CHINMAYA SEVA TRUST ,BELGAUM V. PR.COMMISSIONER OF INCOME TAX , BELAGAVI

ITA 240/PAN/2024

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Chinmaya Seva Trust appealed against the summary assessments for the assessment years 2017-18 and 2018-19, which denied exemptions under sections 11 and 12 of the Income-tax Act due to the non-filing of audit reports (Form No. 10B) along with the income tax returns. The Tribunal considered the procedural nature of the requirement to file audit reports and noted that the reports were filed belatedly but before the processing of the returns. The Tribunal referenced various judicial precedents that supported the view that the requirement to file audit reports is directory and not mandatory for claiming exemptions under sections 11 and 12. Consequently, the Tribunal found that the trust was entitled to the exemptions and directed a reassessment.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 26275 (ITAT-PANAJI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2024
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: WT(D)
• Assessment Year: 2017-2018
• Other Referred Cases: Susila Education Trust Vs ITO(E), ITO(E) Vs Takshshila Foundation (NGO), ITO Vs P K Krishnan Educational Trust, CIT Vs Sahzadanand Charity Trust, Shree Jain Swetamber Murtipujak Tapagachha Sangh Vs CIT(E), Al Jamia Mohammediyah Education Society Vs CIT(E)
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVINDRA HATTALLI LD.
• Assessee Lawyers: PRAMOD VAIDYA LD.
• Keywords: Set aside; Reasonable cause; Assessment record; Charitable institution; Benefit of exemption; Procedural lapse
• Section: 250; 143(1); 11; 139(1); 12A; 13; 12; 139(4); 10B

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, PANAJI BENCH, PANAJI ITAT-Panaji Page 1 of 14 BEFORE HON’BLE SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER AND SHRI G. D. PADMAHSHALI, ACCOUNTANT MEMBER ITA No. 240 & 241/PAN/2024 Assessment Year : 2017-18 & 2018-19 Chinmaya Seva Trust 87-B, 4th Cross, Bhagya Nagar, Belgaum. PAN:AABTC6516A . . . . . . . Appellant V/s Dy. Commissioner of Income Tax, Central Processing Centre, Delhi. . . . . . . . Respondent Appearances Assessee by : Mr Pramod Vaidya [‘Ld. AR’] Revenue by : Mr Ravindra Hattalli [‘Ld. DR’] Date of conclusive Hearing : 18/12/2024 Date of Pronouncement : 31/12/2024 ORDER PER G. D. PADMAHSHALI, AM; This twin appeals are instituted u/s 253(1) of the Income-tax Act, 1961 [for short ‘the Act’] by the assessee challenging respective orders passed u/s 250 of the by the Addl./Jt. Commissioner of Income Tax Appeals-3, Ahmedabad. [for short ‘Ld. CIT(A)/NFAC’] which in turn confirmed the respective summary assessments passed u/s 143(1) of the Act by the Central Processing Centre, Bengaluru [for short ‘Ld. AO/CPC’], in relation to the assessment year 2017-18 & 2018-19 [for short ‘AY’] Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 2 of 14 2. Since facts and substantive issue involved in both these appeals being common & identical; at the request of rival parties hereof, these appeals of the assessee are taken up together for the sake of brevity and for disposing them off by a common & consolidated order. 3. Briefly stated facts of these cases are that; 3.1 The assessee for assessment year 2017-18 filed its return of income [for short ‘ITR’] on 01/01/2018 declaring total income at ₹1,98,700/- after claiming exemption of ₹24,01,811/- u/s 11 & 12 of the Act. The ITR was summarily processed on 24/03/2019 determining total income of the assessee at ₹26,00,512/- u/s 143(1) of the Act on account of denial of exemption claimed u/s 11 & 12 of the Act for not accompanying audit report i.e. Form No. 10B. For assessment year 2018-19 the assessee filed its ITR on 16/06/2018 declaring NIL total income after claiming ₹15,71,817/- exemption u/s 11 & 12 of the Act. The said ITR was also summarily processed on 21/05/2019 determining taxable income at ₹15,71,817/- u/s 143(1) of the Act on account of like denial on a similar reason of failure to file audit report along with ITR which was one of the conditions precedent for claiming exemption u/s 11 & 12 of the Act. Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 3 of 14 3.2 Aggrieved assessee assailed former denial of exemptions on legal ground as well as on merits in separate appeals before first appellate authority u/s 246A(1) of the Act. The said appeals came to be dismissed reiterating the assessee’s failure in furnishing the audit report along-with return of income within the prescribed due date u/s 139(4A) r.w.s. 139 of the Act. In aforestated circumstances, the assessee brought up its common grievance in present twin appeals on following common grounds viz; 1. On the facts and circumstances of the case and in law the learned CIT(A) erred in confirming the disallowance of exemption u/s 11 for the delay in filing Form No 10 dated dd.mm.yyyy filed on dd.mm.yyyy 2. 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 3. The CIT(A) failed to appreciate that, “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) cannot be so fatal so as to deny the claim of exemption u/s 11. 4. During the course of physical hearing, the Ld. AR Mr Vaidya adverting to the assessment records reiterated appellant’s submissions as were made before Ld. CIT(A) and contended that, subsequent to filing of ITR, the trust for both the years has suo-motto furnished respective audit reports in Form No. 10B. There is no Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 4 of 14 dispute about the fact that in both years under consideration required audit report was filed belatedly. However insofar as the AY 2017-18 is concerned the delay in filing the audit report is statutorily condoned by the Central Board of Direct Taxes vide its Circular No 10 dt. 22/05/2019. And insofar as the delay in filing the audit report for subsequent assessment year 2018-19 is concerned, it was submitted that, the said audit report was obtained much before the filing of ITR u/s 139 of the Act, and the assessee was under bonafied belief that same were filed by the auditor in time. It is the common averment or claim of the appellant that, the time lines prescribed for filing audit report under the statue is directory in nature, therefore any delay in complying therewith in no case can whitewash the legal entitlement for exemptions. To drive home this contention the Ld. AR relied upon the decision of various co-ordinate benches. Further to buttress appellant’s right to claim exemption in appellate proceedings it is also avowed by the Ld. AR that, the first appellate authority possess co- terminus powers with that of assessing officer, therefore filing of such audit reports any-time before culmination of such appellate proceedings should be treated as due compliance of 12A(1)(b) of the Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 5 of 14 Act and thus the benefit of exemption be allowed. The entitlement can-not be taken away for technical or unintended delay in filing Form No. 10B. Au contraire, placing strong reliance on the orders of tax authorities below the Ld. DR Mr Ravindra acquiesced that, in absence of statutory provision for condoning the delay in filing audit reports, the denial of exemption on account of violation of prime condition laid u/s 12A(1)(b) of the Act is perfectly in law, ergo prayed for dismissal of appeals in limine. 5. We have heard the rival contentions; and subject to rule 18 of ITAT-Rules, 1963 perused the material placed on record and duly considered the facts of the case in the light of settled legal position which are forewarned to the respective rival parties. The sole dispute in present twin appeals encircled around denial of exemption u/s 11 and 12 of the Act for the cannonball reason of filing Form No. 10B belatedly, thus alleging the violation of provision of section 12A(1)(b) of the Act which is one of the prime conditions for entitlement of claim of exemption u/s 11 & 12 of the Act. Since the sum and substance of common ground of appeals entreated by the Ld. Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 6 of 14 AR and negated by the Ld. DR loops around the attraction of provision of section 12A(1)(b) of the Act given that, before proceeding to adjudicate former solitary issue, we deem it apt to reproduce here then applicable provision in verbatim as; ‘12A Conditions for applicability of section 11 and 12 (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:— (a). . . . . . . (aa). . . . . . . (b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.’ (Emphasis supplied) 6. A plain reading former provision uncloudedly unveils that, for the purpose of claim of exemption u/s 11 & 12 of the Act the provision creates twofold obligation upon claimant assessee viz; (a) to cause & gets books of account audited and (b) to ensure the filing of such audit report in prescribed form along-with return of income. Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 7 of 14 7. Now coming to first case relating to AY 2017-18 we note that, vide audit report dt. 29/07/2017 the books of the appellant assessee were audited by Chartered Accountant Mr Rahul Adake. As against the extended due date of filing 07/11/2017 as prescribed u/s 139(1) r.w.s. 139(4A) of the Act, the appellant filed its ITR on 01/01/2018. Admittedly the said ITR was filed after the expiry of due date prescribed u/s 139(1) of the Act and further said ITR was filed without accompanying therewith the audit report. The required audit report in Form No 10B was filed thereafter online on 27/11/2019 whereas the ITR was summarily processed on 24/03/2019. Thus, there was clear non-compliance with the mandatory provision of section 12(1)(b) of the Act. Therefore, we see no infirmity with the order of summary assessment passed u/s 143(1) of the Act. Insofar as the AY 2018-19 is concerned, the appellant filed its ITR on 16/06/2018 i.e., well within the due date of filing prescribed u/s 139(1) of the Act, however it was filed without accompanying therewith the required audit report. Though for the year under consideration the books of account were also audited and report thereof was issued by the auditor (supra) on 14/06/2018 however Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 8 of 14 same was filed by the appellant online on dt. 27/11/2019 whereas the ITR was summarily processed on 21/05/2019. Thus, in the subsequent year also there was clear non-compliance with the mandatory provision of section 12(1)(b) of the Act. Therefore, we see no infirmity with the order of assessment passed u/s 143(1) of the Act. 8. We note that, there is no dispute over the fact that, the books of account of the appellant assessee for both the years under consideration were duly audited in terms of section 12A(1)(b) of the Act and the respective audit reports were obtained much before the expiry of due dates prescribed u/s 139(4A) r.w.s. 139(1)/(4) of the Act. Therefore, in our thoughtful consideration there were no substantive failure on the part of appellant assessee in complying the provisions of section 12A(1)(b) of the Act. The non-filing of such audit report along-with ITR and filing them belatedly per-se indicates procedural lapses. The former lapses since made good much after the processing of respective ITR, therefore such post belated compliance would in no derails the summary assessment which were processed in the absence of audit reports. Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 9 of 14 9. The denial of claim for exemption for AY 2017-18 was for twofold reasons (a) ITR was not filed within the due date prescribed 139(1) of the Act but u/s 139(4) of the Act and (b) audit report was neither filed within former due date nor it was accompanied with ITR. Insofar as the AY 2018-19 is concerned, the denial is based non filing of audit report along-with ITR. 10. It remained an undisputed fact that, the respective audit reports in Form No. 10B (r.w.r. 17B) were furnished by the appellant subsequent to filing of its respective ITR and much after they were summarily processed. Nota bene, may it be assessment or re- assessment, the taxable income of every ‘Person’ as defined by 2(31) of the Act, has to be computed in accordance with the provisions of the Act and in the present case, as is abundantly evident from the orders of tax authorities below that, the appellant assessee is a registered trust u/s 12A of the Act and is engaged in activities which falls well within the ambit of ‘Charitable purpose’ as defined by section 2(15) of the Act, resultantly the appellant was entitled to the benefit of section 11 and 12 of the Act. From the assessment and first Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 10 of 14 appellate orders it transpires that, the denial of benefit of exemption u/s 11 of the Act was for the solitary reasoning that, the assessee failed to file Form No. 10B r.w.s. 12A(1)(b) of the Act within the due date prescribed for filing ITR u/s 139(4A) of the Act. However, it is also an undisputed fact that, in relation to both the assessment years there were no finding vis-a-vis allegation by the tax authorities below against the appellant trust of carrying or doing any object exterior activities disentitling itself from claiming exemption u/s 11 and 12 of the Act. 11. It is needless to mention that, the ‘Procedure for assessment’ as stands u/c XIV of the Act, provides for procedures and conditions for filing of return of income, and the section 139(4A) mandates that, every person in receipt of income derived from property held under trust, i.e., Charitable or religious Trust, etc., to file its return of income in case its total income of the previous year without giving effect to the provisions of section 11 and 12 of the Act exceeds the maximum amount not chargeable to tax and in case of failure to do so, a penal action has been prescribed u/s 272A(2)(e) of the Act. On a plain Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 11 of 14 reading of the relevant provisions, in our opinion, failure to file Form No. 10B along-with return u/s 139(4A) cannot be interpreted to mean that the charitable trust per se disentitles from the claim of exemption u/s 11 of the Act. On the contrary, during the impugned assessment year under appeal, there was no such provision in the Act that, in case return vis-à-vis audit report if not filed by the due date u/s 139(4A) by the Charitable Trust, then its income cannot to be computed in accordance with the provision of the Act. Albeit, clause (b) of section 12A(1) mandates every charitable trust or institution, whose total income before giving effect to the provisions of section 11 and 12 exceeds the maximum amount not chargeable to income tax, furnishing of audit report obtained in Form No. 10B along-with the return of income, however for the impugned assessment year, it does not ispo-facto prescribes any time limit for furnishing the audit report. The Ld. Tax authorities below however tried to read a condition of clause (b) of section 12A(1) into section 139(4A) to hold that such audit report in Form No. 10B vis-à-vis return of income could have been filed before the due date of filing for claiming benefit of section 11 and 12 of the Act, which we do not subscribe. All that clause (b) Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 12 of 14 of section 12A(1) mandates that, the provision of section 11 & 12 shall not apply unless the accounts are audited and audit report thereof is filed along-with a return. Thus, what the provision envisages is that as and when the income of the trust is to be assessed these former conditions need to be complied by the assessee in its true spirit, so as enable the Revenue to assess the total income effectively in accordance with provisions of section 11 & 12 of the Act. 12. We find that similar view has been adopted by various co- ordinate bench and more specifically in ‘Susila Education Trust Vs ITO(E)’ [2024, 167 taxmann.com 326], ‘ITO(E) Vs Takshshila Foundation (NGO’ [2024 165 com 735 ] ‘ITO Vs P K Krishnan Educational Trust’ [2024, 162 taxmann.com 899]. The said condition of filing audit report has been held by Hon’ble Courts to be merely procedural and therefore directory in nature and not mandatory for the purpose of claiming exemption u/s 11 & 12 of the Act [CIT Vs Sahzadanand Charity Trust reported in 228 ITR 292]. 13. On the other hand, we also note that, since the audit report were duly obtained by the appellant well within the due of filing return of Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 13 of 14 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. In a similar facts & circumstance the Hon’ble Bombay High Court in ‘Shree Jain Swetamber Murtipujak Tapagachha Sangh Vs CIT(E)’ [2024, WP/1321/2024] and ‘Al Jamia Mohammediyah Education Society Vs CIT(E)’ [2024, 162 taxmann.com 114] 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. Chinmaya Seva Trust Vs ITO ITA No.240 & 241/PAN/2024 ITAT-Panaji Page 14 of 14 14. In view of the aforestated judicial precedents and for the reasons cited hereinabove; we hold that the Revenue was not justified in denying the benefit of exemption u/s 11 of the Act in pleno to the appellant trust. Consequently we set aside the orders of tax authorities below for both the years under consideration and remand both these 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. The grounds thus stands allowed accordingly. 8. In result, these twin appeals are allowed for statistical purposes. In terms of rule 34 of ITAT Rules, the order pronounced in the open court the date mentioned hereinbefore. -S/d- -S/d- PAVAN KUMAR GADALE G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER Panaji: 31st December, 2024 Copy of the Order forwarded to : 1. The Appellant. 2. The Respondent. 3. The CIT(A)/NFAC Concerned 4. PCIT Concerned 5. DR, ITAT, Panaji Bench, Panaji 6. Guard File By Order, Sr. Private Secretary / AR ITAT, Panaji. "