Facts of the Case

The assessee, a registered charitable society engaged in educational activities, filed its return of income for AY 2018-19 declaring NIL income after claiming exemption under Sections 11 and 12 of the Income-tax Act.

The return was processed under Section 143(1), wherein exemption was denied on the ground that the audit report in Form 10B was not filed along with or before filing the return. Consequently, the gross receipts of ₹94,60,424 were brought to tax.

The assessee filed a rectification application under Section 154, which was rejected by CPC, Bangalore. The first appeal before the CIT(A), NFAC, was also dismissed. Aggrieved, the assessee filed an appeal before the ITAT.

Issues Involved

  1. Whether exemption under Sections 11–12 can be denied due to non-submission of Form 10B along with the return.
  2. Whether rectification under Section 154 was appropriate in the circumstances.
  3. Whether dismissal of appeal by CIT(A) without granting opportunity violates principles of natural justice.

Petitioner’s Arguments (Assessee)

  • The society is duly registered under Sections 12A and 80G since 2008.
  • Regular books of account are maintained and audited.
  • Both the return and Form 10B were filed within the prescribed due date.
  • Exemption had been allowed in earlier and subsequent years.
  • The CIT(A) passed an ex-parte order without providing an opportunity of being heard.

Respondent’s Arguments (Revenue)

  • The audit report in Form 10B was not filed along with the return as required by Section 12A(1)(b) read with Rule 12(2).
  • Therefore, exemption under Section 11 was rightly denied during processing.
  • The rectification order under Section 154 and subsequent appellate order were justified.
  • The CIT(A) disposed of the appeal ex-parte without granting proper opportunity to the assessee.
  • Even under the faceless appeal scheme, adherence to principles of natural justice is mandatory.
  • No person should be condemned unheard.
  • The assessee must be allowed to present explanations and evidence regarding its claim.

Accordingly, the Tribunal:

  • Set aside the appellate order passed by the CIT(A),
  • Restored the matter to the file of the CIT(A) for fresh adjudication on merits, and
  • Directed that adequate opportunity be provided to the assessee.

Important Clarification

  • Faceless proceedings do not dilute the requirement of natural justice.
  • Ex-parte orders passed without proper opportunity are unsustainable.
  • Authorities must evaluate claims on merits after hearing the assessee.

 

Link to download the order -  https://itat.gov.in/public/files/upload/1677153781-umrao%20singh.pdf

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