ITAT Allows Section 11 Exemption Despite Procedural Delay in Audit Report and ITR Filing

The assessee, the Indian Medical Association (IMA), is a charitable trust registered under Section 12A of the Income Tax Act. For AY 2014-15, it filed its return belatedly on 06.07.2015, claiming exemption of Rs. 2.31 crore under Sections 11 and 12. The CPC denied the exemption while processing the return under Section 143(1), citing the delayed filing of the return and the audit report in Form 10B, which was submitted much later on 27.04.2021. A demand of Rs. 1.11 crore was raised accordingly.

CIT (A) Appeal: The CIT(A) confirmed the disallowance, holding that without a condonation order under Section 119(2)(b), the claim could not be entertained and that the appellate authority lacked jurisdiction to condone the delay.

Issue Raised: Whether the assessee’s claim for exemption under Section 11 could be disallowed solely on the ground of belated filing of the return and audit report in Form 10B, despite substantial compliance and the absence of any adverse finding on the genuineness of charitable activities.

Tribunal’s Decision: The Tribunal allowed the appeals and directed the Assessing Officer to grant exemption under Section 11. The ITAT noted that the return, though delayed under Section 139(1), was filed within the time permitted under Section 139(4), and that the audit report in Form 10B had been submitted during the appellate proceedings. Relying on the rulings of Bangarh Educational Welfare Trust and Sarvodaya Charitable Trust, the Tribunal concluded that the requirement to file Form 10B is directory in nature and that substantial compliance is sufficient.

The Tribunal further observed that neither the CPC nor the CIT(A) had doubted the genuineness of the trust’s activities or the application of income towards charitable purposes. It held that in such cases, procedural deficiencies should not defeat an otherwise legitimate claim for exemption, particularly when remedial action has been taken and the default is not deliberate.

Therefore, the orders passed by the lower authorities were set aside for AYs 2014-15, 2017-18, 2018-19, 2019-20, and 2020-21, and the CPC was directed to allow the claim under Section 11 for all the five assessment years.

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