Trust gets exemption despite 19-day delay in Form 10BB, curable defect under sections 11, 12, 251

ITAT Mumbai held that the assessee-trust's belated filing of Audit Report in Form 10BB, delayed by 19 days, was a curable procedural defect and not a bar to claiming exemption u/ss 11 and 12. Though the assessee had not invoked s.119 before the competent authority, ITAT held that CIT(A), exercising appellate jurisdiction u/s 251, was empowered to condone such delay. Finding no mala fides and noting that the report was on record at the time of processing, ITAT condoned the delay and directed AO to consider the audit report and adjudicate the exemption claim in accordance with law.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether delay of 19 days in e-filing the audit report in Form 10BB, though filed before the return of income and available on record at the time of processing under Section 143(1), warranted denial of exemption under Sections 11 and 12.

1.2 Whether the prescribed timelines for furnishing audit reports in Form 10BB are mandatory or directory in nature, particularly in light of CBDT circulars and condonation powers under Section 119(2)(b).

1.3 Whether, in appellate proceedings, the appellate authority can and ought to condone delay in e-filing Form 10BB and direct consideration of the assessee's claim of exemption under Sections 11 and 12 on merits.

1.4 Consequentially, whether the adjustments made in intimation under Section 143(1) disallowing amounts claimed under Sections 11(1)(a), 11(2) and capital expenditure as application of income could be sustained once delay in filing Form 10BB is condoned.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Effect of delayed filing of Form 10BB and nature (mandatory/directory) of time limit

Legal framework (as discussed)

2.1 The Court noted the requirement under Rule 12(2) of the Income-tax Rules, 1962 for furnishing audit report in Form 10BB, one month prior to the due date of filing the return of income under Section 139(1), and the extension of such due dates by CBDT from time to time.

2.2 Reference was made to CBDT Circular No. 16/2024 dated 18-11-2024 issued under Section 119(2)(b), whereby:

(a) Pr. Commissioners/Commissioners of Income Tax are authorized to admit and deal with applications for condonation of delay in filing Forms 9A/10/10B/10BB for AY 2018-19 and subsequent years where delay is up to 365 days; and

(b) Pr. Chief Commissioners/Chief Commissioners/Director Generals of Income Tax are authorized to admit and deal with such applications where delay exceeds 365 days, subject to satisfaction regarding reasonable cause and genuine hardship.

2.3 The Court also referred to a Co-ordinate Bench decision which, following High Court authority and CBDT Circular No. 2/2020, had held that the requirement of filing audit report along with the return is directory and not mandatory, and that exemption under Section 11 cannot be denied merely on account of technical delay in uploading Form 10B when audit is completed in time.

Interpretation and reasoning

2.4 It was undisputed that for the relevant assessment year:

(a) the extended due date for filing the return under Section 139(1) was 15-11-2024;

(b) the assessee filed its return on 13-11-2024 within the extended due date;

(c) Form 10BB was e-filed on 04-11-2024, i.e., before the return filing date but 19 days after the extended due date for Form 10BB (15-10-2024); and

(d) the return was processed under Section 143(1) on 28-01-2025 when Form 10BB was already on record.

2.5 The Court observed that though time limits are specified for furnishing audit reports, CBDT itself has been extending such time limits and has provided a structured mechanism for condonation of delay through circulars, indicating that the rigour of the prescribed timelines is not absolute.

2.6 It was held that in cases where:

(a) there is substantial compliance in terms of completion of audit and issuance of audit report,

(b) the contents of the audit report are not disputed, and

(c) the delay in uploading the report is only procedural,

the delay should be condoned and such delay cannot be made the sole basis for denial of substantive exemption under Sections 11 and 12.

2.7 The Court reasoned that the timelines for filing Form 10BB, viewed in light of CBDT's own extensions and condonation instructions, are to be treated as directory rather than mandatory, particularly when no mala fides or adverse material is alleged by the Revenue.

Conclusions

2.8 The delay of 19 days in filing Form 10BB, which was filed prior to the filing of the return and was on record at the time of processing under Section 143(1), was held to be a mere procedural lapse.

2.9 The prescribed time limit for furnishing Form 10BB was treated as directory in the facts of the case, and non-compliance with such time limit could not by itself justify denial of exemption under Sections 11 and 12.

2.10 The delay in filing Form 10BB was condoned.

Issue 3: Power and role of appellate authority in condoning delay and directing consideration of exemption

Legal framework (as discussed)

3.1 The Court considered the appellate powers under Section 251, noting that the appellate authority can examine issues connected with the assessment and grant appropriate relief.

3.2 The Court also relied on judicial precedents holding that filing of Form 10B/10BB is a procedural requirement and delay therein can be condoned, and that exemption under Sections 11 and 12 cannot be denied solely for such delay when audit is otherwise completed and undisputed.

Interpretation and reasoning

3.3 The Court noted that, although the assessee had not approached the competent authority under Section 119 for condonation of delay in filing Form 10BB, it had approached the appellate authority (CIT(A)) challenging non-consideration of the audit report by CPC.

3.4 It was held that in such appellate proceedings, the CIT(A), in exercise of powers under Section 251, was competent to condone the delay in filing Form 10BB and to consider the audit report for adjudicating the assessee's claim for exemption under Sections 11 and 12.

3.5 The Court observed that Co-ordinate Benches and High Courts have consistently treated the requirement of filing such forms as procedural and have condoned delay even where the forms were filed at a later stage, thereby recognizing that the substantive right to exemption should not be defeated by technical defaults.

Conclusions

3.6 The appellate authority had the power to condone the delay in filing Form 10BB and ought to have done so instead of sustaining denial of exemption merely on account of belated filing.

3.7 The Court itself condoned the delay in filing Form 10BB and directed the Assessing Officer to consider the audit report and decide the assessee's claim of exemption under Sections 11 and 12 in accordance with law, after affording reasonable opportunity of hearing.

Issue 4: Sustainability of adjustments under Section 143(1) post condonation of delay

Interpretation and reasoning

4.1 The disallowances made in the intimation under Section 143(1) related to:

(a) amount accumulated/set apart under Section 11(1)(a);

(b) amount accumulated/set apart under Section 11(2); and

(c) capital expenditure claimed as application of income under Section 11,

all arising solely from the perceived invalidity of the exemption claim due to delayed filing of Form 10BB.

4.2 Having held that the delay in filing Form 10BB is condonable and stands condoned, the very foundation for the disallowances in the intimation under Section 143(1) ceased to exist.

Conclusions

4.3 The disallowances made while processing the return under Section 143(1), being consequential to non-acceptance of Form 10BB on account of delay, could not be sustained once such delay was condoned.

4.4 The matter was restored to the file of the Assessing Officer to recompute income after considering Form 10BB and adjudicating the assessee's entitlement to exemption under Sections 11 and 12 in accordance with law, with the appeal allowed for statistical purposes.

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