2026 (1) TMI 705 - AT - Income Tax

Belated Form 10B filing during assessment proceedings - s.11 exemption sustained where Form 10B furnished during rectification

Whether belated filing of Form 10B during assessment proceedings bars exemption under s.11: relying on precedent, the tribunal applied the strict ... Denial of exemption u/s 11 - delay in filing of 10B - effect of subsequent filing of Form 10B to the CPC - HELD THAT:- As in the case of Karma Falya Trust [2024 (1) TMI 1524 - ITAT AHMEDABAD] allowing the assessee’s claim of exemption denied in identical circumstances of belated filing of form 10B though subsequently filed during assessment proceedings, holding that the belated filing of Form 10B would not come in the way of claim of exemption if the form is filed during assessment proceedings. DR was unable to controvert the contention of assessee that the CIT(A) himself had held the assessee eligible to claim of exemption finding form 10B to be filed and available during rectification proceedings. Appeal filed by the assessee is allowed. Issues: (i) Whether the delay of 368 days in filing the appeal before the Tribunal should be condoned; (ii) Whether belated filing of Form 10B (audit report) that is made available before completion of assessment/rectification proceedings precludes claim of exemption under Section 11 of the Income-tax Act, 1961.Issue (i): Whether the delay of 368 days in filing the appeal should be condoned.Analysis: The assessee explained the sequence of events showing initial rectification allowing exemption, a later effect-giving order by the AO reversing that benefit, and that the assessee filed the ITAT appeal within approximately two months of becoming aware of the AO's effect-giving order. The Revenue did not dispute the factual chain. The Tribunal found the assessee’s belief—based on the CPC rectification and the CIT(A)’s observations that Form 10B filing was procedural—that the CIT(A)’s order had been in its favour to be a reasonable belief justifying the delay.Conclusion: Delay of 368 days in filing the appeal is condoned in favour of the assessee.Issue (ii): Whether belated filing of Form 10B, when the audit report is available to the Assessing Officer before completion of assessment/rectification proceedings, prevents grant of exemption under Section 11.Analysis: The Tribunal noted the CIT(A)’s finding that furnishing Form 10B is procedural and directory and that filing the audit report at any stage before completion of assessment satisfies the requirement. The Tribunal relied on applicable precedent of the jurisdictional High Court and ITAT decisions holding that substantive requirement is satisfied if the audit report is available to the AO before completion of assessment, and that belated electronic filing that results in the audit report being available during assessment/rectification cannot be a ground to deny exemption. The AO was directed to allow the claim of exemption accordingly.Conclusion: The assessee is entitled to exemption under Section 11 because the audit report in Form 10B was available before completion of assessment/rectification; this conclusion is in favour of the assessee.Final Conclusion: The Tribunal condoned the delay and allowed the appeal, directing the Assessing Officer to grant the exemption under Section 11 on the basis that the audit report in Form 10B was available during the assessment/rectification proceedings, thereby giving substantive effect to the assessee’s claim.Ratio Decidendi: Where the audit report in Form 10B is filed and available to the Assessing Officer before completion of assessment or during rectification proceedings, the requirement to furnish Form 10B is directory; substantial compliance by making the audit report available precludes denial of exemption under Section 11, and a reasonable belief founded on prior rectification and appellate observations may constitute sufficient cause to condone delay in filing an appeal.