ITAT remands exemption denial to CIT(A) to consider revised Form 10BB and delay condonation

ITAT remands exemption denial to CIT(A) to consider revised Form 10BB and delay condonation

Issue

1. AY 2023-24: Whether CPC was justified in restricting exemption u/s 11/12 due to an inadvertent reporting error in Form 10BB regarding application of funds from earlier years.

2. AY 2024-25: Whether exemption u/s 11/12 can be denied for non-filing of Form 10BB with the return, even if produced later.

Facts

Assessment Year 2023-24:

• The Assessee filed a return declaring ‘Nil’ income, claiming application of Rs. 271.89 Lacs for charitable purposes.

• In the Audit Report (Form 10BB), the auditor inadvertently reported in Column 27(c) that Rs. 222.83 Lacs was applied out of accumulated income of earlier years, instead of current income.

• Based on this reporting, CPC Bengaluru processed the return u/s 143(1) and restricted the allowable application, resulting in an addition of Rs. 2,22,83,831/-.

• The Ld. CIT(A) upheld the CPC order, stating that CPC processes returns based on filed data and the Assessee failed to revise the form earlier.

Assessment Year 2024-25:

• The Assessee claimed application of Rs. 263.89 Lacs but incorrectly reflected in the return that Rs. 252.81 Lacs was from earlier years’ accumulation.

• Crucially, the Assessee failed to file Form 10BB along with the return.

• Consequently, CPC processed the return denying the full exemption claim u/s 11/12.

• The Assessee later placed copies of Form 10BB and Revised Form 10BB on record before the Tribunal.

Decision

• On CPC Jurisdiction (AY 2023-24): The Tribunal noted that CPC’s adjustment was technically correct u/s 143(1)(a)(ii)/(iv) as it relies on automated processing of data provided in the return and audit report.

• On Revised Forms (AY 2023-24): The Assessee submitted a Revised Form 10BB correcting the reporting error as additional evidence. The Tribunal set aside the CIT(A) order and restored the matter to the CIT(A) to consider the revised form and verify compliance with Section 11(2).

• On Non-Filing of Form (AY 2024-25): The Tribunal set aside the denial of exemption and restored the matter to the CIT(A).

• Direction on Delay: For AY 2024-25, the Tribunal directed the Assessee to seek condonation of delay in filing Form 10BB from the appropriate authority (CIT/Pr. CIT) as per extant guidelines.

• Final Ruling: Both appeals were allowed for statistical purposes.

Key Takeaways

1. Rectification of Reporting Errors: Clerical errors in Form 10BB (specifically regarding the source of funds applied—current vs. accumulated) can lead to automated additions by CPC, but these are curable at the appellate stage by filing a Revised Form 10BB.

2. Admissibility of Additional Evidence: The Tribunal creates room for substantial justice by allowing Revised Audit Reports to be considered as additional evidence even if not available during CPC processing.

3. Mandatory Condonation: If Form 10BB is not filed with the return, the Tribunal may remand the matter, but the Assessee must essentially obtain a condonation of delay from the CIT(Exemptions) to validate the late filing and claim exemption.