2023 (3) TMI 148 - AT - Income Tax

Exemption u/s 11 and 12 - delay for filing form 10B - exemption denied on non-furnishing the audit report in Form-10 alongwith return of income or before filing of return of income - HELD THAT - As decided in Trust for Reaching The Unreached Through Trustee 2021 (2) TMI 185 - GUJARAT HIGH COURT held that when the assessee trust substantially satisfied the condition for availing benefit of exemption as trust, exemption cannot be denied merely on bar of limitation in furnishing audit report in Form-10. Assessee has substantially satisfied all the conditions for availing the benefit of exemption under Section 11/12 of the Act and except for filing audit report in Form 10B, which was filed belatedly, thus respectfully following the decision of Hon'ble Jurisdictional High Court, the grounds of appeal raised by assessee are restored back to the file of Assessing officer to verify the contents of Form 10 for all the assessment years and grant necessary exemptions by passing the order in accordance with law. Appeal of the assessee is allowed for statistical purposes.

Issues Involved:
1. Condonation of delay in filing Form 10B.
2. Eligibility for exemption under Sections 11 and 12 of the Income Tax Act.
3. Admissibility of audit reports filed during the appellate stage.
4. Disallowance of expenditure incurred for attaining the objects of the trust.
5. Taxation based on real income versus gross receipts.
6. Application of Finance Act 2022 amendments retrospectively.

Issue-wise Detailed Analysis:

1. Condonation of delay in filing Form 10B:
The primary issue revolves around the assessee's failure to file Form 10B along with the return of income or before the due date for filing under Section 139(1). The NFAC disallowed the exemption claims due to this delay. The tribunal referred to the jurisdictional High Court's decision in Trust for Reaching The Unreached Through Trustee v. CIT(Exemption), which held that exemption cannot be denied merely due to a delay in furnishing the audit report if the trust has substantially satisfied the conditions for exemption. Thus, the tribunal restored the matter to the Assessing Officer to verify the contents of Form 10 for all assessment years and grant necessary exemptions accordingly.

2. Eligibility for exemption under Sections 11 and 12 of the Income Tax Act:
The assessee, a public charitable trust engaged in imparting education, claimed exemptions under Sections 11 and 12, which were disallowed due to the late filing of Form 10B. The tribunal noted that the trust had existing exemption certificates under Section 12A and recognition under Section 80G(5). Following the High Court's precedent, the tribunal found that the assessee substantially satisfied the conditions for exemption, except for the procedural lapse in filing Form 10B. Therefore, the tribunal directed the Assessing Officer to verify the contents of Form 10 and grant exemptions.

3. Admissibility of audit reports filed during the appellate stage:
The assessee argued that the audit report filed on 28.05.2021 should be admissible as it was submitted during the appellate stage. The tribunal observed that the NFAC had erred in ignoring the audit report and emphasized that substantial compliance with the procedural requirements should suffice for granting exemptions. Consequently, the tribunal restored the matter to the Assessing Officer for verification.

4. Disallowance of expenditure incurred for attaining the objects of the trust:
The NFAC disallowed the expenditure incurred by the trust for attaining its objectives without examining the audited accounts. The tribunal highlighted that the trust's accounts were duly audited and the expenses were towards the attainment of its objects. It directed the Assessing Officer to verify the contents of Form 10 and grant necessary exemptions.

5. Taxation based on real income versus gross receipts:
The assessee contended that only the real income earned should be taxed, not the gross receipts. The tribunal did not specifically address this issue but implied that the Assessing Officer should consider the real income while verifying the contents of Form 10 and granting exemptions.

6. Application of Finance Act 2022 amendments retrospectively:
The assessee argued that the amendments introduced by the Finance Act 2022, which allow certain expenditures in case of denial of exemption, should apply retrospectively. The tribunal did not explicitly rule on this argument but restored the matter to the Assessing Officer for verification and necessary action in accordance with the law.

Conclusion:
The tribunal allowed the appeals for statistical purposes and restored the matters to the Assessing Officer to verify the contents of Form 10 for all assessment years and grant necessary exemptions by passing orders in accordance with the law. The tribunal emphasized the need for a fair and judicious approach, considering the substantial compliance of the trust with the conditions for exemption.

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