2025 (10) TMI 414 - AT - Income Tax

Appeal allows charity exemption, sets aside Rs 50 lakh disallowance under s.11(2) after timely Form 10BB correction

ITAT Hyderabad allowed the appeal and set aside the Rs. 50 lakh disallowance under s.11(2). The tribunal found both Form No.10BB and Form No.10 were filed ... Disallowance of exemption claimed u/s 11(2) - mismatch between Form No.10BB and Form No.10 and proposed an addition of Rs. 50 lakhs HELD THAT:- It is not in dispute that both the Forms i.e. Form no.10BB and Form no.10 were filed within the prescribed due date. The mismatch between Form no.10BB and Form no.10 was noticed subsequently by CPC on 08.12.2023. The assessee on the same day filed a revised audit report in Form No.10BB, which aligned with Form No.10, before CPC passed the order under section 143(1) on 05.09.2024. We have gone through the decision of this Tribunal in the case of Sri Ramalingeswara Swamy Temple [2025 (7) TMI 248 - ITAT HYDERABAD] Though the audit report was filed beyond the due date but before processing under section 143(1), the Tribunal held that such filing is sufficient compliance and the benefit of exemption u/s 11 could not be denied. In the present case, the position of the assessee is even stronger, as the original audit report was filed within the due date, and only a revised audit report was filed subsequently to remove the mismatch. Therefore, respectfully following the decision of Shri Ramalingeswara Swamy Temple (supra), we are of the considered view that the disallowance made by CPC and sustained by the Ld. CIT(A) is not in accordance with law. Accordingly, we direct for the deletion of Rs. 50 lakhs made by the CPC. Appeal of the assessee is allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a charitable trust is entitled to exemption under section 11 when Form No.10BB (audit report) originally filed within the statutory due date contained a technical mismatch with Form No.10, and a revised Form No.10BB aligning with Form No.10 was filed before completion of processing under section 143(1). 2. Whether filing a revised Form No.10BB after initial filing but before completion of processing under section 143(1) satisfies the statutory/mandatory requirement for claiming exemption under section 11, or whether failure to have a perfectly matching Form No.10BB at the time of original filing justifies denial of exemption and adjustment by CPC under section 143(1). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of exemption claim where original Form No.10BB filed within due date but contained a technical mismatch subsequently rectified by revised Form No.10BB filed before completion of processing under section 143(1) Legal framework: Section 11 provides exemption for income applied for charitable/religious purposes subject to compliance with statutory conditions; Form No.10BB is the prescribed audit report required to support exemption claims under section 11(2). Processing/intimation under section 143(1) gives the revenue the procedural window to accept or make adjustments based on available/materials on record. Precedent treatment: The Tribunal relied on an earlier decision of the same Bench which held that where Form No.10BB was filed belatedly but was made available to the Assessing Officer before passing the section 143(1) order, exemption under section 11 should not be denied. That decision treated filing of Form No.10BB as directory rather than strictly mandatory in circumstances where the document is available before completion of processing. Interpretation and reasoning: The Tribunal found that both Forms (No.10 and No.10BB) were filed within the due date; the mismatch was technical and detected by CPC on 08.12.2023. The assessee filed a revised Form No.10BB on the same day aligning it with Form No.10 and before the CPC passed intimation under section 143(1) on 05.09.2024. Given that the corrected audit report was available to the revenue before completion of processing, and the original audit report had been filed within the due date, the Tribunal considered the position stronger than the already-followed precedent where a late Form No.10BB was accepted because it was available before assessment processing. The Tribunal reasoned that denying exemption in such circumstances would be contrary to the object of section 11 and to the pragmatic treatment in earlier decisions. Ratio vs. Obiter: Ratio - Where an audit report in Form No.10BB is available to the revenue before completion of processing under section 143(1), and where the original filing was within the due date with a subsequent technical rectification, the revenue ought to consider the corrected report and not deny exemption under section 11 on that ground alone. The reliance on earlier Tribunal precedent that treated belated but pre-processing filing as sufficient is applied as binding ratio for the facts before the Tribunal. Obiter - Observations on leniency or the characterization of Form No.10BB as directory in broader contexts may be considered persuasive but are ancillary to the decision's operative holding. Conclusions: The Tribunal concluded that the disallowance of Rs.50,00,000 made by CPC and sustained by the first appellate authority was not in accordance with law and directed deletion of the addition, allowing the exemption claim under section 11. Issue 2 - Whether CPC/Assessing Officer is obliged to consider a revised audit report filed before completion of processing under section 143(1) Legal framework: The statutory processing under section 143(1) contemplates assessment/intimation based on materials available to the CPC/Assessing Officer at the time of processing. Procedural fairness and the spirit of tax statutes favor consideration of relevant documents that supply required statutory facts before assessment is finalized. Precedent treatment: The Tribunal followed prior decisions that permitted acceptance of Form No.10BB filed before the Assessing Officer passed the section 143(1) order, even though filed after the due date, emphasizing availability of the audit report at the time of processing as determinative. Interpretation and reasoning: The Tribunal found that the revised Form No.10BB was filed on the same date the mismatch was noticed and well before the intimation under section 143(1). The Tribunal rejected the contention that the CPC could ignore the corrected document merely because the originally processed record had a mismatch. The Tribunal treated the corrected filing as satisfying the relevant statutory requirement for claiming exemption, and held that CPC ought to have considered the revised report in completing processing. Ratio vs. Obiter: Ratio - A revised audit report filed before completion of processing under section 143(1) must be considered by CPC/Assessing Officer for purposes of determining entitlement to exemption under section 11. Obiter - Comments regarding the nature of technical mismatches and administrative expectations of rectification are explanatory and not essential to the holding. Conclusions: The Tribunal directed that CPC's adjustment on account of the mismatch be deleted, holding that the corrected Form No.10BB filed prior to processing satisfied the requirements and mandated consideration by CPC. Cross-reference and overall holding The Tribunal expressly followed the earlier decision where pre-processing availability of Form No.10BB was held sufficient for granting exemption under section 11 despite filing irregularities; given that the present case involved an original timely filing and a subsequent technical rectification filed before processing, the Tribunal found the present case to be stronger and ordered deletion of the addition. The Tribunal's decision is operative and binding for the facts before it: exemption under section 11 cannot be denied where the requisite audit report is available to the revenue before completion of processing under section 143(1), particularly where any discrepancy is a technical mismatch rectified prior to processing.