SPECIAL CARE SCHOOL,HYDERABAD vs. EXEMPTION WARD -1 (2), HYDERABAD

ITA 501/HYD/2026Status: DisposedITAT Hyderabad14 October 2026AY 2020-2110 pages
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What were the facts?

The assessee, Special Care School, an AOP providing educational and support services to underprivileged children with disabilities, filed its Return of Income for AY 2019-20 on 31.10.2019, claiming exemption under Section 11 of the Income Tax Act, 1961. The assessee also filed its audit report in Form 10B with a delay of 242 days. The AO, CPC processed the return under Section 143(1) and denied the exemption, assessing total income at Rs. 1,00,82,212. An order under Section 154 was passed on 24.03.2023. The assessee appealed to the CIT(A) with a delay of 869 days, which was dismissed solely on the ground of delay without considering the merits. The assessee's appeal for AY 2020-21 before the CIT(A) also faced similar issues regarding delay in filing the audit report and appeal. The CIT(A) for AY 2020-21 condoned the delay in filing the appeal but upheld the addition made by the AO.

What did the Tribunal hold?

The Tribunal held that the delay in filing the appeal before the CIT(A) for AY 2019-20, which was 869 days, was due to a bona fide medical emergency of the accountant, supported by medical records. This constituted 'sufficient cause' for condoning the delay, aligning with the principles of substantial justice as laid down in N. Balakrishnan v. M. Krishnamurthy and M/s. Meridian Promoters (P) Ltd. v. DCIT. The Tribunal found that the CIT(A) ought to have condoned the delay and decided the appeal on merits. Regarding the denial of exemption under Section 11 for non-filing of the audit report in Form 10B, the Tribunal, following the decision in Vagdevi Educational Society v. ITO, held that if exemption under Section 11 is denied, the income should be computed under normal commercial principles, allowing for expenditure incurred to earn income. Since the assessee reported a loss (excess of expenditure over income) for AY 2019-20, the AO was directed to recompute the income by considering the financial statements and taxing only the excess of income over expenditure, if any. The same reasoning was applied to AY 2020-21, where the delay in filing the appeal was condoned by the CIT(A) but the addition was upheld. The Tribunal set aside the CIT(A)'s order and restored the issue to the AO for recomputation. The appeals were allowed for statistical purposes.

What were the issues?

1. Whether the CIT(A) erred in law and facts by dismissing the appeal for AY 2019-20 solely on the ground of delay in filing the appeal, without condoning it despite sufficient cause being shown, thereby denying the assessee the opportunity to argue the case on merits, as per Section 253 of the Income Tax Act, 1961? 2. Whether the AO (CPC) erred in denying the exemption claimed by the appellant under Section 11 of the Income Tax Act, 1961, for AY 2019-20 and AY 2020-21, solely on the ground of delay in filing the audit report in Form 10B, and whether the entire gross receipts should be brought to tax at a higher rate without considering the expenditure incurred for the objectives of the trust? Assessee's Contentions: - The delay in filing the appeal before the CIT(A) for AY 2019-20 was due to a medical emergency of the accountant (Cerebro Vascular Accident) and COVID-19 disruptions, constituting sufficient cause. - The CIT(A) for AY 2020-21 condoned a similar delay on identical grounds, indicating inconsistency. - The AO (CPC) wrongly denied exemption under Section 11 by disallowing expenditure incurred for the trust's objectives. - The assessee reported a loss for AY 2019-20 (Rs. 6,68,658 expenditure over income), and if exemption is denied, income should be computed on normal commercial principles, taxing only the surplus, not gross receipts, citing Vagdevi Educational Society v. ITO. Revenue's Contentions: - The reasons for delay in filing the appeal before the CIT(A) do not constitute 'sufficient cause', and thus the CIT(A) rightly rejected the appeal. - Once exemption under Section 11 is lost, gross receipts should be taxed without allowing any expenditure deduction.

Which sections of the Income-tax Act were involved?

Section 11,Section 12A,Section 143(1),Section 154,Section 253

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, HYDERABAD BENCHES, HYDERABAD

Before: SHRI VIJAY PAL RAO & SHRI MANJUNATHA G

Heard together (2 matters)

ITA 2116/HYD/2025
ITA 501/HYD/2026

Read from the judgment's own cause title. This page is filed under one of them.

Per Manjunatha.G, AM These two appeals filed by the assessee are directed against the orders of the Commissioner of Income Tax (Appeals)/Addl/JCIT(A)-1, Jaipur, dated 26.09.2025, and pertains to assessment year 2019-20 & the ITA 2116/HYD/2025 & ITA 501/HYD/2026 SPECIAL CARE SCHOOL

Commissioner of Income Tax (Appeals)/Addl/JCIT(A), Kochi dated 22.01.2026, and pertains to a

The order continues below.

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