ROTARY DISHA TRUST ,DOMBIVLI vs. EXEMPTION WARD, THANE, THANE

The assessee has raised thirteen grounds of appeal, principally challenging the dismissal of its appeal for non-prosecution, the jurisdiction 1

Briefly stated, the assessee is a charitable trust which filed its return of income for the assessment year 2016-17 on 22.02.2017. The return was treated as defective, and a notice under section 139(9) of the Act dated 05.04.2017 was issued. Thereafter, the assessee furnished a return in response to the said notice on 08.04.2017. The assessee had claimed exemption under section 11 of the Act in respect of income applied towards its charitable objects and income accumulated or set apart for application towards such objects.

The CPC, Bengaluru, while passing the rectification order dated 29.01.2018 under section 154 of the Act, denied the exemption claimed under section 11 on the ground that the assessee had not furnished the particulars of audit in the relevant schedule of the return and that the audit report in Form No. 10B had been electronically furnished after filing the return of income. Consequently, the total income was computed at Rs. 12,32,498/- and a demand of approximately Rs. 2,60,140/- was raised.

Aggrieved by the aforesaid rectification order, the assessee preferred an appeal before the learned CIT(A), challenging the denial of exemption under section 11(1)(a) in respect of Rs. 32,667/- applied towards medical relief and education, the exemption of Rs. 1,84,875/- representing 15% of the income accumulated under section 11(1)(a), the treatment of corpus donations amounting to Rs. 9,91,102/- as taxable income, and the denial of exemption under section 11(2) in respect of the sum of Rs. 11,55,000/- accumulated for charitable purposes.

The learned CIT(A), however, proceeded to make certain observations on the merits of the case. It was observed that the assessee had failed to furnish Form No. 10B along with the return of income and that no evidence had been produced to establish that the assessee had filed an application before the competent authority seeking condonation of delay under section 119(2)(b) of the Act. The learned CIT(A), therefore, upheld the action of CPC in denying exemption under section 11 of the Act and dismissed the appeal.

During the course of hearing before us, the learned Authorised Representative (AR) of the assessee submitted that the learned CIT(A) was not justified in sustaining the rectification order passed by CPC under section 154 of the Act. It was contended that the jurisdiction under section 154 is confined to rectification of a mistake apparent from the record and cannot be invoked for deciding a debatable issue requiring interpretation of the statutory provisions. According to the learned AR, the question whether delayed furnishing of Form No. 10B disentitled the assessee to exemption under section 11 involved a debatable issue of law and, therefore, could not have been adjudicated in proceedings under section 154 of the Act.

The learned AR further submitted that the requirement of furnishing the audit report in Form No. 10B along with the return of income was directory in nature and that the substantive benefit of exemption under 3

The learned AR also placed reliance upon CBDT Circular No. 16/2022 dated 19.07.2022 concerning condonation of delay in furnishing Form No. 10B under section 119(2)(b) of the Act. It was contended that the circular recognises the availability of a mechanism for condonation of delay in appropriate cases.

The learned AR further assailed the dismissal of the appeal for non- prosecution. It was submitted that the learned CIT(A), being a statutory appellate authority, was required to adjudicate the appeal on merits in accordance with section 250(6) of the Act. The learned AR submitted that the mere failure of the assessee to respond to notices of hearing did not authorise the first appellate authority to dismiss the appeal for non- prosecution. It was accordingly submitted that the impugned order was unsustainable in law.

Per contra, the learned Departmental Representative (DR) drew our attention to the repeated non-compliance on the part of the assessee during the proceedings before the learned CIT(A). It was submitted that several opportunities of hearing had been afforded to the assessee, but the assessee had failed to avail itself of those opportunities or furnish the necessary submissions and supporting documents.

However, the learned DR fairly submitted that the Revenue had no objection if the matter was restored to the file of the learned CIT(A), being

We have given our thoughtful consideration to the rival submissions and carefully perused the material available on record, including the rectification order passed under section 154 of the Act, the impugned appellate order, the grounds raised by the assessee and the judicial precedent relied upon.

The principal issue requiring our consideration at this stage is whether the learned CIT(A) was justified in dismissing the appeal for non- prosecution and whether, in the facts and circumstances of the case, the matter deserves to be restored to the file of the first appellate authority for fresh adjudication on merits.

We find that the learned CIT(A), in paragraphs 4.1 and 4.2 of the impugned order, has recorded that the assessee had failed to respond to several notices issued during the appellate proceedings and, therefore, the appeal was liable to be dismissed for non-prosecution. Although the learned CIT(A) has thereafter made certain observations regarding the delayed filing of Form No. 10B and the absence of an application for condonation of delay, the various issues raised by the assessee, including the scope of jurisdiction under section 154, the treatment of corpus donations and the separate statutory requirements governing accumulation under section 11(2), have not been individually adjudicated by recording findings supported by reasons.

In this regard, it is pertinent to refer to section 250(6) of the Act, which mandates that an order disposing of an appeal shall be in writing and shall state the points for determination, the decision thereon and the reasons for the decision. Thus, the statutory obligation cast upon the first appellate authority is not discharged merely by recording that the assessee has failed

The aforesaid legal position stands settled by the judgment of the Hon'ble jurisdictional Bombay High Court in CIT v. Premkumar Arjundas Luthra (HUF), (2016) 240 Taxman 133 (Bom), wherein the Hon'ble High Court, while examining the powers and duties of the Commissioner (Appeals) under sections 250 and 251 of the Act, held as under: 8. From the aforesaid provisions, it is very clear once an appeal is preferred before the CIT(A), then indisposing of the appeal, he is obliged to make such further inquiry that he thinks fit or direct the Assessing Officer to make further inquiry and report the result of the same to him as found in Section 250(4) of the Act. Further Section 250(6) of the Act obliges the CIT(A) to dispose of an appeal in writing after stating the points for determination and then render a decision on each of the points which arise for consideration with reasons in support. Section 251(1)(a) and (b) of the Act provide that while disposing of appeal the CIT(A) would have the power to confirm, reduce, enhance or annul an assessment and/or penalty. Besides Explanation to sub-section (2) of Section 251 of the Act also makes it clear that while considering the appeal, the CIT(A) would be entitled to consider and decide any issue arising in the proceedings before him in appeal filed for its consideration, even if the issue is not raised by the appellant in its appeal before the CIT(A). Thus once an assessee files an appeal under Section 246A of the Act, it is not open to him as of right to withdraw or not press the appeal. In fact the CIT(A) is obliged to dispose of the appeal on merits. In fact with effect from 1stJune, 2001 the power of the CIT(A) to set aside the order of the Assessing Officer and restore it to the Assessing Officer for passing a fresh order stands withdrawn. Therefore, it would be noticed that the powers of the CIT(A) is co-terminus with that of the Assessing Officer i.e. he can do all that Assessing Officer could do. Therefore just as it is not open to the Assessing Officer to not complete the assessment by allowing the assessee to withdraw its return of income, it is not open to the assessee in appeal to withdraw and/or the CIT(A) to dismiss the appeal on account of non-prosecution of the appeal by the assessee. This is amply clear from the Section 251(1)(a) and (b) and Explanation to Section 251(2) of the Act which requires the CIT(A) to apply his mind to all the issues which arise from the impugned order before him whether or not the same has been raised by the appellant before him. Accordingly, the law does not empower the CIT(A) to dismiss the appeal for non-prosecution as is evident from the provisions of the Act.

We also find that the learned CIT(A) has referred to the decision of the Delhi Bench of the Tribunal in CIT v. Multiplan India (P.) Ltd., (1991) 38 ITD 320 (Delhi). On perusal of the said decision, we find that it arose in the context of a reference application under section 256(1) concerning an appeal before the Tribunal which had been treated as unadmitted under Rule 19 of the Income-tax (Appellate Tribunal) Rules, 1963. The issue considered therein was materially different from the statutory obligation of the Commissioner (Appeals) under section 250(6) of the Act. Therefore, the said decision does not furnish a legal basis for dismissing an appeal before the CIT(A) solely on account of non-prosecution, particularly in view of the binding judgment of the Hon'ble jurisdictional High Court in Premkumar Arjundas Luthra (HUF) (supra).

As regards the contention of the assessee concerning the scope of section 154 of the Act, it is well settled that the power of rectification is confined to a mistake apparent from the record and cannot be exercised for deciding a debatable issue of law. The Hon'ble Supreme Court in T.S. Balaram, ITO v. Volkart Brothers, (1971) 82 ITR 50 (SC), has laid down the following principle that “a decision on a debatable point of law is not a mistake apparent from the record". This principle is relevant to the assessee's challenge to the rectification order. However, whether the particular adjustment made by CPC in the present case falls beyond the scope of section 154 requires examination of the original processing of the return,

We have also considered the decision of the coordinate Bench in United Jain Students Home v. ITO, ITA No. 6625/Mum/2025, dated 11.06.2026, relied upon by the learned AR. In that case, the coordinate Bench, having regard to the facts that the assessee possessed valid registration under section 12A and had obtained the audit report before the prescribed date, held that the delayed electronic furnishing of Form No. 10B did not justify denial of exemption under sections 11 and 12 of the Act. The Bench accordingly directed the Assessing Officer to allow the exemption after taking cognizance of the audit report already furnished.

The aforesaid decision supports the proposition advanced by the learned AR that procedural requirements concerning furnishing of the audit report must be considered in the context of the relevant statutory provisions and the facts of the case. However, the present appeal relates to assessment year 2016-17, and the relevant factual aspects concerning the audit report, compliance with the statutory requirements, and the individual claims of exemption require examination. We therefore refrain from expressing any conclusive opinion on the entitlement of the assessee to exemption at this stage.

As regards CBDT Circular No. 16/2022 dated 19.07.2022, we observe that the said circular deals with condonation of delay in furnishing Form No. 10B for assessment year 2018-19 and subsequent assessment years. Since the assessment year under consideration is 2016-17, the applicability of the relevant instructions or circulars governing that year, and the legal consequences of delayed furnishing of the audit report, shall require examination in accordance with law. 8

In the present case, having regard to the nature of the controversy, the various issues raised before the first appellate authority, the requirements of section 250(6), and the submissions of both parties, including the fair concession made by the learned DR that the Revenue has no objection to restoration of the matter, we are of the considered view that the ends of substantial justice would be adequately met by granting the assessee one more opportunity to present its case before the learned CIT(A).

Accordingly, we set aside the impugned order dated 13.04.2026 passed by the learned CIT(A) and restore the appeal to his file for fresh adjudication on merits in accordance with law. The learned CIT(A) shall examine all the grounds raised by the assessee, including the jurisdictional challenge under section 154, the effect of furnishing Form No. 10B after filing the return, the claims under sections 11(1)(a), 11(1)(d) and 11(2), and the applicability of the relevant statutory provisions, judicial precedents and CBDT instructions governing the assessment year under consideration. The learned CIT(A) shall pass a speaking order in accordance with section 250(6) of the Act after affording a reasonable opportunity of being heard to the assessee.

We further direct the assessee to extend full cooperation in the appellate proceedings, respond to the notices issued by the learned CIT(A), and furnish all relevant documents and explanations in support of its claims without seeking unnecessary adjournments. In the event of continued non- 9

We make it clear that we have not expressed any final opinion on the merits of the claims raised by the assessee, including the validity of the rectification order under section 154 or the allowability of exemption under section 11. All these questions are kept open for adjudication by the learned CIT(A), who shall decide the same independently in accordance with law, uninfluenced by any observations made herein except those relating to the statutory obligation to dispose of the appeal on merits.

In view of our decision to restore the appeal to the file of the learned CIT(A), the grounds raised by the assessee are allowed for statistical purposes.

In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 13-10-2026.