ITAT Grants Relief on Delayed Form 10 Filing, Orders Reconsideration of Section 11(2) Exemption Claim

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench has provided relief to Dombivli based charitable trust Shree Ganesh Mandir Sansthan in a matter related to exemption under Section 11(2) of Income Tax Act for the Assessment Year 2016-17.

The trust had filed its income tax return claiming exemption under Section 11. Under the law, when a charitable trust is unable to spend 85% of its income during the year, it must file Form No. 10 declaring that the unspent amount will be used for charitable purposes in future years. From AY 2016-17 onwards, filing Form No. 10 electronically became mandatory.

In this case, the trust filed its return on 5th October 2016 but uploaded the Form No. 10 late on 10th December 2016. The Centralised Processing Centre (CPC) while processing the return rejected exemption on Rs 34 lakh, saying that the form was not filed within the prescribed time limit.

The Trust contended that Form No. 10 was filed before the return was processed by the CPC, despite the late filing. It also noted that no show-cause notice was issued prior to the adjustment, which was required under the law.

After its rectification application was rejected by the CPC and the first appellate authority also dismissed the appeal, the trust approached the ITAT.

The Tribunal observed that Form No. 10 was available with the department well before the return was processed. It also observed that the CPC had not issued any notice to the assessee prior to making the adjustment under Section 143(1), which was contrary to the statutory requirement.

The ITAT also referred to CBDT Circular No. 7 of 2018 which was issued to ease the difficulties faced by the taxpayers in electronically filing Form No. 10 in the initial years of mandatory e-filing. The Tribunal held that procedural delay should not automatically lead to the denial of substantial tax benefits where there is substantial compliance with the law.

Relying on its recent decision in the case of Rotary Club of Bombay Queens Necklace Charitable Trust, the Tribunal held that exemption should not be denied merely because of a procedural delay when the required form was filed before processing of the return and no prejudice was caused to the Revenue.

Accordingly, the ITAT set aside the order of the appellate authority and directed the Assessing Officer to consider the Form No. 10 filed by the trust and re-examine its claim for exemption under Section 11(2). The ITAT directed the AO to provide the trust a reasonable opportunity of being heard before passing the order.

As a result, the appeal of the trust was allowed for statistical purposes.