2025 (6) TMI 471 - AT - Income Tax

Tribunal Allows Tax Exemption Despite Procedural Delays, Emphasizing Substantial Compliance Over Technical Errors in Section 11

The Tribunal addressed three key legal issues: (1) condonation of 332-day delay in appeal filing, (2) denial of tax exemption due to delayed Form No.10B ... Denial of benefit of exemption u/s 11 - assessee had not furnished Form No.10BB within the prescribed time limit - inadvertent filing of Form No.10BB instead of Form No.10B - HELD THAT:- Assessee had inadvertently filed Form No.10BB but the same was along with income-tax return containing all the details and subsequently assessee has furnished the correct Form No.10B also. We note that in the case of S.M. K.R. Vashi High School [2023 (12) TMI 711 - ITAT SURAT] has held that even if the Form No.10B could not be uploaded due to some technical error on the income-tax portal, benefit of section 11 could not be denied merely on account of delay in furnishing the audit report. Hon’ble High Court in the case of CIT (Exemption) Anjana Foundation [2024 (10) TMI 664 - GUJARAT HIGH COURT] has held that filing of Form No.10B is a procedural requirement and benefit of section 11 should not be denied for delay in furnishing Form No.10B. Thus we find that the case of the assessee is on much stronger footing where Form No.10BB was inadvertently filed in place of Form No.10B but the same was filed along with the income-tax return and subsequently assessee furnished Form No.10B also. We therefore direct the Jurisdictional Assessing Officer to allow the benefit of exemption u/s 11 claimed by the assessee in the income-tax return since the Form No.10B was finally furnished before the authorities below containing all the necessary details. Grounds of appeal raised by the assessee are allowed. The core legal questions considered by the Tribunal in this appeal include:1. Whether the delay of 332 days in filing the appeal before the Tribunal should be condoned under the principles governing limitation and delay condonation.2. Whether the exemption under section 11 of the Income Tax Act, 1961 can be denied solely on the ground of delay in filing the audit report in Form No.10B.3. Whether the inadvertent filing of Form No.10BB instead of Form No.10B, and subsequent filing of the correct form, affects the assessee's entitlement to exemption under section 11.Issue 1: Condonation of Delay in Filing AppealThe relevant legal framework comprises the provisions relating to limitation periods for filing appeals under the Income Tax Act, 1961, and the jurisprudence on condonation of delay. The Tribunal referred to multiple authoritative precedents, including the Supreme Court's decision in Collector Land Acquisition, Anantnag & Anr v. MST Katiji & ORS, which established that delay can be condoned if there is a 'reasonable cause' and the delay is not intentional or due to negligence. Other supporting judgments cited include Concord of India Insurance Co Ltd vs Nirmala Devi and the Bombay High Court's ruling in Vijay Vishin Meghani v. DCIT Circle-23(2).The assessee explained the reasons for delay and contended that the delay was not deliberate and no prejudice would be caused to the revenue. The Tribunal, after hearing both parties and considering the established legal principles, held that the assessee had demonstrated 'reasonable cause' preventing timely filing. The Tribunal thus exercised discretion to condone the delay of 332 days and admitted the appeal for adjudication.Issue 2: Denial of Exemption under Section 11 on Grounds of Delay in Filing Form No.10BSection 11 of the Income Tax Act provides exemption to charitable or religious trusts in respect of income applied for charitable purposes. The filing of audit reports in Form No.10B is a procedural requirement to claim such exemption. The question was whether failure to file Form No.10B within the prescribed time can lead to denial of exemption.The Tribunal considered a substantial body of case law wherein courts and tribunals have consistently held that the filing of audit reports is directory and not mandatory in a strict sense. The Tribunal relied on judgments including Sarvodaya Charitable Trust v. ITO, CIT-IV v. Xavier Kelavani Mandal, National Horticulture Board v. Chief Commissioner of Income-tax, and Anjana Foundation v. CIT (Exemption), among others, which emphasize that delay in filing Form No.10B should not result in denial of exemption if the audit report is eventually furnished and the income is applied for charitable purposes.The Departmental Representative contended in favor of upholding the denial of exemption due to delay. However, the Tribunal noted that the assessee had filed the return of income along with Form No.10BB (a different audit report form) on time and subsequently filed the correct Form No.10B. The Tribunal also referred to the Coordinate Bench decision in S.M.K.R. Vashi High School v. ITO, which held that technical or procedural delays in filing the audit report should not result in denial of exemption.Issue 3: Effect of Filing Form No.10BB Instead of Form No.10BThe assessee inadvertently filed Form No.10BB instead of the correct Form No.10B along with the income tax return. The Tribunal examined whether this procedural error could justify denial of exemption under section 11.The Tribunal found that the initial filing of Form No.10BB was accompanied by the return of income containing all relevant details. Subsequently, the correct Form No.10B was furnished. The Tribunal observed that the case law supports the view that such procedural lapses or inadvertent errors should not prejudice the assessee's substantive right to exemption. The Tribunal relied on the Gujarat High Court's ruling in Anjana Foundation and the Coordinate Bench decision in S.M.K.R. Vashi High School, which affirm that filing of Form No.10B is a procedural requirement and exemption under section 11 should not be denied merely on account of delay or procedural irregularities.The Tribunal concluded that since the correct Form No.10B was eventually filed containing all necessary details, the assessee was entitled to the exemption under section 11.Significant HoldingsOn the condonation of delay, the Tribunal held: 'there was 'reasonable cause' which prevented the assessee in filing the appeal within the stipulated time. We therefore condone the delay of 332 days and admit the appeal for adjudication.'Regarding the denial of exemption under section 11 due to delay in filing Form No.10B, the Tribunal stated: 'We therefore direct the Jurisdictional Assessing Officer to allow the benefit of exemption u/s 11 of the Act claimed by the assessee in the income-tax return since the Form No.10B was finally furnished before the authorities below containing all the necessary details.'The Tribunal reaffirmed the principle that 'filing the audit reports is directory in nature and even if such report is placed during the course of assessment proceedings/appellate proceedings, the same should be considered.'The final determination was that the appeal was allowed, the delay in filing the appeal was condoned, and the assessee was entitled to exemption under section 11 of the Income Tax Act despite the initial procedural errors and delay in filing the correct audit report form.