2025 (6) TMI 902 - AT - Income Tax

Section 11 exemption cannot be denied for delayed Form 10B filing if audit report available during return filing

New Bombay Merchants Educational Foundation Versus ACIT (E), -2 (2), Mumbai

ITAT Mumbai allowed assessee's appeal regarding denial of exemption under section 11 due to late filing of Form 10B. The Tribunal held that delayed ... Denial of exemption u/s 11 - assessee failed to furnish audit report / Form 10B in time - HELD THAT:- We find that co-ordinate benches of Tribunal and High Courts in a series of decision has held that uploading of Form 10B belatedly is a merely regulatory and in case the audit report was available at the time of filing return of income and was not filed due to bona fide reasons, the benefit of section 11 cannot be denied, if otherwise assessee is eligible for such claim. We find that in CIT Vs Mayur Foundation (2004 (12) TMI 48 - GUJARAT HIGH COURT) held that Form No.10 for exercising option under section 11(2) of the Act can be submitted at the time of assessment proceedings and accepted the contention of the assessee that proceedings before the Income Tax Appellate Tribunal is a continuation of an assessment proceedings and submission of Form No.10 before the Tribunal can be treated as sufficient compliance under the provision of section 11(2) of the Act. Further in Sarvodaya Charitable Trust [2021 (1) TMI 214 - GUJARAT HIGH COURT] held that where the assessee-trust for past many years had substantially satisfied conditions for claiming exemption under section 11, same could not be denied for non-filing of Form No. 10 in time. Therefore, considering the aforesaid factual and legal position, delay in filing Form 10B is allowed. AO is directed to allow exemption u/s 11 - Assessee appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:(a) Whether the order passed by the Commissioner of Income Tax (Appeals) (CIT(A)) was valid in law when it was passed ex-parte without considering the written submissions and without affording an opportunity of hearing to the assessee;(b) Whether the CIT(A) erred in dismissing the appeal without adjudicating the grounds raised by the assessee, specifically grounds relating to denial of exemption under section 11 of the Income Tax Act, unauthorized adjustments under section 143(1), disallowance of expenditure, assessment without issuance of notice under section 143(2), violation of principles of natural justice, and levy of interest under section 234B;(c) Whether the denial of exemption under section 11 of the Income Tax Act on the ground of delay in uploading the audit report in Form 10B was justified, given that the audit report was filed along with the return of income but uploaded digitally on the portal after delay;(d) Whether the delay in uploading Form 10B could be condoned in view of Circular No. 3/2020 issued by CBDT and judicial precedents allowing such condonation;(e) Whether the Assessing Officer (AO) and CIT(A) were correct in denying exemption and making adjustments without issuing mandatory notices under applicable provisions of the Income Tax Act;(f) Whether the levy of interest under section 234B was justified;(g) Whether the principles of natural justice were violated by the authorities in the assessment and appellate proceedings.2. ISSUE-WISE DETAILED ANALYSISIssue (a) & (b): Validity of Ex-parte Order and Non-adjudication of Grounds by CIT(A)Relevant legal framework and precedents: The principles of natural justice require that an assessee be given an opportunity of hearing before adverse orders are passed. The CIT(A) is mandated to adjudicate all grounds raised in the appeal under section 246A of the Income Tax Act.Court's interpretation and reasoning: The Tribunal noted that the CIT(A) passed an ex-parte order without considering the written submissions of the assessee and without granting a hearing despite the assessee's written request. Further, the CIT(A) dismissed the appeal without adjudicating grounds 1 to 4, which were duly raised and contested.Key evidence and findings: The record revealed that the assessee had submitted written submissions and requested a hearing, which was not granted. The CIT(A) dismissed the appeal solely on the ground of delay in filing Form 10B.Application of law to facts: The Tribunal held that dismissal of appeal without adjudicating all grounds and without affording opportunity of hearing amounted to violation of principles of natural justice and was erroneous in law.Treatment of competing arguments: The Revenue did not specifically dispute the procedural lapse but relied on the delay in filing Form 10B as justification for denial of exemption.Conclusion: The Tribunal found the ex-parte dismissal and non-adjudication of grounds by CIT(A) to be improper, warranting reconsideration of the appeal on merits.Issue (c) & (d): Denial of Exemption under Section 11 for Delay in Uploading Form 10B and Condonation of DelayRelevant legal framework and precedents: Section 11 of the Income Tax Act provides exemption to charitable trusts subject to fulfillment of conditions including filing of audit report in Form 10B. Rule 17B allows for condonation of delay in filing such audit reports. CBDT Circular No. 3/2020 authorizes condonation of delay up to 365 days in filing Form 10B for AY 2018-19 and subsequent years. Judicial precedents including CIT Vs Mayur Foundation (2005) and Sarvodaya Charitable Trust Vs ITO (2021) have held that delay in filing Form 10B is a procedural defect and can be condoned if the audit report was otherwise available and the assessee is eligible for exemption.Court's interpretation and reasoning: The Tribunal observed that the assessee had obtained the audit report on 25.09.2018 and filed the return of income on 26.09.2018 along with the audit report in physical form. The digital upload of Form 10B on the ITBA portal was delayed till 27.06.2019. The assessee filed an application for condonation of delay on 12.12.2019, which was pending before CIT(E) at the time of hearing. The Tribunal relied on CBDT Circular No. 3/2020 and judicial decisions to hold that such delay is curable and should not result in denial of exemption if the assessee fulfills all substantive conditions.Key evidence and findings: The audit report was available and filed with the return, only the digital uploading was delayed. The assessee had registration under section 12A/AB and approval under section 80G(5), indicating eligibility for exemption.Application of law to facts: The Tribunal applied the principle that procedural lapses in filing Form 10B can be condoned and exemption under section 11 cannot be denied on this ground alone, especially when the audit report was available and the delay was bona fide.Treatment of competing arguments: The Revenue argued that delay without condonation order justified denial of exemption. The Tribunal rejected this, emphasizing the CBDT Circular and judicial precedents allowing condonation and relief.Conclusion: The Tribunal allowed the delay in filing Form 10B and directed the Assessing Officer to allow exemption under section 11 of the Act.Issue (e): Assessment without Issuance of Notice under Section 143(2) and Unauthorized Adjustments under Section 143(1)Relevant legal framework and precedents: Section 143(2) requires issuance of notice before assessment proceedings are initiated. Section 143(1)(a) requires notice before making adjustments to returned income.Court's interpretation and reasoning: The Tribunal noted that the Assessing Officer/CPC determined total income without issuing mandatory notice under section 143(2) and made adjustments without notice under section 143(1)(a).Key evidence and findings: The record showed no issuance of such notices before assessment and adjustments.Application of law to facts: The Tribunal implicitly found such non-compliance with procedural requirements improper, but since exemption under section 11 was allowed, these issues became academic.Treatment of competing arguments: The assessee raised these as grounds of appeal; the Revenue did not contest the procedural lapses but relied on denial of exemption.Conclusion: These procedural lapses contributed to the Tribunal's decision to allow the appeal, though explicit directions on these points were not made as exemption was granted.Issue (f): Levy of Interest under Section 234BRelevant legal framework and precedents: Section 234B provides for levy of interest for default in payment of advance tax.Court's interpretation and reasoning: Since the Tribunal allowed exemption under section 11, the question of levy of interest under section 234B became academic and was not adjudicated.Issue (g): Violation of Principles of Natural JusticeRelevant legal framework and precedents: Fundamental principles of natural justice require that no person should be condemned unheard and must be given a fair opportunity to represent their case.Court's interpretation and reasoning: The Tribunal found that the CIT(A) passed ex-parte order without considering written submissions and without hearing the assessee, thereby violating natural justice.Key evidence and findings: The assessee had requested hearing in writing and submitted detailed grounds of appeal.Application of law to facts: The Tribunal held that such violation warranted setting aside the order and reconsideration of the appeal.3. SIGNIFICANT HOLDINGSThe Tribunal succinctly stated: 'We find that co-ordinate benches of Tribunal and High Courts in a series of decision has held that uploading of Form 10B belatedly is a merely regulatory and in case the audit report was available at the time of filing return of income and was not filed due to bona fide reasons, the benefit of section 11 cannot be denied, if otherwise assessee is eligible for such claim.'It further held: 'Therefore, considering the aforesaid factual and legal position, delay in filing Form 10B is allowed. The assessing officer is directed to allow exemption under section 11 of Income Tax Act.'The Tribunal also emphasized the violation of natural justice: 'The ld. CIT(A) simply dismissed the appeal on the ground that assessee failed to furnish audit report / Form 10B in time... dismissal of appeal without adjudicating all grounds and without affording opportunity of hearing amounted to violation of principles of natural justice and was erroneous in law.'The final determination on the core issue was that the assessee's exemption claim under section 11 could not be denied solely on the ground of delay in uploading Form 10B, especially when the audit report was filed along with the return and the delay was bona fide and subject to condonation as per CBDT Circular and judicial precedents. Consequently, the appeal was allowed, and the Assessing Officer was directed to grant exemption accordingly.