2025 (1) TMI 128 - AT - Income Tax

Disallowance of exemption u/s 11 - delay in filing Form No 10 - as argued delay in filing Form No. 10B electronically was due to genuine reason as the appellant came to know at a later stage that even through books are audited and audit report is issued Chartered Accountant has not uploaded Form No 10 - HELD THAT - Since the audit report were duly obtained by the appellant well within the due of filing return of income for the respective assessment years under consideration, and delay in filing of such report by the appellant was due to its bonafied belief that, the auditor who issued the audit report in Form No 10B had filed the same online in time. Beyond a plea of the sort the appellant there can not necessarily be independent proof or material to establish failure of auditor to acted in due diligence. In these circumstances of the cases, the appellant, in our considered view, was successful in exhibiting bona-fide reasons as to why there was delay in filing the required audit reports for both the year under consideration. As decided in Shree Jain Swetamber Murtipujak Tapagachha Sangh 2024 (3) TMI 1327 - BOMBAY HIGH COURT and Al Jamia Mohammediyah Education Society 2024 (4) TMI 939 - BOMBAY HIGH COURT held that the error on the part of auditor cannot be rejected but should be accepted as a reasonable cause shown by the trust management. In that case alike the present case, assessee did not suo-motto even realize its mistake of non-filing of audit report along-with return until the intimation was served u/s 143(1) of the Act. Revenue was not justified in denying the benefit of exemption u/s 11 of the Act in pleno to the appellant trust. Remand matters back to the files Ld. AO with a direction to (a) take on record both the audit reports filed for the respective assessment years (b) treat them as filed in compliance with the provisions of section 12A(1)(b) of the Act and (c) then assess the total income of the appellant trust after giving effect to the provision of section 11 and section 12 of the Act in the light of applicable provisions of the Act.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the denial of exemption under sections 11 and 12 of the Income-tax Act, 1961, due to the late filing of Form No. 10B, is justified.
Whether the requirement to file Form No. 10B along with the Income Tax Return (ITR) is mandatory or merely directory in nature.
Whether the appellate authority has the power to condone the delay in filing the audit report and allow the exemption under sections 11 and 12.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Denial of Exemption under Sections 11 and 12

Relevant Legal Framework and Precedents: The denial of exemption was based on the provisions of section 12A(1)(b) of the Income-tax Act, which requires the audit report to be filed along with the return of income. The court considered precedents where the requirement was deemed directory rather than mandatory.
Court's Interpretation and Reasoning: The court noted that the requirement to file the audit report with the ITR is procedural and directory, not mandatory. The intention is to ensure proper assessment of income, not to penalize for procedural lapses.
Key Evidence and Findings: The appellant had obtained the audit reports before the due dates but filed them late due to a bona fide belief that the auditor had filed them on time.
Application of Law to Facts: The court applied the principle that procedural requirements should not override substantive rights. The appellant's late filing was seen as a procedural lapse, not affecting the substantive right to exemption.
Treatment of Competing Arguments: The Revenue argued that the delay could not be condoned without statutory provision. The court countered that the procedural nature of the requirement allowed for flexibility in the absence of malafide intent.
Conclusions: The denial of exemption was not justified solely based on the late filing of Form No. 10B.

Issue 2: Nature of Filing Requirement for Form No. 10B

Relevant Legal Framework and Precedents: The court referred to various judgments where the filing of Form No. 10B was considered a procedural requirement. The precedents emphasized the directory nature of the requirement.
Court's Interpretation and Reasoning: The court emphasized that the requirement is meant to facilitate assessment, not to disqualify genuine claims for exemption due to procedural delays.
Key Evidence and Findings: The appellant had complied with the substantive requirement of obtaining the audit report, and the delay in filing was not due to any malafide intent.
Application of Law to Facts: The court found that the procedural lapse did not affect the appellant's eligibility for exemption, given the substantive compliance.
Treatment of Competing Arguments: The Revenue's strict interpretation was rejected in favor of a more flexible approach that considers the purpose of the requirement.
Conclusions: The court concluded that the requirement to file Form No. 10B is directory, allowing for condonation of delay in genuine cases.

Issue 3: Appellate Authority's Power to Condon Delay

Relevant Legal Framework and Precedents: The court considered the powers of the appellate authority and precedents where delays were condoned to uphold substantive rights.
Court's Interpretation and Reasoning: The court held that the appellate authority has co-terminus powers with the assessing officer and can condone delays to ensure justice.
Key Evidence and Findings: The appellant's bona fide reasons for the delay were accepted as sufficient cause for condonation.
Application of Law to Facts: The court applied the principle of substantial justice, allowing the exemption despite procedural delays.
Treatment of Competing Arguments: The Revenue's argument for strict adherence to procedural timelines was outweighed by the need to ensure fairness and justice.
Conclusions: The appellate authority has the power to condone procedural delays and uphold the appellant's right to exemption.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "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) cannot be so fatal so as to deny the claim of exemption u/s 11."
Core Principles Established: The procedural requirements should not override substantive rights, and the appellate authority can condone procedural delays in the interest of justice.
Final Determinations on Each Issue: The denial of exemption for procedural lapses in filing Form No. 10B was overturned, and the matters were remanded to the assessing officer to reassess the appellant's total income after considering the exemptions under sections 11 and 12.

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