2025 (3) TMI 864 - AT - Income Tax

Denial of exemption u/s 10(23C)(via) - delay in filing of Form 10B - HELD THAT - It is an admitted fact that the assessee has uploaded Form 10B on 30.08.2022. Form 10B was also approved belatedly approved by the assessee on 28.09.2022. As in Indore Contract Bridge Association 2023 (5) TMI 313 - ITAT INDORE following the order of Mumbai Metropolitan Regional Iron Steel Market Committee 2015 (4) TMI 512 - BOMBAY HIGH COURT held that the delay in filing the Form 10B is merely a procedural defect which can be rectified. Further we also note that Form 10B has been approved by the assessee before the intimation u/s 143(1). We therefore direct the AO / CPC to allow the deduction claimed by the assessee. Thus the ground raised by the assessee on this issue are allowed. While filing Form 10 for availing of Registration under section 10(23C) of the Act assessee has wrongly selected the code of Clause (via) whereas in Sl. No. 5 stated Education as objective of the applicant - It appears to us that there was an inadvertently clerical error made by the assessee while filing the application. The applicant is running an educational institution and was granted approval from 2003 onwards. This clerical error could not be rectified by the applicant in spite of the efforts taken by the assessee before the concerned authorities. We are therefore inclined to direct the Principal Commissioner of Income Tax to grant one more opportunity to the assessee to rectify the clerical error while applying for renewal of Registration under section 10(23C) of the Act. Thus the grounds are allowed for statistical purposes.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

a. Whether the delay in filing the Audit Report in Form 10B should affect the assessee's eligibility for tax exemption under section 10(23C) of the Income Tax Act, 1961.

b. Whether the granting of approval under section 10(23C)(via) instead of section 10(23C)(vi) due to a clerical error should impact the assessee's tax exemption status.

ISSUE-WISE DETAILED ANALYSIS

Delay in filing the Audit Report in Form 10B

- Relevant Legal Framework and Precedents: The legal framework revolves around section 10(23C) of the Income Tax Act, which provides tax exemptions for certain educational institutions. The requirement to file an Audit Report in Form 10B is procedural, and precedents such as CIT v. Mumbai Metropolitan Regional Iron & Steel Market Committee have held that procedural delays should not automatically disqualify an entity from exemptions if the delay is justified.

- Court's Interpretation and Reasoning: The Court noted that the delay in filing Form 10B was due to technical glitches on the e-filing portal, which were beyond the control of the assessee. The Court emphasized that procedural defects, such as the late filing of the Audit Report, should be rectifiable if the substantive requirements for exemption are met.

- Key Evidence and Findings: The evidence presented showed that the Form 10B was uploaded on time but was approved late due to technical issues. The Court found this explanation credible and consistent with precedent.

- Application of Law to Facts: The Court applied the principle that procedural delays should not negate substantive rights to the facts, concluding that the assessee should not be denied exemption due to the delay.

- Treatment of Competing Arguments: The Revenue Authorities argued for strict adherence to procedural timelines. However, the Court prioritized substantive compliance over procedural formality.

- Conclusions: The Court directed the Assessing Officer to allow the deduction claimed by the assessee, recognizing the delay as a procedural defect that is rectifiable.

Granting of Approval under Section 10(23C)(via) Instead of Section 10(23C)(vi)

- Relevant Legal Framework and Precedents: Section 10(23C) provides exemptions based on the nature of the institution (e.g., educational vs. hospital). The Court considered whether a clerical error in selecting the wrong subsection could be rectified.

- Court's Interpretation and Reasoning: The Court recognized the clerical nature of the error and noted that the substantive objective of the assessee was educational, as evidenced by the long-standing approval since 2003.

- Key Evidence and Findings: The Form 10A indicated "education" as the objective, despite the incorrect section code being selected. The Court found this consistent with the assessee's historical purpose and activities.

- Application of Law to Facts: The Court applied the principle that clerical errors should not undermine substantive rights, especially when the institution's purpose aligns with the claimed exemption.

- Treatment of Competing Arguments: The Revenue Authorities relied on the technicality of the incorrect section code. The Court, however, focused on the substantive alignment of the assessee's activities with the claimed exemption.

- Conclusions: The Court directed the Principal Commissioner of Income Tax to allow the assessee an opportunity to correct the clerical error and apply for the correct exemption under section 10(23C)(vi).

SIGNIFICANT HOLDINGS

- The Court held that procedural defects, such as delays in filing required forms, should not automatically disqualify an entity from tax exemptions if substantive compliance is demonstrated. This is consistent with the principle established in CIT v. Mumbai Metropolitan Regional Iron & Steel Market Committee.

- The Court emphasized that clerical errors in selecting the wrong exemption code should not negate an entity's eligibility for exemption if the entity's substantive activities align with the correct exemption criteria.

- The final determination was to allow the appeal partly for statistical purposes, directing the relevant tax authorities to rectify procedural and clerical errors without penalizing the assessee for these issues.