2025 (10) TMI 142 - AT - Income Tax

Form 10B filed by extended due date available during processing under section 143(1); COVID delay cannot deny sections 11/12 exemption

ITAT, Hyderabad allowed the appeal, holding that the audit report in Form 10B was filed with the return on the extended due date and was available to the ... Addition made by the CPC while processing the return of income u/s 143(1) - denying exemption u/s 11 & 12 - delay in filing the audit report in Form-10B - HELD THAT:- There is no dispute that the CBDT vide Circular No.01 of 2022 dated 11/01/2022 extended the due date of filing the return of income up to 15/03/2022 and the due date of furnishing the report up to 15/02/2022. The assessee filed the return of income on 15/03/2022 along with the audit report in Form 10B. Therefore, the report was filed along with the return of income was very much available with the CPC at the time of processing the return of income of the assessee u/s 143(1) of the Act on 25/11/2022. Once the report was available with the CPC at the time of processing the return and passing the order, then the minor delay due to the Covid pandemic in filing the report cannot be a ground for denial of the benefit of section 11 and 12 of the Act. As relying on Global Organization for Development [2024 (5) TMI 1171 - TELANGANA HIGH COURT] wherein delay on the part of the petitioner in submitting Form 10B is ordered to be condoned and the matter stands remitted back to the 1st respondent, who in turn is directed to pass appropriate orders on merits. Appeal filed by the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the delay of 506 days in filing the appeal is excusable on the ground of non-communication of the impugned order and, if so, whether delay should be condoned and on what terms. 2. Whether denial of exemption under sections 11 and 12 of the Income Tax Act on the sole ground that the audit report in Form 10B was not e-filed one month prior to the return filing due date is justified where the audit report was ultimately filed (and was available to the Centralized Processing Centre) within the extended time granted by the CBDT in view of the Covid-19 pandemic. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of Delay in Filing Appeal Legal framework: The principles governing the condonation of delay require explanation of sufficient cause for delay; tribunals may take a lenient view in the interest of justice where delay is not willful or deliberate and is explained by circumstances beyond the appellant's control. Powers to impose costs as condition for condonation are within the Tribunal's discretion. Precedent treatment: The Tribunal noted and applied the discretionary, equitable approach reflected in judicial decisions recognizing that non-communication or other circumstances beyond an assessee's control may constitute sufficient cause to condone delay. Interpretation and reasoning: The assessee explained non-communication of the impugned order until receipt of a later assessment order; an affidavit and email inbox screenshot were placed on record showing absence of the impugned order in the mail. The Tribunal found the explanation that the assessee only became aware of the impugned order upon receiving a subsequent assessment order to be a plausible non-willful cause. In the interest of justice and considering the facts, the Tribunal exercised leniency. Ratio vs. Obiter: Ratio - where an appellant demonstrates non-communication of an impugned order and the delay is shown to be non-willful and attributable to circumstances beyond the appellant's control, the Tribunal may condone substantial delay subject to appropriate conditions. Obiter - imposition of a specific monetary cost to a named national relief fund as the chosen condition is a discretionary measure of this Tribunal and not a binding precedent. Conclusions: The delay of 506 days in filing the appeal was condoned. As a condition of condonation, the Tribunal imposed a cost of Rs.10,000 to be paid to the Prime Minister's National Relief Fund within 30 days. Issue 2 - Denial of Exemption under Sections 11 & 12 for Delay in Filing Form 10B Legal framework: Sections 11 and 12 entitle eligible entities to exemption; section-specific provisos and related rules require furnishing of auditor's report (Form 10B) in prescribed timelines. Administrative instructions and CBDT circulars may extend statutory or procedural timelines (e.g., extensions granted during the Covid-19 pandemic). Longstanding jurisprudence treats the requirement to furnish an auditor's report as procedural/directory rather than a condition defeating substantive entitlement, permitting condonation where substantial compliance occurs and the report is made available when assessment is taken up. Precedent treatment (followed/distinguished): The Tribunal followed decisions of the jurisdictional High Court (including analyses in M/s. Shilparam and Global Organization for Development) and other High Court precedents (e.g., Gujarat Oil and Allied Industries; Shahzedanand Charity Trust) holding the auditor's report requirement to be procedural/directory and condonable where sufficient cause is shown or the report is made available before assessment is finalized. Decisions relied upon by Revenue were held to be distinguishable on facts and context. Interpretation and reasoning: The Tribunal found that the CBDT Circular No.01 of 2022 extended the due date for filing returns to 15/03/2022 and the due date for furnishing the audit report to 15/02/2022 in the pandemic context. The assessee filed the return and uploaded Form 10B on 15/03/2022, and the CPC had the report available when it processed the return under section 143(1) on 25/11/2022. Given that the report was available to the processing authority at the time of assessment processing and considering the pandemic-related extensions and the directory nature of the auditor's report requirement, the Tribunal concluded that a minor delay (and pandemic-related circumstances) cannot justify denial of exemption. The Tribunal also relied on the High Court's criticism of mechanical denial where authorities failed to consider explanations and condonation applications under section 119(2)(b) or analogous provisions. Ratio vs. Obiter: Ratio - where the auditor's report (Form 10B) is filed belatedly but is available to the processing authority at the time the return is processed, and where pandemic-related or other valid extensions/explanations exist, the requirement is procedural/directory and denial of exemption under sections 11 and 12 solely on account of such delay is not justified; the impugned order denying exemption for such a delay is liable to be set aside. Obiter - observations about the broader administrative practice of mechanical denials and the precise interplay of various authorities' condonation powers were made with reference to High Court reasoning but are not additional binding propositions beyond the facts considered. Conclusions: Following the applicable CBDT circulars and relevant High Court authorities, and on the facts that Form 10B was filed and available with the CPC at the time of processing, the Tribunal set aside the CIT(A)'s order and allowed the claim for exemption under sections 11 and 12. The appeal was allowed on merits.