2025 (11) TMI 338 - AT - Income Tax

Delayed Form 10B/10BB filing cannot defeat charitable trust relief under sections 11, 12 and 10(23C); relief granted

ITAT (Kolkata) set aside AO's intimation u/s 143(1) and CIT(A)'s confirmation denying exemption u/s 11/12 and 10(23C) for A.Y. 2023-24 where Form 10B/10BB ... Denial of exemption u/s. 11 - AO CPC rejected the said claim while processing and by passing order u/s 143(1) on the ground that the IT Return and Form 10B were filed belatedly - HELD THAT:- As noticed that the audit report was very much available with the Assessing Officer when the returns of income were processed and this is only a technical/procedural breach. The coordinate bench of the Tribunal has been holding that such technical lapse cannot lead to denial of exemption u/s. 11 & 12 of the Act that too in the intimation u/s. 143(1) of the Act. This view is also supported by the decision of Sarvodaya Charitable Trust, [2021 (1) TMI 214 - GUJARAT HIGH COURT] as held that exemption u/s. 11 of the Act cannot be denied for delayed filing of Form 10B. It has also been held by the Hon’ble High Court that as the assessee is a charitable trust who satisfies the conditions for availing the benefit of exemption, the assessee could not be denied exemption merely on the ground that Form 10B was filed belatedly especially when legislature had conferred wide discretionary powers to condone such delay on authorities concerned. Consequently, intimations issued u./s.143(1) of the Act by the AO and confirmed by the ld. CIT(A) denying the benefit of Section 11 & 12 on account of delay in filing Form 10B and denying the benefit of Sections 11 or 10(23C) of the Act on account of belated filing of Form 10BB for A.Y. 2023-2024, are hereby quashed. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether exemption under Section 11 (and Section 12 / Section 10(23C) where applicable) can be denied at the stage of intimation under Section 143(1) of the Act solely on the ground of belated filing of audit report in Form 10B / Form 10BB. 2. Whether denial of exemption in the Section 143(1) intimation without issuing an opportunity as required by the proviso to Section 143(1)(a) is valid. 3. Whether the availability of the audit report/Form 10B or Form 10BB on the file at the time of processing impacts the validity of denial of exemption for technical or procedural delay in filing. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of denial of exemption under Sections 11/12/10(23C) in a Section 143(1) intimation because of belated filing of Form 10B/10BB Legal framework: Sections 11 and 12 (and Section 10(23C) for institutions covered thereunder) provide exemption for charitable/trust income subject to prescribed conditions, including audit report requirements (Form 10B/10BB) and timelines for filing returns under Section 139(1). Section 143(1) allows processing and issuance of intimation based on return as filed; the proviso to Section 143(1)(a) requires that where adjustments are proposed the assessee be informed. Precedent treatment: The Tribunal followed a High Court decision holding that exemption under Section 11 cannot be denied solely for delayed filing of Form 10B and that authorities have discretionary power to condone delay; coordinate benches of the Tribunal have similarly held that technical lapses should not lead to denial of exemption at the Section 143(1) stage. Interpretation and reasoning: The Court examined the facts showing that Forms 10B/10BB were ultimately filed with the returns (albeit after statutory dates) and that the audit reports were on the file when the CPC processed the returns. The Tribunal characterized late filing as a technical/procedural breach, distinguishing it from substantive failure to satisfy the statutory conditions for exemption. The Tribunal emphasized that denial of exemption at the processing stage (intimation under Section 143(1)) for such a technical lapse is inappropriate, particularly where the material necessary to judge exemption (the audit report) was available to the assessing authority when processing occurred. Ratio vs. Obiter: Ratio - Denial of exemption under Sections 11/12/10(23C) in a Section 143(1) intimation solely on the ground of delayed filing of Form 10B/10BB is not justified where the audit report is on the file and the substantive conditions for exemption are satisfied; such technical delay cannot defeat the exemption. Observational/obiter - Comment that legislature has conferred wide discretionary powers to condone delay, as noted from High Court precedent (the procedural observation supports but is not the sole basis for the decision). Conclusion: The intimations under Section 143(1) that denied exemption exclusively for delay in filing Form 10B/10BB were quashed and the exemption claim could not be rejected at the processing stage for such technical delay. Issue 2 - Requirement of issuing opportunity under proviso to Section 143(1)(a) before making adjustments in the intimation Legal framework: Proviso to Section 143(1)(a) requires that when an assessing officer proposes to make adjustments during processing of the return (resulting in demand or disallowance), an opportunity must be provided to the assessee before finalizing the intimation. Precedent treatment: The Tribunal relied on the statutory requirement and previous coordinate bench views which apply the proviso strictly, especially where adjustments affect substantive exemptions. Interpretation and reasoning: The Tribunal found that adjustments (denial of exemption) were made in the intimation without providing the opportunity mandated by the proviso. This procedural omission compounded the impropriety of rejecting exemption at the processing stage. The Tribunal treated the absence of the required opportunity as a flaw rendering the intimations susceptible to quashing. Ratio vs. Obiter: Ratio - An intimation under Section 143(1) that effects substantive disallowance or denial of exemption without issuing the opportunity mandated by the proviso to Section 143(1)(a) is invalid. Conclusion: The intimations were invalidated insofar as they effected denial of exemption without providing the statutorily required opportunity to the assessee. Issue 3 - Effect of availability of audit report on file and distinction between substantive non-compliance and technical/procedural lapses Legal framework: Entitlement to exemptions under Sections 11/12/10(23C) depends on satisfaction of statutory conditions; procedural requirements (timely filing of Form 10B/10BB) are intended to assist compliance/enforcement but may be subject to condonation in appropriate cases. Precedent treatment: Coordinate Tribunal decisions and the cited High Court authority treat late filing of Form 10B as a technical lapse that should not automatically defeat substantive entitlement where the conditions are otherwise satisfied and relevant material is on record. Interpretation and reasoning: The Tribunal distinguished between substantive non-fulfillment of conditions for exemption and mere procedural delay. Where the audit report existed on the file at the time of processing, the Tribunal considered that substantive compliance could be verified and that rejecting exemption on procedural timing grounds alone - particularly at the Section 143(1) stage - was unjustified. The Tribunal accepted the view that discretion exists to condone delay and that mechanical denial in a processing intimation was disproportionate. Ratio vs. Obiter: Ratio - Presence of the audit report on the file at the time of return processing militates against denial of exemption for late filing of Form 10B/10BB; such procedural non-compliance, when technical and remediable, cannot be the sole basis for denial at the processing stage. Observational - The Tribunal's reliance on the scope of condonation powers as noted in higher-court precedent is an interpretive support rather than an independent legal finding. Conclusion: The availability of the audit report on the assessing officer's file renders denial of exemption on account of delayed Form 10B/10BB filing improper; the technical nature of the lapse and the presence of the required material justify quashing the Section 143(1) intimations that denied exemption. Overall Conclusion The Tribunal quashed the Section 143(1) intimations denying exemption under Sections 11/12/10(23C) for the assessment years in question because (a) the denial was based solely on belated filing of Form 10B/10BB despite the audit reports being on file, (b) such a technical/procedural lapse cannot be permitted to defeat substantive exemption at the processing stage, and (c) the intimations effected denial without affording the opportunity required by the proviso to Section 143(1)(a). The Tribunal followed the cited High Court authority and coordinate bench precedents in reaching its decision.