Assessee wins appeal for Section 11(2) deduction despite 18-day delay in filing income tax return

Archana Foundation Versus Archana Foundation

Archana Foundation Versus Archana Foundation - TMI The core legal issues considered in this appeal revolve around the eligibility of the assessee, a registered public charitable trust, to claim deduction under section 11(2) of the Income-tax Act, 1961, despite a delay in filing the return of income (ROI) and requisite Form 10B and 9A under rule 17B of the Income-tax Rules, 1962. Specifically, the Tribunal examined:

• Whether the delay of 18 days in filing the ROI and Forms 9A and 10B justifies rejection of the claim for deduction under section 11(2) by the Assessing Officer (AO).
• The applicability and interpretation of the statutory requirements under section 11 and rule 17 regarding timely furnishing of particulars for claiming exemption.
• The reasonableness and sufficiency of the assessee's explanation for the delay in filing the necessary forms and returns.
• The relevance and impact of CBDT Circulars No. 6/2020 and 17/2022 on condonation of delay in filing such forms.
• The precedential value of judicial pronouncements concerning the timing and manner of filing Form 10 for accumulation of income under section 11(2).

Issue-wise detailed analysis:

1. Delay in Filing Return and Forms 9A & 10B and Its Consequences on Deduction under Section 11(2)

The legal framework under section 11(2) mandates that a person claiming exemption for income applied or set apart for charitable purposes must furnish particulars in the prescribed manner and within the prescribed time, specifically through Form 10B under rule 17B. Failure to comply with these procedural requirements can result in denial of exemption.

The AO rejected the deduction claimed by the assessee on the ground that the ROI and Form 10B were filed after the due date, thus non-compliance with the mandatory procedural requirements. The AO computed total income accordingly and assessed tax liability.

The assessee contended that the delay was only 18 days and was caused due to genuine difficulties, including the fact that the trust is managed by senior citizens who are not adept with digital filing requirements, and complications arising from Aadhaar linkage for digital signatures required for filing Form 9A.

The Tribunal examined the explanation and found it reasonable. The assessee's submissions were supported by multiple communications to the CIT(A) explaining the delay and the nature of the trust's management.

2. Interpretation of Section 11(2) and Rule 17B Requirements

The Tribunal referred extensively to judicial precedents to interpret the statutory provisions:

• The Supreme Court's ruling clarified that furnishing particulars under section 11(2) is mandatory before completion of assessment proceedings to claim exemption. Filing after assessment completion cannot be entertained without reopening assessment, which is not contemplated.
• Tribunal decisions emphasized that if Form 10 is filed within the time allowed for furnishing the return under section 139(4), the exemption claim should be allowed.
• Cases were cited where even physical filing of Form 10 before completion of assessment was held sufficient despite delay in electronic filing, provided all conditions were met and the purpose of accumulation was genuine.
• Judgments established that exemption under section 11(2) is available if the amount is set apart before assessment completion and subsequently applied for charitable purposes.

These precedents guided the Tribunal's reasoning that procedural delays, if reasonably explained and not malicious, should not defeat the substantive right to exemption.

3. Application of CBDT Circulars and Condonation of Delay

The assessee filed a petition under section 119(2)(b) seeking condonation of delay based on CBDT Circulars No. 6/2020 and 17/2022, which provide administrative relief in cases of delayed filing due to genuine difficulties, especially in the context of digital compliance. However, the CIT(E) rejected this petition.

While the Tribunal noted this rejection, it did not find it determinative, as the judicial precedents and the facts of the case sufficed to justify allowing the exemption claim.

4. Reasonableness of Explanation for Delay

The Tribunal gave significant weight to the assessee's explanation that the trust is managed by senior citizens who are not digitally savvy, and that the Aadhaar linkage requirement for digital signatures caused delay. The absence of any mala fide intent was emphasized.

This explanation was supported by repeated submissions to the CIT(A) and was accepted as a valid cause for delay.

5. Treatment of Competing Arguments

The Revenue's argument focused on strict compliance with statutory timelines and the mandatory nature of Form 10B filing for claiming exemption. The Tribunal acknowledged these principles but balanced them against the facts and judicial precedents allowing some latitude for genuine delays.

It was noted that denying exemption on mere procedural delay without considering substantive compliance and bona fide reasons would be harsh and contrary to the spirit of the law.

Conclusions:

The Tribunal concluded that the assessee's delay in filing ROI and Forms 9A and 10B was reasonably explained and justified. The procedural lapses did not warrant denial of exemption under section 11(2). The Tribunal set aside the appellate order rejecting the exemption and remanded the matter to the AO to allow the deduction after due verification of the relevant forms.

Significant holdings include the following verbatim excerpt encapsulating the Tribunal's legal reasoning:

"...it is abundantly clear from the wordings of sub-section (2) of section 11 that it is mandatory for the person claiming the benefit of section 11 to intimate to the assessing authority the particulars required, under rule 17 in Form No. 10. If during the assessment proceedings the Assessing Officer does not have the necessary information, the question of excluding such income from assessment does not arise at all... Therefore, compliance of the requirement of the Act will have to be any time before the assessment proceedings. Further, any claim for giving the benefit of section 11 on the basis of information supplied subsequent to the completion of assessment would mean that the assessment will have to be reopened. The Act does not contemplate such reopening of the assessment... Keeping in view the facts of the case and judicial pronouncements by the Honourable Apex Court, Honourable Jurisdictional High court and coordinated bench of ITAT, we are inclined to allow the appeal of the assessee."

The core principles established are:

• Timely furnishing of particulars under section 11(2) and rule 17B is mandatory for exemption claims but reasonable delays with bona fide explanations may be condoned.
• Exemption under section 11(2) is substantive and should not be denied on mere procedural lapses if the assessee complies before completion of assessment.
• Digital filing requirements and procedural formalities, especially for charitable trusts managed by senior citizens, should be viewed with practical leniency.
• Reopening of assessment for acceptance of belated information is not envisaged under the Act.

Final determinations:

• The delay of 18 days in filing the return and forms was satisfactorily explained and justified.
• The AO's rejection of exemption under section 11(2) for non-filing of Form 10B within due date was set aside.
• The matter was remanded to the AO for verification and allowance of the exemption claim.
• The addition of Rs. 56,42,973/- made by the AO was deleted.
• The appeal of the assessee was allowed.