Minimal Form 10B Delay During COVID Period Cannot Deny Section 11 Exemption: ITAT Mumbai

ITO Vs P K Krishnan Educational Trust (ITAT Mumbai)

ITAT Mumbai dismissed the Revenue’s appeal and upheld the relief granted to P K Krishnan Educational Trust in respect of exemption under Section 11 of the Income-tax Act, 1961 for AY 2021-22. The assessee was an educational trust registered under Section 12A. It filed its return declaring nil income on 14.03.2022 and revised the return on 29.03.2022 at the same income. Form No. 10B was furnished on the dates of filing of the original and revised returns. The CPC nevertheless passed an order under Section 154 on 07.03.2023 on the footing that Form No. 10B/10BB had not been filed in time and denied the Section 11 exemption, determining income at ₹4,09,21,499.

The assessee challenged the rectification before the CIT(A), contending that Form No. 10B had in fact been filed and its acknowledgement was available. The CIT(A) examined the original and revised returns, Form 10B and the orders under Sections 143(1) and 154. The CIT(A) noted that Section 12A(1)(b), read with Explanation (ii) to Section 44AB, prescribed the specified date for furnishing the audit report, but relied upon judicial authorities treating the requirement as procedural/directory. The authorities cited included Sarvodaya Charitable Trust Vs ITO (Exemption), CIT Vs Hardeodas Agarwalla Trust, Shree Bhairav Seva Samiti v. ITO (Exemption), CIT v. Xavier Kalavani Mandal (P.) Ltd. and Shri Shyam Charan Sewa Trust Vs DCIT. The CIT(A) concluded that the assessee could not be denied Section 11 exemption on the facts and directed the Assessing Officer to allow it.

The Revenue contended before the Tribunal that Explanation (ii) to Section 44AB defines the specified date as one month prior to the due date for furnishing the return under Section 139(1), and that this requirement stood incorporated into Section 12A(1)(b). According to the Revenue, furnishing Form 10B along with the return rather than within the prescribed earlier period did not satisfy the statutory requirement. It was also argued that relief for delay was required to be sought before the CIT(E) in terms of CBDT Circular No. 02/2020 under Section 119(2)(b).

The assessee submitted that Form No. 10B had been filed with both the original and revised returns and was therefore already available before the CPC. It maintained that the requirement was procedural and relied upon the High Court and Tribunal decisions considered by the CIT(A). The assessee further informed the Tribunal that an application for condonation of delay in filing Form No. 10B for AY 2021-22 had been filed before the CIT (Exemption), follow-up details were submitted on 29.03.2024 and a notice issued on 02.04.2024 had also been responded to.

The Tribunal examined Section 12A(1)(b) and Explanation (ii) to Section 44AB. It noted that the CBDT had extended the due date for furnishing the return for AY 2021-22 to 28.02.2022 and the due date for belated/revised returns to 31.03.2022. The assessee filed its return on 14.03.2022 and furnished Form No. 10B along with it. The Tribunal observed that the due date for Form 10B was one month prior to the return-filing due date and that, because the return due dates had themselves been extended by CBDT, the delay in furnishing Form 10B was minimal and occurred amid uncertainty concerning the extended compliance dates.

The Tribunal found an identical issue to have arisen in Kedar Nath Saraf Charity Trust [2024] 161 taxmann.com 671 (Kolkata – Trib.). That coordinate bench had considered the circumstances prevailing from March 2020 to March 2022 during the COVID pandemic, including restrictions on movement, disruption of normal official work, changes in return and audit-report filing procedures, technical glitches and changes in statutory due dates. It also noticed CBDT measures concerning condonation of delay in filing Form No. 10B, including Circular No. 16/2022. In that case a delay of 28 days was considered deserving of being ignored in the larger interest of justice, and Section 11 exemption was allowed. The extracted decision also referred to Bangarh Educational Welfare Trust v. ITO (Exemptions), ITA No. 496/Kol/2021.

Following the coordinate-bench reasoning, ITAT Mumbai held that up to March 2022 the country was passing through the pandemic and that the relevant due dates as well as the assessee’s compliance fell during that period. It therefore held that the delay in filing Form No. 10B deserved to be condoned. The CIT(A) was consequently held to be correct in allowing the assessee’s appeal. The Revenue’s appeal was dismissed and the order was pronounced in open court on 07.05.2024.

Cases Discussed

• Sarvodaya Charitable Trust Vs ITO (Exemption), [2021] 125 taxmann.com 75 (Gujarat High Court) — Relied upon for the proposition that exemption under Section 11 should not be denied merely because of delayed filing of Form No. 10B where the charitable trust substantially satisfies the conditions for exemption.
• CIT Vs Hardeodas Agarwalla Trust, (1992) 198 ITR 511 (Calcutta High Court) — Relied upon for treating the requirement of furnishing the audit report as procedural/directory and capable of being cured at a subsequent stage.
• Shree Bhairav Seva Samiti v. Income-tax Officer (Exemption), ITA No. 2225/Mum/2022, AY 2016-17, order dated 08.12.2022 (ITAT Mumbai) — Relied upon for accepting subsequent compliance with Form No. 10B and directing consideration of the Section 11 claim.
• CIT v. Xavier Kalavani Mandal (P.) Ltd. — Referred to in the extracted Shree Bhairav Seva Samiti decision for the proposition that the audit report may be furnished at a later stage before the Assessing Officer or appellate authority on sufficient cause.
• Shri Shyam Charan Sewa Trust Vs DCIT, ITA No. 214/Asr/2022, AY 2018-19 — Relied upon for treating filing of Form No. 10B as procedural and supporting the contention that Section 11 exemption should not be denied merely for delayed filing.
• Kedar Nath Saraf Charity Trust, [2024] 161 taxmann.com 671 (Kolkata – Trib.) — Directly applied on the issue of COVID-period delay in furnishing Form No. 10B. The coordinate bench considered pandemic restrictions, technical glitches, changing compliance procedures and CBDT condonation measures and held that a 28-day delay deserved to be ignored in the larger interest of justice.
• Bangarh Educational Welfare Trust v. ITO (Exemptions), ITA No. 496/Kol/2021, AY 2018-19, order dated 02.01.2022 (ITAT Kolkata) — Referred to in the extracted Kedar Nath Saraf Charity Trust decision as supporting allowance of benefits under Sections 11 and 12 where the Form 10B issue was procedural.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

01. ITA No. 3533/Mum/2023, for A.Y. 2021-22, is filed by the The Income Tax Officer, Ward 2(2), Mumbai [the learned Assessing Officer] against the appellate order passed by National Faceless Appeal Centre, Delhi [the learned CIT (A)] dated 10th August, 2023, wherein the appeal filed by the assessee against the order of Central Processing Centre, Bangalore, passed under Section 154 of the tax Act, 1961 (the Act), dated 7 Income-th March, 2023, was allowed partly.

02. Therefore, the learned Assessing Officer is aggrieved with the same and has preferred this appeal raising following grounds of appeal:-

“1. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) was justified in allowing the exemption u/s 11 of the Act ignoring the fact that there was clear cut violation in view the Form 10B (Audit report) no t being filed within the extended time for the said A.Y. 2021- 22 as stipulated in CBDT circular No. 01/2022 in F.No.225/49/2021/ITA- II dated 11.01.2022? 2. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) was erred in granting rel ief for the delay for filing of audit report within due date/extended time, when the remedy to deal with such instances lies with CIT(E) as specified in CBDT Circular No. 02/2020 dt. 03.01.2020 under the provision section 119(2)(b) of the Act?”

03. The assesse 22 on 14 e is a educational trust registered under Section 12A of the Act, who filed its return of income for A.Y. 2021-th March, 2022, at a total income of ₹ nil. It was further revised on 29th 14 March, 2022, at the same income. The return of income filed on th March, 2022, was processed under Section 143(1) of the Act on 10th order under Section 154 of the Act was passed on 7 August, 2022, under Section 143(1) of the Act. Subsequently, an th March, 2023, holding that form No. 10B of the Act and 10BB of the Act has not been filed in time of the Act was denied and total income of the assessee was determined at ₹4,09,21,499/-.

04. Against this, the a ssessee preferred the appeal before the learned CIT (A). The claim of the assessee was that assessee filed form no.10B of the Act, prior to the filing of the return and the acknowledgement copy of the form no. 10B of the Act filed, was also shown. Accordin gly, the ROI filed by the assessee claiming the exemption under Section 11 of the Act was correct and thus, rectification order passed under Section 154 of the Act was bad. The assessee also submitted that the trust was registered under Section 12AB of the Act and further, for filing form no.10B extended the date of filing till 25 of the Act, the CBDT th November, 2022. Thus, the CPC completely ignored these facts. Based on this information, the learned CIT (A) held that, assessee has filed form no.10B of t along with original return of income on 14 he Act th further along with the revised return on 29 March, 2022, and th of rectification passed on 7 March, 2022, the order th March, 2023, denying exemption under Section 11 of the Act, for form no.10B and 10BB of the Act not filed in accordance with provision of section 12A (1) (b) of the act, is not correct. The learned CIT (A) considering clause (ii) of explanation to section 44AB which provided that these forms are required to be filed one month prior to the due date of furnishing of return of income under Section 139 of the Act., which was imported in section 12A (1) (b) of the Act, such time limit being directory. Though, the assessee filed those form along with their original as well as revised return is in compliance with the provision of the Act. The ld CIT (A) followed decision of Hon’ble Gu jarat High Court in case of Sarv Therefore, he held that assessee has complied with the condition and exemption under Section 11 of the Act cannot be denied, accordingly, he allowed the appeal of the assessee on these grounds. 05. The learned Departmental Representative vehemently submitted that according to the Provisions of Section 44AB of the Act, as per explanation (ii) the specified date means, the date of one month prior to the date of furnishing of the return of income under Section 139(1) of the Act. This time limit is also imported u/s 12A (1) (b) of the Act. Thus, form no 10 B is also required to be filed one month before the due date of filing ROI. The assessee has furnished form no.10B of the Act along with the return of income but not one month prior to the due date of filing of the return of income. For violation of these conditions, the CPC has held that assessee is not entitled to exemptions under Section 11 of the Act. He submitted that the learned CIT (A) has inco rrectly relied upon the decision but ignoring statutory conditions and allowed the claim of the assessee, which is not correct.

06. The learned Authorized Representative submitted that assessee has filed form No. 10B along with the original return and revised return which is available before the CPC, therefore, CPC showing that assessee has not filed form no.10B of the Act is not correct. He further stated that the requirement of Act is to file from no.10B on or before the due date of filing return of income. Further, The ld CIT

(A) has relied up on the decision of Honourable High court holding that such time limit is directory in nature and benefit of section 11 and 12 cannot be denied. Thus, there is no error in the order of the learned Commissioner of Income-tax (Appeals).

07. Learned authorised representative also submitted that it has also filed an application for condonation of delay in filing form number 10 B for assessment year 2021 – 22 win CIT (exemption) and follow- up details were also submitted on 29 Ma rch 2024. CIT (exemption) is also issued a notice on 2 April 2024 which was also responded to by the assessee.

08. We have carefully considered the rival conditions and perused the orders of the lower authorities.

09. Fact of the case is that assessee is an educa tional trust which file its return of income for assessment year 2021 – 22 on 14/3/2022 declaring total income at Rs. Nil. This return was revised on 29/3/2022 at Rs. Nil. Original return of income filed on 14/3/2022 was processed under section 143 (1) of The Act on 10/8/2022. This return was rectified on 7/3/23 under section 154 of the act for the reason that form number 10 B was not find in time and claim of exemption under section 11 of the act was rejected bringing to tax income of ₹ 40,921,419/ –.

010. Pro vision of section 12A describes the conditions for applicability of section 11 and 12. As per provisions of section 12 A (1) (b) of the provided that

“(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income- tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 the specified date referred to in section 44AB and the person in receipt of th e income furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed;” 011. thus it is clear that form number 10 B is required to be filed on or befor e specified date. Such date is defined under explanation (ii) of section 44AB of the act as under:-

(ii)

“specified date”, in relation to the accounts of the assessee of the previous year relevant to an assessment year, means65

[date one month prior to]66 [the due date for furnishing the return of income under sub-section (1) of section 139].]]

012. The learned CIT (A) has allowed the claim of the assessee for following reasons:-

“4. I have considered the ROI filed, order u/s 143(1) of the Act, order u/s 154 of the Act, grounds of appeals raised by the appellant, submissions made by the appellant and material on record. In ground no. 1 is against the rejecti on of exemption u/s 11 of the Act. The appellant trust is registered u/s 12A vide registration number was TR- 28707 on 24.12.1991. The appellant also got provisional registration u/s 12A vide order dated 06.04.2022 which is effective for the A.Ys. from 2022- 23 to 2024- 25. On consideration of the ROI filed, Form 10B filed, orders u/s 143(1) and u/s 154, following picture emerges in the case –

4.1 In the order u/s 154 dated 07.03.2023, the reason for rejection of exemption u/s 11 of the Act has been stated be “Suomoto for form 10b/10bb not filed.” The screenshot of the reason is extracted and placed below for the sake of clarity –

4.2 As per the provisions of section 12A(1)(b) of the Act, where the total income of the trust or institution as computed under the Act without giving effect to the provisions of section 11 and 12 exceeds the maximum amount which is not chargeable to income tax in any previous year, the accounts of the trust or institution for that year have t o be audited by the Chartered Accountant before the specified date referred to in section 44AB and the person in receipt of the income furnishes by that date the report of such audit in Form No. 10B. As per explanation (ii) to section 44AB states that the specified date in relation to the accounts of the assessee of the previous year relevant to assessment year, mean the date one month prior to the date of furnishing the ROI u/s 139(1).

4.3 The appellant has filed Form 10B in both the cases i.e. filing of original ROI and the filing of Revised ROI on the same date of filing of ROI. The appellant claimed that it is holding valid registration u/s 12A of the Act and had complied with the requirement of the Act by way of filing Form 10B and hence it cannot be d enied exemption u/s 11 of the Act. The appellant relied on the following caselaws on the issues that though s. 12A(1)(b) provides that the exemption u/s 11 will be available only if the accounts are audited and audit report “furnished along with the return ”, the same is not mandatory but is directory and when the requirements if law are complied with, exemption u/s 11 of the Act cannot be denied.

i. Sarvodaya Charitable Trust Vs ITO (Exemption)(2021) (125 com 75) (Gujarat) wherein it has been held that –

exemption u/s 11 cannot be denied for delay in filing Form No 10B. Allowing the petition the Court held that since Assessee was a public charitab le trust for past 30 years who substantially satisfied condition for availing benefit of exemption, Assessee could not be denied exemption merely on bar of limitation to submit Form no. 10, especially, when legislature had conferred wide discretionary powe rs to condone such delay on authorities concerned.

ii. CIT VS Hardeodas Agarwalla Trust (1992) (198 ITR 511) (Calcutta) wherein it has been held that – though s. 12A (1)(b) provides that the exemption u/s 11 will be available only if the accounts are audi ted and audit report “furnished along with the return”, the same is not mandatory but is directory. The audit report in Form 10B affirms the statements contained in the balance sheet and income- expenditure statement and is intended to enable the AO to allo w the exemption by relying on the audit report and without having to ask the Assessee to furnish supporting documents in support of the claim. Such a procedural provision cannot be construed as mandatory because the defect can be cured at a subsequent stag e. It is not the intention of the Legislature that the exemption u/s 11 should be denied merely because the audit report was not filed with the return. (ii) On facts, as the trust had under the Bombay Public Trust Act, the claim that the audit report in Form 10B had also been obtained but had been omitted to be filed with the return was acceptable. Also, the AO was not justified in rejecting the retraction of the trustee. The AO did not controver t the averments in the retraction affidavit nor did he cross examine the trustee. Accordingly, the claim for s. 11 exemption was upheld.

iii. Shree Bhairav Seva Samiti v. Income- tax Officer (Exemption) (ITA NO. 2225/MUM/2022) [A.Y. 2016- 17] (Date of order – 08.12.2022) wherein it has been held that – We find that the Hon’ble jurisdictional High Court in case of CIT v. Xavier Kalavani Mandal (P.) Ltd. (supra) held that in order to claim exemption under section 11, the Assessee can filed audit report in Form 10B even at later stage either before the Assessing Officer or before appellate authority by showing a sufficient cause. Further, Hon’ble jurisdictional High Court decision in case of Sarvodaya charitable Trust v. ITO (Exemption) (supra) also held that wh ere the Assessee is a public charitable trust registered under section 12A of the Act and substantially satisfied condition for availing benefit of exemption as a charitable could not be denied exemption, the Assessee merely on bar of limitation in furnish ing audit report in Form 10B. Considering the aforesaid and legal discussion, we find that though the Assessee has not filed any return of income at the time, however, it was before filing applicatio n under section 154. Therefore, respectfully following the decisions of Hon’ble jurisdictional High Court in case of CIT v. Xavier Kalavani Mandal (P.) Ltd. (supra) and in Sarvodaya charitable Trust v. ITO (Exemption) (supra), we find that the Assessee has complied the procedural requirement, therefore, the Assessing Officer/CPC is directed to verify the claim of the Assessee and grant necessary deduction under section 11 of IT Act. In the result, the appeal of the Assessee is allowed for statistical purposes.”

As in the present case also the Assessee has complied with the procedural requirement of obtaining and filing Form 10B, therefore, respectfully following the aforesaid decision of the Coordinate Bench of the Tribunal, the Assessing Officer is directe d to decide the claim of the Assessee under section 11 on merits, after accepting the Form 10B filed by the Assessee. Accordingly, grounds raised by the Assessee are allowed for statistical purposes.

iv. Shri Shyam CharanSewa Trust Vs DCIT (I.T.A. No.214/Asr/2022) (A.Y. 2018- 19) wherein it has been held that – We respectfully relied on the order of the Jurisdictional High Court for adjudication the issue. The filling of Form No. 10B is a procedural direction in the proviso. The Assessee is registered u/s 1 2A and followed the direction as per the Act during filing of return. For nonfiling of Form No. 10B with the return is just a failure stipulated time for removal of defect in the return. Here we respectfully refer the order of Hon’ble High Court of Gujarat in the case of Sarvodaya Charitable Trust vs. Income Tax Officer. (Exemption), [2021] 125 taxmann.com 75 (Gujarat). Full case law is enclosed for your reference. In this case also, the appellant was allowed the exemption u/s 11 and have relied on the case laws mentioned in the above paragraph and concluded that denial of exemption even if the form 10B is filed at a later stage is not justified. Thus the Assessee pleaded based on various judicial pronouncement s that it is a sufficient compliance with the procedure, if the Audit Report is filed at any stage before the completion of assessment or even at the appellate stage. Thus the CPC cannot deny the exemption available u/s. 11 of the Act. The Ld. CIT(A) accep ted the contention of the Assessee and held that the Assessee Trust is eligible to avail the exemption u/s. 11 of the Act as claimed in the Return of Income for the Assessment Year 2021- 22, though the Assessee has filed Form No. 10B at a later stage. Howev er in our case the form 10B is filed and whereas the order u/s 154 clearly mentions that the appellant has not filed the form 10B and thereby denied the exemption u/s 11 of the Income Tax Act, 1961. Therefore order issued should be quashed and the exemptio n should be granted to the appellant and the demand raised by virtue of the order issued u/s 154 should be deleted. Thus it is requested your good self to kindly consider the above demand created for non-fil ing of form 10B is incorrect and demand raised to be deleted.

4.4 I agree with the contentions of the appellant. The appellant trust is registered u/s 12A of the Act, it had filed original and revised ROI in time and also Form 10B on the dates of filing o f the ROI. Thus, the appellant had complied with the requirements of furnishing of Form 10B. I have gone through the caselaws relied upon by the appellant and came to the conclusion that the appellant cannot be denied exemption u/s 11 of the Act on the fac ts of its case. The AO is, therefore, directed to allow exemption u/s 11 of the Act to the appellant. Accordingly, the ground no. 1 is allowed.”

013. The impugned assessment year is assessment year 2021 – 22, the learned CIT – A has considered the issue in ea rlier assessment year. However, CBDT has extended due date of filing of the return of income my press release dated 9/9/2021 as under:-

5. The duedate of furnishing of Return of Income for the Assessment Year 2021-22, which is 30th Nove mber, 2021 under sub- section (1) of section 139 of the Act, as extended to 31st December,2021 vide Circular No.9/2021 dated 20 -5 -2021 , is hereby further extended to 28th Februar y, 2022;
6.

6. The duedate of furnishing of belated/revised Return of Income for the Assessment Year 2021-22, which is 31st December, 2021 under sub- section (4)/sub- section (5) of section 139 of the Act, as extended to 31st Januar y, 2022, vide Circular No.9/2021 dated 20-2021 , is hereby further extended to 31st March, 2022;

014. Therefore, the extended time limit available to the assessee for the due date of filing of the return of income was 28 February 2022. Admittedly assessee filed return of income on 14/3/2022 and also furnished form number 10 B along with that. Therefore, the due date for filing of form number 10 B was one month prior to the due date of filing of the return of income i.e. 31 January 2022. As, the due date of filing of the return have been extended by the CBDT, t he delay caused in filing form number 10 B is minimal and also due to the uncertainty of the due date of filing of the return which is duly extended by CBDT. Identical issue arose before the coordinate bench in case of Kedar Nath Saraf Charity Trust [2024] 161 taxmann.com 671 (Kolkata – Trib.) albeit for assessment year 2021 – 22 wherein coordinate bench held as under:-

4.1. It is an admitted fact that from March, 2020 to March, 2022, country was passing through Covid Pandemic and there were various restriction on the movements of the citizens and carrying out of the normal official works was hindered. It is also an accepted fact that many changes have been brought into the Act regarding procedure of filing of income- tax return as well as audit reports and certain technical glitches have been faced time and again. Also on account of change of the utility of furnishing the repo rts, the forms and change in the due dates have given rise to delay in furnishing of details and documents with the revenue authorities. Considering these aspects, CBDT firstly came up Commissioners to adm it applications of condonation of delay in filing Form No. 10B for Assessment Year 2018- 19 and subsequent Assessment Years, where there is a delay of up to 365 days. Subsequently on 19/07/2022 i.e., after the end of the Covid Pandemic restrictions again a Circular 16/2022 was issued where the delays in filing of Form 10B beyond 365 days but upto three years were also directed to be considered for admitting the application for condonation of delay. This Circular in itself shows that the Income- tax Department was aware about the technical glitches and the problems faced by the tax- payers in furnishing various types of Forms including Form No. 10B is with regard to the furnishing of audit report in case of Trusts and Societies. In the instant case since, delay is merely 28 days, we find that the said delay deserves to be ignored in larger interest of justice. The assessee is thus entitled to claim exemption u/s 11 of the Act made in the Income -tax return e- filed by it. We further fund support from the decisions of this Tribunal in the case of Bangarh Educational Welfare Trust v. ITO (Exemptions) in ITA No. 496/Kol/2021; Assessment Year 2018- 19, order dt. 02/01/2022, wherein also similar issue was raised for Assessment Year 2018- 19 and the return was filed within time limit prescribed u/s 139(1) of the Act report on Form 10B and this Tribunal after considering the facts of the case as well as judicial precedents allowed the benefit of Section 11 & 12 of the Act to the assessee.”

015. Coordinate bench held that up to March 2022, the country was passing through pandemic. The due dates for filing of the return of income as well as compliance made by the assessee also falls during that period. In view of this, we find that the delay caused in filing of number 10 B deserves to be condoned. Accordingly, as indicated above, the learned CIT – A was correct in allowing the appeal of the assessee.

016. In the result, appeal filed by the learned assessing officer is dismissed.

Order pronounced in the open court on 07.05. 2024.