Delay in uploading Form 10B held curable; section 11 exemption allowed despite late filing under section 143(1)

ITAT Delhi-AT allowed the assessee's appeal, holding that delay in filing/uploading the audit report in Form 10B is a curable defect. It observed that denial of exemption under section 11 solely for late online filing of Form 10B, when the return under section 139(1) was otherwise filed, is a debatable and condonable issue, supported by CBDT Circulars that have already condoned similar delays for prior assessment years. The Tribunal held that disallowance of section 11 exemption while processing the return under section 143(1) was not justified, condoned the delay in filing Form 10B, and directed the AO to grant the benefit of section 11 to the assessee.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the requirement of filing the audit report in Form No. 10B online, one month prior to the due date for filing the return under section 139(1), is mandatory or directory for claiming exemption under sections 11 and 12.

1.2 Whether delay in filing/uploading Form No. 10B is a curable/condonable defect and, if so, whether exemption under section 11 can be denied while processing the return under section 143(1) on this ground.

1.3 Whether, in the facts, the Centralized Processing Centre was justified in recomputing income under section 143(1) by denying exemption under section 11 without treating the return as defective under section 139(9).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Nature of requirement of filing Form No. 10B and permissibility of denial of exemption under section 11 during processing under section 143(1)

Legal framework (as discussed)

2.1 The Court examined the provisions of sections 11, 12, 12A and 143(1), along with the requirement under section 12A(1)(b)/12A(ba) regarding filing of the audit report in Form No. 10B in the prescribed manner and within the prescribed time.

2.2 CBDT Circular No. 10/2019 dated 22.05.2019, issued under section 119(2)(b), condoning delay in filing Form No. 10B for specified assessment years, was referred to as indicative of the intention that delay in filing Form No. 10B is capable of condonation.

2.3 Judicial precedents cited before the Court included decisions holding that procedural requirements regarding audit reports are directory and that delay in furnishing such reports is condonable:

(i) Rai Bahadur Bissesswarlal Motilal Malwasie Trust (Cal)

(ii) Calcutta Management Association

(iii) Sankulp Welfare Society

(iv) National Horticulture Board

(v) Sahja Nand Charity Trust

Interpretation and reasoning

2.4 The Court accepted the contention that the requirement of filing/uploading Form No. 10B online before or along with the return under section 139(1) is procedural and directory in nature and that non-compliance constitutes a curable defect, not a substantive bar to exemption under sections 11 and 12.

2.5 The Court noted that the audit report in Form No. 10B had in fact been uploaded on the Income Tax Portal prior to the processing of the return under section 143(1); hence, the material necessary for considering the claim under section 11 was already on record.

2.6 The Court held that, in such circumstances, the Assessing Officer/CPC ought not to have rejected the claim of exemption under section 11 solely on the ground of delayed filing of Form No. 10B, especially when the defect was curable and the delay condonable.

2.7 The Court further observed that the issue of denial of exemption under section 11 on account of delay in filing Form No. 10B is a debatable matter, as evident from the cited case law and CBDT Circular, and that such a debatable issue does not fall within the limited adjustments permissible under section 143(1).

2.8 On this reasoning, the Court concluded that CPC, while processing the return under section 143(1), was not justified in disallowing the exemption under section 11 merely due to delayed uploading of Form No. 10B.

Conclusions

2.9 Delay in filing/uploading the audit report in Form No. 10B is a curable/condonable procedural defect and not an absolute bar to exemption under sections 11 and 12.

2.10 The question of denial of exemption under section 11 for delayed Form No. 10B filing is debatable and therefore cannot be made the basis of an adjustment while processing the return under section 143(1).

2.11 The denial of exemption under section 11 in processing the return under section 143(1) in the present case was unjustified; the delay in filing Form No. 10B is condoned, and the Assessing Officer is directed to allow the benefit of section 11.

Issue 3: Treatment of the return as defective under section 139(9) versus direct recomputation under section 143(1)

Interpretation and reasoning

3.1 The Court noted the assessee's contention that, if Form No. 10B was not considered as properly filed along with the return, the proper course was to treat the return as defective under section 139(9) and afford an opportunity to rectify the defect, rather than straightaway recomputing income under section 143(1) by denying exemption under section 11.

3.2 The Court accepted, in substance, that the lapse in filing Form No. 10B was in the nature of a defect/deficiency in the return, which was capable of being cured, rather than a final ground for rejection of the exemption claim at the stage of processing under section 143(1).

Conclusions

3.3 In the factual and legal context, CPC was not justified in recomputing income under section 143(1) by denying exemption under section 11 without treating the lapse regarding Form No. 10B as a curable defect and affording an opportunity akin to that contemplated under section 139(9).

3.4 As the Court has condoned the delay in filing Form No. 10B and directed grant of exemption under section 11, the assessee is entitled to consequential relief and no further adjudication on alternative grounds was considered necessary.

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