The Income Tax Appellate Tribunal (ITAT) Jaipur in Tarun Shiksha Avam Jan Seva Samiti Vs ITO held that exemption under Section 11 cannot be denied during processing of a return under Section 143(1) merely because the audit report in Form 10B was filed after the prescribed due date, provided it was submitted before the return was processed. In the present case, the charitable trust claimed exemption under Section 11 for AY 2021-22, but the Central Processing Centre (CPC) denied the claim solely due to the delayed filing of Form 10B, resulting in taxation of its gross receipts of ₹31,33,867. Although the CIT(A) upheld the adjustment, the Tribunal found that Form 10B had been filed before the return was processed and that the statutory requirement had been substantially complied with. Relying on the Rajasthan High Court’s decision in Khandelwal Vaishya Samaj Charitable Trust and its earlier ruling in Kinkini v. ITO, the Tribunal held that filing Form 10B is a procedural requirement and directed deletion of the adjustment.
Core Issue: The principal issue before the Tribunal was whether exemption under section 11 could be denied while processing the return under section 143(1) merely because the audit report in Form 10B was filed after the prescribed due date, even though it had been filed before the return was processed by the Central Processing Centre.
Facts: The assessee, a charitable trust, claimed exemption under section 11 for AY 2021-22. The return of income was processed under section 143(1), wherein the Central Processing Centre denied the exemption solely on the ground that the audit report in Form 10B had been filed belatedly. Consequently, the entire gross receipts of Rs.31,33,867 were subjected to tax. The CIT(A) upheld the adjustment, observing that in the absence of condonation of delay by the competent authority, the assessee was not entitled to exemption. Before the Tribunal, the assessee demonstrated that although Form 10B was filed belatedly on 07.10.2022, it had been filed prior to the processing of the return on 25.10.2022, and therefore the audit report was very much available on record when the intimation under section 143(1) was issued.
Findings of the ITAT: The Tribunal observed that the only reason for denial of exemption was the delayed filing of Form 10B, and there was no dispute that the audit report had been furnished before the return was processed under section 143(1). Therefore, the relevant statutory requirement stood substantially complied with.
The Tribunal noted that the assessee had relied upon several judicial precedents, including the decision of the Rajasthan High Court in Khandelwal Vaishya Samaj Charitable Trust and the co-ordinate Bench decision in Kinkini v. ITO, wherein it had been consistently held that the requirement of filing Form 10B is directory and procedural, and that exemption under section 11 cannot be denied where the audit report is available before completion of assessment or processing of the return.
The Tribunal further observed that the Departmental Representative was unable to dispute the factual position that Form 10B had already been filed before issuance of the intimation under section 143(1). Nor could the Revenue distinguish the judicial precedents relied upon by the assessee or cite any contrary decision of the jurisdictional High Court or the Supreme Court.
Following the binding decision of the Rajasthan High Court and its own earlier decision in Kinkini, the Tribunal held that the mere fact that Form 10B was filed after the due date could not, by itself, deprive the assessee of the substantive exemption available under section 11, particularly when the audit report was already on record before processing of the return. The Tribunal held that the approach adopted by the CPC and affirmed by the CIT(A) was contrary to the settled legal position.
Decision: The Tribunal allowed the appeal and held that the assessee was entitled to exemption under section 11. It directed that the denial of exemption made in the intimation under section 143(1) solely on account of delayed filing of Form 10B be deleted, since the audit report had been filed before the return was processed, and such procedural delay could not defeat the substantive claim for exemption.
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