2024 (7) TMI 221 - AT - Income Tax

Denial of claim of exemption u/s. 11 - assessee failed to e-file the Audit Report in form 10B one month prior to the due date of filing the return u/s. 139(1) - CIT(A) admitting alternate claim of assessee u/s. 10(23C)(iiiad) of the Act without providing opportunity of hearing to the AO - HELD THAT - In our considered opinion, the CIT(A) erred in admitting the alternate claim of the assessee u/s 10(23C)(iiiad) of the Act without providing an opportunity of hearing to the Assessing Officer. The Ld.CIT(A) erred in not allowing the ground regarding the alleged delay in filing Form 10B, which was uploaded, but not downloaded due to technical issues. The Ld.CIT(A) erred in not appreciating that the filing of Form 10B is not mandatory but a procedural requirement, and thus, the exemption claimed under sections 11/12 of the Act should be allowed. As in Ramji Mandir Religious and Charitable Trust 2023 (12) TMI 1295 - ITAT AHMEDABAD case held that procedural requirements like filing Form 10B should not override the substantive claim of exemption, when the assessee has substantially complied with the requirements. It has been held by various Courts that the requirement of filing Form 10/10B is merely directory in nature and failure to furnish Form 10/10B before due-date prescribed u/s 139(1) of the Act cannot be so fatal so as to deny they very claim of exemption u/s. 11(2). We find that the delay in filing Form 10B was due to technical issues and was beyond the control of the assessee. The procedural requirement should not deny the substantive claim of exemption u/s 11 - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of exemption u/s. 11 due to failure to file Audit Report in form 10B.
2. Admitting alternative claim of exemption u/s. 10(23C)(iiiad) without hearing the Assessing Officer.
3. Alleged delay in filing Form No: 10B and its impact on exemption claimed u/s 11/12 of the IT Act.

Issue 1: Disallowance of exemption u/s. 11 due to failure to file Audit Report in form 10B:
The assessee, a charitable Trust, filed its return for AY 2022-23 claiming exemption under sections 11 & 12 of the Income Tax Act. However, the CPC disallowed the exemption due to the failure to e-file the Audit Report in form 10B before the due date of filing the return u/s. 139(1). Despite rectification attempts, the claim was rejected, leading to a demand of Rs. 68,66,710. The CIT(A) upheld the disallowance under section 12A(1)(b) stating that without the Audit Report in Form 10B, exemption cannot be granted under section 11. However, the CIT(A) accepted the alternative claim under section 10(23C)(iiiad) based on the educational institution's operation and gross receipts below Rs. 5 Crore.

Issue 2: Admitting alternative claim of exemption u/s. 10(23C)(iiiad) without hearing the Assessing Officer:
The Revenue raised objections regarding the CIT(A) admitting the alternative claim of exemption u/s. 10(23C)(iiiad) without providing an opportunity of hearing to the Assessing Officer. The Revenue contended that the trust's Memorandum of Association did not solely exist for educational purposes, contrary to a Supreme Court ruling. The tribunal found that the CIT(A) erred in admitting the alternate claim without hearing the Assessing Officer, highlighting procedural lapses in the decision-making process.

Issue 3: Alleged delay in filing Form No: 10B and its impact on exemption claimed u/s 11/12 of the IT Act:
During the appeal, the assessee argued that the delay in filing Form 10B was due to technical issues beyond their control. The tribunal considered judicial precedents emphasizing that the requirement of filing Form 10B is procedural and should not override the substantive claim of exemption under section 11. Various court decisions were cited to support the view that the delay in filing Form 10B should not be fatal to the exemption claim. The tribunal directed the Assessing Officer to grant the exemption under section 11 as claimed by the assessee, ultimately allowing the Cross Objection filed by the assessee and dismissing the Revenue's appeal as infructuous.

This detailed analysis of the judgment highlights the issues surrounding the disallowance of exemption under section 11, the admission of an alternative claim without proper hearing procedures, and the impact of a delay in filing Form 10B on the exemption claimed under the IT Act. The tribunal's decision provides clarity on the procedural requirements and substantive claims in matters of tax exemption for charitable trusts.