Sarvadeivatha Education Trust [Regd] Vs ITO (ITAT Bangalore)

ITAT Bangalore held that filing of form 10B is only directory and the same is not mandatory. Hence denial of exemption under section 11 of the Income Tax Act for delay in filing of form 10B unjustified.

Facts- Assessee is a trust constituted under the Deed of declaration of Trust dated 11/06/1991 to carry on the charitable objects of imparting education. It is submitted that the assessee was registered u/s. 12AA of the act vide order dated 06/08/2020 and has thereafter obtained the registration u/s. 12AB of the act vide form 10AC dated 30/11/2022.

For the year under consideration, assessee filed its return of income on 06/11/2022 within the time allowed u/s. 139(4A) of the act declaring total income of Rs.1,78,148/-, being the shortfall in application of income during the year under consideration. The assessee filed form 10B i.e. audit report, on 05/11/2022, before filing the return of income. Whereas the form 10B was required to be filed one month before the due date of filing the return of income. There was a delay of 29 days in filing the same.

The exemption claimed by the assessee was denied without assigning any reasons. The assessee under the presumption that the benefit u/s. 11 was denied due to belated filing of Form 10B, it filed petition before the CBDT u/s. 119 of the act on 22/05/2023. The order u/s. 119 in response to the petition filed by the assessee was passed on 02/02/2024, rejecting the assessee’s request for condonation of delay in filing Form 10B for the year under consideration. On receipt of the rejection order u/s. 119(2)(b), the assessee immediately filed appeal before the Ld.CIT(A) on 30/03/2024 against the intimation u/s. 143(1) of the act, thereby causing the delay of 364 days. CIT(A) dismissed the appeal.

Conclusion- Held that filing of form 10B is not mandatory but directory, when the audit report is available while passing the intimation u/s. 143(1)(a) and, when the requirement of law are complied with, exemption u/s. 11 cannot be denied. In the interest of justice, we remit this issue to the Ld.AO to consider the claim of the assessee in accordance with law by carrying out necessary verification of form 10B filed by the assessee. The Ld.AO shall take form 10B on record and verify the exemption claimed u/s. 11 in accordance with law.

FULL TEXT OF THE ORDER OF ITAT BANGALORE

Present appeal arises out of order dated 10/07/2024 passed by Ld.CIT(A)-2, Chandigarh, on following grounds of appeal:

“1. The orders of the authorities below in so far as they are against the appellant are opposed to law, equity, weight of evidence, probabilities, facts and circumstances of the case.

2. The learned CIT[A] is not justified in refusing to condone the delay in filing the appeal for the appellant’s failure to file the appeal within the prescribed period of limitation U/s 249[2] of the Income-tax Act 1961 without appreciating that the appellant was pursuing a bonafide alternate remedy and hence, no appeal was filed before the expiry of limitation and thus, there was sufficient cause for delay in filing the appeal, which ought to have been condoned.

3. The Intimation u/s 143[1] of the Act dated 31/03/2023 is bad in law in as much as no specific reasons have been assigned for making the variation to the returned income and thus, the Intimation u/s 143[1] of the Act requires to be cancelled.

4. Without prejudice to the above, the appellant denies itself liable to be assessed on a total income of Rs. 1,19,80,387/- as determined in the intimation u/s.143[1] of the Act, as against the income reported by the appellant of Rs. 1,78,148/- under the facts and in the circumstances of the appellant’s case.

5. The authorities below are not justified in upholding the taxation of gross receipts of Rs. 1,19,80,387/-, without allowing the revenue expenses incurred of Rs. 88,70,862/-in as much as only income can be taxed and not the gross receipts under the facts and in the circumstances of the appellant’s case.

6. Without prejudice to the right to seek waiver with the Hon’ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 234B and 234C of the Act, which under the facts and in the circumstances of the appellant’s case and the same deserves to be cancelled.

7. For the above and other grounds that may be urged at the time of hearing of the appeal, your appellant humbly prays that the appeal may be allowed and Justice rendered and the appellant may be awarded costs in prosecuting the appeal and also order for the refund of the institution fees as part of the costs.”

2. Brief facts of the case are as under:

2.1. Assessee is a trust constituted under the Deed of declaration of Trust dated 11/06/1991 to carry on the charitable objects of imparting education. It is submitted that the assessee was registered u/s. 12AA of the act vide order dated 06/08/2020 and has thereafter obtained the registration u/s. 12AB of the act vide form 10AC dated 30/11/2022.

2.2. For the year under consideration, assessee filed its return of income on 06/11/2022 within the time allowed u/s. 139(4A) of the act declaring total income of Rs.1,78,148/-, being the shortfall in application of income during the year under consideration. It is submitted that, the assessee filed form 10B i.e. audit report, on 05/11/2022, before filing the return of income. Whereas the form 10B was required to be filed one month before the due date of filing the return of income. It was submitted that there was a delay of 29 days in filing the same.

2.3. It is submitted that, the return filed by the assessee was processed vide intimation u/s. 143(1) of the act on 31/03/2023, wherein the exemption claimed by the assessee u/s. 11 was denied without assigning any reasons. The assessee under the presumption that the benefit u/s. 11 was denied due to belated filing of Form 10B, it filed petition before the CBDT u/s. 119 of the act on 22/05/2023.

2.3.1. It is submitted that, the assessee pursued remedy available u/s. 119 of the act. The order u/s. 119 in response to the petition filed by the assessee was passed on 02/02/2024, rejecting the assessee’s request for condonation of delay in filing Form 10B for the year under consideration. The order u/s. 119(2)(B) of the act r.w.Rule 17B of IT Rules, 1962 was as under:

“3. On perusal of submission of details, it is observed that: –

(i) The Gross receipts for AY 2022-23 is 1,01,23,387/- for which CPC has raised a demand dt. 31.03.2023 for an amount of 48,02,410/-.

(ii) The Assessee was registered U/s 12AA dt. 06.08.2020 and is registered u/s 12AB in Form 10AC dated 30.11.2022 (From AY 2022-23 to 2026-27).

(iii) Assessee filed its Return of Income on 06.11.2022 (Due date: 07.11.2022) & Form 10B on 05.11.2022 (Due date: 07.10.2022) for A.Y. 2022-23. There is a delay of 29 days in filing Form 10B for A.Y. 2022-23.

4. Assessee has not furnished any valid reasons for delay in filing Form 108. After considering the facts and circumstances of the case, it is satisfied that the assessee was not prevented by any reasonable cause from filing Form 10B within the stipulated time.

5. In the light of CBDT circular No. 2/2020 dated 03-01­2020 in F.No.197/55/2018-ITA-I, the delay in filing Form No. 10B for the A.Y. 2022-23 is hereby rejected.”

3. On receipt of the rejection order u/s. 119(2)(b), the assessee immediately filed appeal before the Ld.CIT(A) on 30/03/2024 against the intimation u/s. 143(1) of the act, thereby causing the delay of 364 days.

3.1. The Ld.CIT(A) dismissed the appeal without condoning the delay by observing as under:

“2.7 In view of the above discussion and legal position, the delay of 364 days in filing of appeal in this case is not condoned as I am satisfied that there was no “sufficient cause” as per 249(3) of the Income Tax Act, 1961 for the appellant’s failure to file the appeal within the prescribed period of limitation us.249(2) of the Income Tax Act, 1961 r.w.s. 5 of Limitation Act and hence the appeal sought to be instituted belatedly is hereby not admitted and accordingly dismissed in limine.”

4. Aggrieved by the order of the Ld.CIT(A), assessee is in appeal before this

5. It is submitted by the Ld.AR that the delay in filing the appeal against the intimation before the Ld.CIT(A) occurred, as the assessee was pursuing alternative remedy under provisions of section 119 of the act. She submitted that, CBDT had issued Circular No. 2/2020 [F. No. 197/55/2018-ITA-I], dated 03/01/2020 and a general Circular No. 16/2022 [F. No. 197/89/2022-ITA-I], dated 19/07/2022 wherein, direction was issued to admit the application of condonation of delay in filing form 10B for A.Y. 2018-19 or any subsequent years, wherein there is a delay of upto 365 days and to decide on merits.

5.1. It is submitted by the Ld.AR that these circulars were not considered either by the authority under the provisions of section 119 of the act who dismissed the application for condonation of delay in filing Form 10B, or by the Ld.CIT(A) who dismissed the appeal for non-condonation of delay in filing the appeal, though assessee was pursuing alternative remedy under law. She submitted that gross injustice has occurred in these circumstances and the assessee has not been able to represent its case on merits.

6. On the contrary, the Ld.DR though supported the orders passed by the authorities below, could not controvert the submissions of the Ld.AR. We have perused the submissions advanced by both sides in the light of records placed before us.

7. It is noted that the delay in filing the appeal before the Ld.CIT(A) was due to bonafide reasons, as assessee was pursuing alternative remedy available under the act. It is surprising to note that the circulars issued by CBDT was available and was sufficient enough to condone the delay in filing form 10B which has not been considered by the authorities.

The Ld.DR was also not in a position to establish any contrary to what is on record.

7.1. In our view based on the bonafide reasons, due to which the assessee belatedly filed appeal before the Ld.CIT(A). No malafide intentions could be attributed to the assessee for such belated presentation of appeal before the Ld.CIT(A). We therefore condone the delay caused in filing the appeal before the Ld.CIT(A) by following the principles laid down by Hon’ble Supreme Court in case of Collector Land Acquisition Vs. Mst. Katiji & Ors., reported in (1987) 167 ITR 471.

8. On merits, we note that there are ample decisions of this Tribunal, wherein it is observed that, filing of form 10B is not mandatory but directory, when the audit report is available while passing the intimation u/s. 143(1)(a) and, when the requirement of law are complied with, exemption u/s. 11 cannot be denied. The Ld.AR has placed decisions observing this principle in the paper book compilation, however reliance was placed by the Ld.AR on paras 18-19 of the decision of Coordinate Bench of this Tribunal in case of M/s. Arham Mitra Mandal vs. ITO in ITA No. 1110/Bang/2023 vide order dated 27/06/2024 that reads as under:

“18. We have heard the rival submissions and perused the material on record.

There are some factual errors in the order of the CIT(A). In the impugned order of the CIT(A) at page 13, it has been stated that that the return of income was not filed by the assessee within the prescribed due date. In this regard, we notice that the original return of income was filed on 28.09.2018. The acknowledgment and original return of income filed has been placed on record from pages 55-85 of the Paper Book submitted. Thus, the statement of the CIT(A) that return of income was not filed on time is incorrect. So non-filing of return within the due date prescribed cannot be a ground for denying the claim of exemption under section 11 of the Act. Further, we notice at page 14 of the CIT(A)’s Order, it has been stated that Form 10 is not filed before filing the return of income. This conclusion of the CIT(A) is contrary to the facts on record (refer Pages 101 and 102 of Paper Book submitted by assessee). The assessee had filed Form 10 electronically on 27.09.2018. So, this reasoning of the CIT(A) for denying the benefit of exemption under section 11 of the Act is also not correct.

19. Therefore, the only surviving reason for denying claim of exemption under section 11 of the Act, is that audit report has not been filed along with the return of income. It is the contention of the assessee that the above requirement is only directory in nature and not mandatory requirement. It was contended that denying exemption- under section 11 of the Act is bad in law. Admittedly, in this case, audit report was available before the AO when the return of income was processed vide intimation under section 143(1) of the Act. The Hon’ble Apex Court in the case of Mangalore Fertilizers and Chemicals Vs. Deputy Commissioner 1991(55) ELT 437 (SC) had held as follows: “The mere fact that it is statutory does not matter one way or the other. There are conditions and conditions. Some may he substantive, mandatory and based on considerations of policy and some others may merely belong to the area of procedure. It will be erroneous to attach equal importance to the non-observance of all conditions irrespective of the purposes they were intended to serve.”

8.1. The Ld.AR also relied on the following decisions:

• Decision of Hon’ble Bombay High Court in case of Al Jamia Mohammediyah Education Society vs. CIT(E) reported in [2024] 162 com 114
• Decision of Hon’ble Ahmedabad Tribunal in case of Shiksha Foundation vs. ITO (Exemption) reported in [2024] 164 com 757
• Decision of Hon’ble Ahmedabad Tribunal in case of ITO(E) vs. Takshshila Foundation (NGO) reported in [2024] 165 com 735
• Decision of Hon’ble Mumbai Tribunal in case of ITO vs. P K Krishnan Educational Trust reported in [2024] 162 com 899
• Decision of Hon’ble Kolkata Tribunal in case of Kedar Nath Saraf Charity Trust vs. DDIT reported in [2024] com 671

8.2. Be that as it may, in the present facts of the case, there were circulars available at the time when the assessee had made applications to condone the delay in filing form 10B which has not been considered at all. It is further noted that, the Ld.CIT(A) has also not condoned the delay by observing that there were no sufficient cause explained by the assessee which is contrary to the fact as enumerated hereinabove.

8.3. In the interest of justice, we remit this issue to the Ld.AO to consider the claim of the assessee in accordance with law by carrying out necessary verification of form 10B filed by the assessee. The Ld.AO shall take form 10B on record and verify the exemption claimed u/s. 11 in accordance with law. Needless to say that proper opportunity of being heard must be granted to assessee in accordance with law.

Accordingly, the grounds raised by the assessee stands partly allowed for statistical purposes.

In the result, the appeal filed by the assessee stands partly allowed for statistical purposes.

Order pronounced in the open court on 06^th September, 2024.