The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that a charitable trust cannot be denied exemption under Section 11 of the Income Tax Act, 1961 merely because Form 10B was filed after the prescribed deadline, particularly when the audit report was already available with the Income Tax Department at the time the return was processed.
The Bench comprising Saktijit Dey (Vice President) and G.M. Doss (Accountant Member) observed that the timely filing of Form 10B is a procedural requirement and that a minor delay constitutes a curable irregularity rather than a substantive defect.
The appellant/assessee is registered with the Charity Commissioner under the Bombay Public Trusts Act, 1950. It was also granted registration under Section 12A of the Income Tax Act by the Director of Income Tax (Exemptions), Mumbai, through an order dated December 15, 2005. The registration continued to remain valid.
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For Assessment Year 2020-21, the trust filed its income tax return on February 15, 2021 and claimed exemption under Section 11. Form 10B, containing the prescribed audit report, was uploaded along with the return.
The Centralised Processing Centre processed the return under Section 143(1) on November 30, 2021. It nevertheless rejected the exemption claim on the ground that Form 10B had not been furnished within the prescribed time.
Aggrieved by the adjustment, the trust filed a rectification application under Section 154. The CPC rejected that application through an order dated April 20, 2022.
The trust subsequently approached the first appellate authority, but its appeal was delayed by 1,011 days.
It explained that the delay occurred due to a lack of proper professional guidance and advice concerning the handling of its income tax matters. The appellate authority, however, declined to accept the explanation and dismissed the appeal in limine without condoning the delay.
Before the ITAT, the trust argued that the delay was completely unintentional and that it could not have derived any benefit from filing the appeal late. On the contrary, the delay placed it at a disadvantage by exposing it to the denial of an exemption to which it was otherwise entitled.
It was further submitted that the one-month delay in filing Form 10B was merely a procedural irregularity and could not justify rejection of the substantive exemption available under Section 11.
The Income Tax Department, on the other hand, relied upon the findings recorded by the first appellate authority.
The Tribunal noted that there was an admitted delay of one month in uploading Form 10B. However, both the income tax return and Form 10B were filed on February 15, 2021, whereas the CPC processed the return much later, on November 30, 2021.
Consequently, the prescribed audit report was already available in the Department’s records when the return was processed.
The ITAT held that, in these circumstances, the exemption could not be disallowed merely on the technical ground that Form 10B had not been furnished within the prescribed period.
The Tribunal observed that “What is material is, whether at the time of assessment or processing of the return of income, Form No. 10B was available with the department or not.”
Since Form 10B was already part of the departmental record when the CPC processed the return, the Bench found no justifiable reason to disallow the exemption claimed under Section 11.
The ITAT reiterated that the delayed furnishing of Form 10B is a procedural irregularity. Where the audit report is available to the tax authorities at the time of assessment or processing, the assessee’s substantive claim for exemption cannot be rejected merely because the document was uploaded after the statutory deadline.
The Bench relied upon the decision in Vishva Kalyan Foundation v. ITO (Exemptions), where the Ahmedabad Bench of the Tribunal dealt with an almost identical controversy.
In that case, Form 10B had also been uploaded before the return was processed by the CPC. The Tribunal held that denying exemption under Sections 11 and 12 merely because of belated filing of the form was contrary to settled judicial principles.
The cited decision had taken note of several rulings holding that the filing of an audit report is procedural in nature and that a delay in furnishing it is a curable defect. The exemption should therefore not be denied on a purely technical ground when the audit report is available during assessment or appellate proceedings.
The Mumbai Bench also found an inconsistency in the manner in which the first appellate authority disposed of the trust’s appeal.
Although the authority stated in the concluding portion of its order that the appeal was being dismissed in limine because of the delay, it had also examined and recorded findings on the merits of the dispute.
The ITAT held that once the appellate authority proceeded to adjudicate the case on merits, it had to be treated as having condoned the delay. It could not thereafter dismiss the appeal in limine on limitation alone.
The Tribunal also accepted the trust’s explanation that the delayed appeal resulted from a lack of proper professional guidance and legal advice. It observed that the explanation could not simply be brushed aside as unsatisfactory, especially when the assessee stood to gain nothing from delaying its appeal.
Instead, the trust faced the prospect of losing an exemption for which it was otherwise eligible.
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