Exemption u/s 11 allowed as delayed Form 10B filing treated directory under s.12A r/w Rule 17B

ITAT allowed the appeal of the assessee-charitable trust registered u/s 12A, holding that exemption u/s 11 could not be denied merely because Form 10B was not filed along with the original return u/s 139(1). The Tribunal recorded that the original Form 10B was filed within the due date for the tax audit report and that a revised Form 10B was filed during assessment proceedings and before completion of assessment u/s 143(3). Treating the requirement of filing Form 10B u/s 12A r/w Rule 17B as directory, ITAT set aside the order of CIT(E) and directed grant of exemption.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether exemption under section 11 could be denied to a charitable society registered under section 12A/12AA solely on the ground of delayed or defective filing of audit report in Form 10B.

1.2 Whether the statutory requirement of furnishing Form 10B under section 12A read with Rule 17B is mandatory or directory, where the audit report stands filed before completion of assessment and all substantive conditions for exemption are otherwise fulfilled.

1.3 Whether a procedural lapse or delay in proper filing/verification/rectification of Form 10B, in the circumstances of the case, justified denial of exemption under sections 11 and 12.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Denial of exemption under section 11 for delayed/defective filing of Form 10B; nature of requirement under section 12A read with Rule 17B

Legal framework (as discussed)

2.1 The Tribunal considered the scheme of sections 11, 12, 12A and the requirement of furnishing audit report in Form 10B under section 12A read with Rule 17B, as well as the interpretation placed thereon by judicial precedents, particularly the decision of the jurisdictional Coordinate Bench and the High Court decision in Sarvodaya Charitable Trust as extracted and relied upon.

Interpretation and reasoning

2.2 The assessee, a charitable society registered under section 12A/12AA, had its case selected for scrutiny on the issue of transactions with specified persons and filing of Form 10B. The Assessing Officer denied exemption under section 11 on the ground that Form 10B was not properly/validly furnished within the prescribed time.

2.3 The Tribunal recorded that the original Form 10B was filed on 30.10.2018, which was within the due date for furnishing the tax audit report, and that a revised Form 10B was filed on 27.10.2019 during assessment proceedings. The revised Form 10B removed names earlier shown in the original Form 10B and disclosed that members had not taken any remuneration or compensation from the society. Both the audit report and relevant bank statements were available with the Assessing Officer before completion of assessment under section 143(3).

2.4 The Tribunal noted the assessee's explanation that there was a mistake by the accountant in the original Form 10B and that there was a technical glitch in verifying the form on the date of filing, which was later rectified through filing a revised Form 10B. It was argued that the default was merely procedural and should not disentitle the assessee from exemption.

2.5 In examining whether such delay/defect could justify denial of exemption, the Tribunal referred to and reproduced in extenso the reasoning of a Coordinate Bench decision (Saraswati Devi Educational and Social Trust v. ITO), which in turn relied on the judgment of the Gujarat High Court in Sarvodaya Charitable Trust. That line of authority holds that:

(a) Exemption under sections 11 and 12 cannot be denied merely on the ground that Form 10B/10BB was filed belatedly, when the trust otherwise satisfies the substantive conditions for exemption.

(b) Filing of audit report in Form 10B is a technical/procedural requirement and non-compliance or delay, especially where the report is available to the Assessing Officer at the time of processing/assessment, is a technical breach.

(c) The legislative scheme confers wide discretionary powers on the authorities to condone such delay, and a charitable trust satisfying all substantive conditions cannot be denied exemption only for such procedural lapse.

2.6 Applying the above principles, the Tribunal held that the requirement to file Form 10B under section 12A read with Rule 17B is directory and not mandatory in the rigid sense contended by the Revenue, particularly where:

(i) The audit report in Form 10B was originally filed within the due date for tax audit report;

(ii) A revised Form 10B curing the earlier defect and correctly reflecting the factual position was filed before completion of assessment; and

(iii) The Assessing Officer was in possession of the requisite audit report and supporting evidence (including bank statements) at the time of framing the assessment.

2.7 The Tribunal therefore treated the lapse in proper/complete filing of Form 10B as a curable technical/procedural breach that could not by itself justify denial of the substantive benefit of exemption under section 11, particularly in light of the binding and persuasive judicial precedents cited and followed.

Conclusions

2.8 The Tribunal concluded that:

(a) Denial of exemption under section 11 solely on the ground of delayed/defective filing of Form 10B was not justified in the facts and circumstances of the case.

(b) The requirement of filing Form 10B under section 12A read with Rule 17B is to be treated as directory, and a technical/procedural lapse in its timely or proper filing, where subsequently rectified and available before assessment, does not warrant denial of exemption.

(c) The assessee having satisfied the substantive conditions for exemption under sections 11 and 12, and the defect in Form 10B having been cured before completion of assessment, the benefit of exemption could not be denied.

2.9 Accordingly, the order of the appellate authority upholding denial of exemption was set aside, and the Assessing Officer was directed to grant exemption under section 11 as claimed by the assessee, resulting in allowance of the appeal.

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