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1. Whether the addition of Rs. 1,72,07,533/- to the taxable income of the assessee trust, on the ground of non-submission of Audit Report in Form 10B within the prescribed time limit, was justified.
2. Whether the issuance of the Intimation Order under section 143(1) of the Income-tax Act, 1961 without prior issuance of a proposed adjustment under section 143(1)(a), violated the principles of natural justice and rendered the order bad in law.
3. Whether the assessee trust was eligible for exemption under section 11 of the Act, given that the Audit Report in Form 10B was filed before the due date prescribed under section 139(4) of the Act, albeit after the return of income was filed.
4. Whether the delay in filing Form 10B constituted a mere technical default that was curable, as held by various High Courts.
5. Whether, alternatively, the Assessing Officer erred in not granting deduction for genuine and bonafide expenses incurred for the objects of the trust amounting to Rs. 1,49,19,496/-.
Issue-wise Detailed Analysis
1. Validity of Addition on Ground of Non-submission of Audit Report in Form 10B within Prescribed Time
The relevant legal framework includes section 12A(1)(b) of the Income-tax Act, which mandates that for exemption under sections 11 and 12, the accounts of the trust must be audited and the audit report in the prescribed form (Form 10B) must be furnished before the specified date under section 44AB. Rule 17B of the Income Tax Rules prescribes the form and manner of audit report submission.
The Court noted that the assessee trust had filed its return of income on 30.03.2021 but uploaded the Audit Report in Form 10B only on 31.03.2021, thereby missing the prescribed deadline. The delay was attributed to procedural lapses and technical glitches.
Precedents considered include the judgment of the Hon'ble Gujarat High Court in Sarvodaya Charitable Trust v. ITO (Exemption), which held that the furnishing of the audit report is a procedural requirement and directory in nature, and substantial compliance suffices. The Court observed that even if the audit report is filed after the return but before the conclusion of assessment or appellate proceedings, it should be considered.
Applying this reasoning, the Tribunal found that since the audit report was signed on 28.10.2018 (prior to filing the return) but uploaded late due to technical reasons, the procedural lapse was curable. The Tribunal also noted that the case was processed under section 143(1)(a) (summary assessment) and not selected for scrutiny under section 143(3), limiting the Assessing Officer's opportunity to verify the audit report. However, the Commissioner of Income Tax (Appeals) had the power under section 251(1)(a) to entertain and examine the audit report, which was not done.
The Departmental Representative failed to produce binding precedents to counter this view.
Conclusion: The Tribunal held that the denial of exemption on the ground of delayed filing of Form 10B was not justified and the procedural lapse was curable.
2. Alleged Violation of Principles of Natural Justice in Processing the Return under Section 143(1)
The assessee contended that no opportunity was granted before making the adjustment under section 143(1)(a), violating natural justice principles.
The Tribunal observed that the Intimation Order under section 143(1) is a summary assessment and is computer-processed without human intervention, limiting scope for prior opportunity. However, the appellate authority (CIT(A)) has co-terminus powers with the Assessing Officer and can entertain submissions and evidence, including the audit report.
Conclusion: The Tribunal implicitly accepted that while no prior opportunity is mandated under section 143(1), the appellate process provides adequate remedy, and failure to consider the audit report at that stage was erroneous.
3. Eligibility for Exemption under Section 11 Given Filing of Audit Report before Due Date under Section 139(4)
The legal framework includes section 11 (exemption for income applied for charitable purposes), section 12A (registration and conditions for exemption), and section 139(4A) (return filing by trusts). Specifically, section 12A(1)(ba) was amended to require the return of income to be filed within the time allowed under section 139.
The Tribunal examined the timing of filing the return and audit report. The return was filed on 30.03.2021, and the audit report uploaded on 31.03.2021. The delay was attributed to Covid-19 restrictions.
CBDT Circular dated 23.04.2019 was considered, which clarified that the return of income by trusts registered under section 12AA must be filed within the time allowed under section 139, including belated returns filed under section 139(5). The Circular directed rectification of orders denying exemption solely on the ground of belated filing of returns or audit reports.
Precedents cited included the Gujarat High Court decision in CIT (Exemption) v. Anjana Foundation and the ITAT Kolkata decision in Bangarh Educational Welfare Trust v. ITO (Exemptions), both holding that procedural delays in filing Form 10B or returns should not result in denial of exemption if the audit report is filed before the due date under section 139(4).
Applying these principles, the Tribunal found that the assessee had complied with the conditions of section 12A(1)(b) and (ba) and was thus eligible for exemption under section 11.
4. Delay in Filing Form 10B as a Technical Default and Its Curability
The Tribunal reiterated that the filing of Form 10B is a procedural requirement and directory in nature. The Gujarat High Court's decision in Sarvodaya Charitable Trust was pivotal, where it was held that substantial compliance suffices and delay can be excused if the audit report is furnished before completion of assessment or appellate proceedings with sufficient cause.
The Tribunal noted that the audit report was signed prior to the return filing and delay in uploading was due to technical glitches, a reasonable cause.
Conclusion: The delay was a technical default and curable, and the assessee should not be penalized by denial of exemption.
5. Grant of Deduction for Genuine and Bonafide Expenses
The assessee alternatively contended that even if the exemption was denied, the Assessing Officer erred in not granting deduction for bona fide expenses amounting to Rs. 1,49,19,496/-.
Since the Tribunal allowed exemption under section 11 by accepting compliance with procedural requirements, this alternate plea became academic and was not adjudicated.
Significant Holdings
"The provision regarding furnishing of audit report with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice."
"Though the audit report has been uploaded after the filing of return of income but the said report has been signed by the auditor prior to the filing of the return, therefore, it is presumed that conducting of audit for preparation of audit report is before e-filing of the return of income but as claimed by the assessee due to technical glitches, the report was uploaded after filing the return of income."
"For a trust registered U/s 12AA of the Act to avail the benefit of exemption u/s 11 shall inter-alia file its return of income within the time allowed u/s 139 of the Act. The returns filed within the time allowed u/s 139 of the Act have been directed to be accepted for the purpose of considering benefit of deduction u/s 11 of the Act."
"The view beneficial to the assessee needs to be accepted and, since section 139(1) and section 139(5) are part of section 139 only and in this section 139 and sub-section (5) provides the mechanism to file a belated return, therefore, for A.Y 2018-19, even if the assessee files the return before the last date of filing of belated return the same should be treated as due compliance to section 12A(1)(ba) of the Act."
"Though it was not possible to entertain the audit report while processing the return u/s 143(1)(a) of the Act, but the ld. CIT(A) was well within its power to have entertained the said report and examined the same as could have been done by the A.O."
Final Determinations:
- The addition of Rs. 1,72,07,533/- on the ground of non-submission of Form 10B within the prescribed time was not justified.
- The procedural lapse of delayed filing of Form 10B is curable and does not disentitle the assessee from exemption under section 11.
- The filing of return of income within the time allowed under section 139 (including belated returns under section 139(5)) satisfies the condition under section 12A(1)(ba).
- The Intimation Order under section 143(1) without prior opportunity does not violate natural justice principles as appellate remedy exists.
- The CIT(A) erred in confirming the addition and denying exemption; the appeal is allowed and the exemption claim is restored.
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