before the order/intimation under section 143 (1) of the Act was issued.''Revision proceedings under Section 263 cannot be invoked on a debatable issue or when the assessment order is subject matter of an appeal as per Explanation 1(c) to Section 263.''The assessment order passed under Section 147 read with Section 144 was neither erroneous nor prejudicial to the interest of the Revenue merely because of delayed filing of Form 10B.''The CIT(Exemptions) erred in setting aside the assessment order solely on the ground of delayed filing of Form 10B, ignoring the settled legal position and the absence of prejudice to Revenue.'Accordingly, the Court allowed the appeal, set aside the revision order passed under Section 263, and restored the assessment order, affirming the appellant's eligibility for exemption under Section 11 despite the procedural delay in filing Form 10B.