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Facts
The assessee, a trust registered under Section 12A, filed its return for A.Y. 2018-19 in response to a Section 148 notice, claiming exemption under Section 11. The Assessing Officer completed the assessment by accepting the exemption. However, the PCIT invoked Section 263, deeming the assessment erroneous and prejudicial to revenue because the Audit Report (Form 10B) was filed belatedly, and directed the AO to re-frame the assessment, denying the exemption and treating gross receipts as income.
Held
The Tribunal held that the filing of Form 10B is a procedural requirement and not mandatory, and the exemption under Section 11 cannot be denied solely due to delayed filing, especially when the report was available before the assessment concluded. Since the Assessing Officer had conducted a detailed inquiry and accepted the report, the PCIT erred in invoking Section 263, as the assessment order was neither erroneous nor prejudicial to the interest of the Revenue. The Tribunal quashed the PCIT's order and restored the original assessment.
Key Issues
Whether the PCIT's revision under Section 263 was justified on grounds of belated filing of Form 10B, and whether the filing of Audit Report (Form 10B) is a mandatory or merely procedural requirement for claiming exemption under Section 11 of the Income Tax Act.
Sections Cited
12A, 263, 148, 142(1), 194A, 12A(1)(b), 11, 147, 143(3), 12, 10A, 10B, 10(23C)(vi), 12AA, 12A(2), 12A(1)(a), 288, 144A, 120, 129, 80J(6A), 17B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCHES “B”, PUNE
Before: DR.MANISH BORAD & SHRI VINAY BHAMORE
आदेश / ORDER
PER DR. MANISH BORAD, ACCOUNTANT MEMBER :
1. The captioned appeal at the instance of assessee pertaining to A.Y. 2018-19 is directed against the order dated 28.03.2025 of ld.CIT(Exemption), Pune passed u/s.263 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’).
Brief facts of the case are that the assessee is a trust established on 27.01.1954 registered u/s.12A of the Act vide registration No.CH/P/AHGR/1347/75-76. For A.Y. 2018-19, assessee has been served with a valid notice u/s.148 of the Act on 30.03.2022 and in compliance return of income filed on 16.05.2022 declaring income of Rs.28,73,150/-. Details called for in the notice u/s.142(1) of the Act were examined by the ld. Assessing Officer including the source of cash deposit, time deposit, investment in mutual funds, interest income other than interest on securities u/s.194A. After being satisfied with the details filed by the assessee, ld. AO concluded the assessment accepting the returned income. Subsequently, ld.PCIT called for the assessment records under the powers provided u/s.263 of the Act and observed that the Audit Report on Form 10B dated 19.09.2020 has been filed belatedly on 30.09.2020, i.e. after the due date of filing the Audit Report for A.Y. 2018-19 on 31.10.2018. Ld. PCIT thus issued a show cause notice u/s.263 of the Act observing that since the assessee has violated the provisions of section 12A(1)(b) of the Act and has belatedly filed the Audit Report, ld. Assessing Officer erred in accepting the assessee’s claim of exemption u/s.11 of the Act and the gross receipt of Rs.1,10,28,378/- should have been treated as total income.
In reply to the show cause notice u/s.263 of the Act dated 28.02.2025, assessee contended that the assessment order is neither erroneous nor prejudicial to the interest of the Revenue and ld. Assessing Officer has thoroughly examined the financial records. It was also contended that in case of delay in filing of Form 10B there are two possible views and it has been consistently held by Hon’ble Courts and Coordinate Benches that filing of Audit Report on Form 10B is directory in nature and even if Audit Report is filed during the course of assessment/appellate proceedings, the same is to be considered as a valid compliance. However, ld. PCIT was not satisfied with these contentions and he set-aside the assessment order dated 25.03.2023 and directed the ld. Assessing Officer to re-frame the assessment as per the provisions of law and the observations made in the impugned order.
Aggrieved assessee is now in appeal before this Tribunal challenging the jurisdiction u/s.263 of the Act and also challenging the finding of ld. PCIT in the impugned order and has raised the following grounds of appeal :
“1] The learned CIT(E) erred in holding that the asst. order u/s 147 r.w.s. 143(3) dated 25.03.2023 was erroneous since the A.O. had wrongly allowed the exemption u/s 11 even though the Audit Report in Form 10B for A.Υ.2018 -19 was filed belatedly on 30.09.2020 and thereby directing the A.O. to pass the asst. order afresh as per the provisions of law without appreciating that the invocation of provisions of section 263 in the present case was not justified on facts and in law.
2] The learned CIT(E) ought to have appreciated the law laid down by Hon'ble Courts including Hon'ble Jurisdictional Pune ITAT, holding that filing of Audit Report in Form 10B is a procedural requirement and the exemption u/s 11 cannot be denied if Form 10B even though filed belatedly, was available on record of the A.O. at the time of passing the asst. order and hence, the action of the A.O. in allowing the exemption u/s 11 in the asst. order u/s 147 dated 25.03.2023 on the basis of Audit Report filed belatedly on 30.09.2020, could not have not been termed as erroneous as contemplated u/s 263.
3] The learned CIT(E) further erred in holding that the A.O. should have taxed the gross receipts of Rs. 1,10,28,378 as income in the hands of the appellant trust by denying the exemption u/s 11, without appreciating that even if the exemption u/s 11 is denied, the gross receipts cannot constitute income as per the law laid down by Hon'ble Delhi High Court in case of DDIT v. Petroleum Sports Promotion Board [362 ITR 235 (Delhi HC)] and hence, the above view propounded by the CIT(E) himself was apparently erroneous and therefore, the invocation of provisions of section 263 was not justified on facts of the case and in law.
4] Without prejudice to the above grounds, the appellant submits that the asst. order u/s 147 r.w.s. 143(3) itself was void in as much as the notice u/s 148 dated 30.03.2022 issued by the Jurisdictional A.O. after 29.03.2022 was illegal and therefore, the revision order u/s 263 passed in pursuance to such invalid asst. order u/s 147, is also unsustainable in law.
5] The appellant craves leave to add/ alter/ amend any of the grounds of appeal.
Ld. Counsel for the assessee firstly took us through the paper book running into 53 pages. Reliance placed on the judgment of Coordinate Bench, Chandigarh in the case of M/s. Genius Education Society Vs. ACIT – dated 20.08.2018 wherein also the return was filed in compliance to notice u/s.148 of the Act and claimed exemption u/s.11 and 12 and the Audit Report was belated and it has been held that filing of Audit Report in the prescribed form is merely procedural and therefore directory in nature and not mandatory for the purpose of claiming exemption u/s.11 and 12 of the Act. Reliance further placed on the following decisions :
Indian Medical Association Vs. DCIT (2025 175 taxmann.com 811 (Pune-Trib.) 2. Sahaj Seva Trust Vs. ITO (2025) 174 taxmann.com 784 (Pune- Trib.) 3. Association of Indian Panelboard Manufacturer Vs. DCIT – Tax Appeal No.655 of 2022 dated 21.03.2023 4. Malabar Industrial Company Ltd. Vs. CIT (2000) 109 Taxmann 66 (SC) 5. CIT (Central) Ludhiana Vs. Max India Ltd. 92008) 166 TAxmann 188 (SC)
On the other hand, ld. Departmental Representative vehemently argued supporting the order of ld.PCIT and referred and relied on the following two decisions :
1. PCIT Vs. Wipro Ltd. (2022) 140 taxmann.com 223 (SC) 2. Discoverture Solutions (India) (P) Ltd. Vs. DCIT (2023) 147 taxmann.com 262 (Orissa)
We have heard the rival contentions and perused the record placed before us. We find that the provision of Section 263 of the Act has direct bearing on the issue raised before us, therefore, it is pertinent to take note of this section which reads as under:
"263(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
Explanation- For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,- (a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include- (i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income-tax Officer on the basis of the directions issued by the Joint Commissioner under section 144A; (ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorized by the Board in this behalf under section 120; (b) record shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner; (c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub-section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court.
Explanation- In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."
8. On a bare perusal of the sub section-1 would reveal that powers of revision granted by section 263 to the learned Commissioner have four compartments. In the first place, the learned Commissioner may call for and examine the records of any proceedings under this Act. For calling of the record and examination, the learned Commissioner was not required to show any reason. It is a part of his administrative control to call for the records and examine them. The second feature would come when he will judge an order passed by an Assessing Officer on culmination of any proceedings or during the pendency of those proceedings. On an analysis of the record and of the order passed by the Assessing Officer, he formed an opinion that such an order is erroneous in so far as it is prejudicial to the interests of the Revenue. By this stage the learned Commissioner was not required the assistance of the assessee. Thereafter the third stage would come. The learned Commissioner would issue a show cause notice pointing out the reasons for the formation of his belief that action u/s 263 is required on a particular order of the Assessing Officer. At this stage the opportunity to the assessee would be given. The learned Commissioner has to conduct an inquiry as he may deem fit. After hearing the assessee, he will pass the order. This is the 4th compartment of this section. The learned Commissioner may annul the order of the Assessing Officer. He may enhance the assessed income by modifying the order. He may set aside the order and direct the Assessing Officer to pass a fresh order. At this stage, before considering the multi-fold contentions of the ld. Representatives, we deem it pertinent to take note of the fundamental tests propounded in various judgments relevant for judging the action of the CIT taken u/s 263.
9. Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT (2000) 243 ITR 83 (SC)has laid down following ratio with regard to provisions of section 263 of the Act:
There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the revenue’ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the ITO has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the ITO is unsustainable in law. It has been held by this Court that where a sum not earned by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the revenue - RampyariDevi Saraogi v. CIT [1968] 67 ITR 84 (SC) and in Smt. Tara Devi Aggarwal v. CIT [1973] 88 ITR 323 (SC). [Emphasis Supplied]
10. Now on examining the facts of the case in light of the above judicial precedents, we firstly note that case of the assessee was selected for carrying out the re-assessment proceedings and valid notice u/s.148 of the Act was served and in compliance return of income has been filed. Detailed submissions were also filed before the ld. Assessing Officer. Ld. Assessing Officer has examined the issue of source of cash deposit, investment in mutual funds and time deposit and details of interest received. After being satisfied with the details filed by the assessee, ld. Assessing Officer concluded the assessment. It clearly shows that detailed enquiry was conducted before concluding the re-assessment proceedings. Now in the impugned order, ld. PCIT has only harped upon one aspect that Audit Report on Form 10B has been filed belatedly and therefore ld. Assessing Officer ought to have denied the exemption u/s.11 of the Act and ought to have treated the gross receipts as income. We note that for A.Y. 2018-19 due date of filing the return and Audit Report was 31.10.2018. Assessee is non filer and return of income has been filed on 16.05.2022 in compliance to notice issued u/s.148 of the Act. Audit Report on Form 10B procured by the assessee on 19.09.2020 and has been filed on 30.09.2020. Admittedly, the Audit Report was filed much before the conclusion of the assessment proceedings. It has been consistently held that where there are two possible views and ld. Assessing Officer has adopted one of the view which is as per the settled judicial precedents, then it cannot be said that the assessment order is erroneous and prejudicial to the interest of Revenue.
Before us, ld. Departmental Representative has referred to two judgments namely PCIT Vs. Wipro Ltd. and Discoverture Solutions (India) (P) Ltd. Vs. DCIT (supra). But in both these cases, the issue was regarding exemption claimed u/s.10A and 10B and which is not the case before us because in the present case we are dealing with issue of exemption u/s.11 of the Act and filing of Audit Report on Form 10B. Therefore, since the facts referred in the judgments by ld. DR are different and are not applicable on the facts of the instant case.
12. So far as the decision of Coordinate Bench in the case of M/s. Genius Education Society (supra) referred by ld. Counsel for the assessee, we find that similar issue has come up for adjudication wherein the return was filed in compliance to notice u/s.148 of the Act claiming exemption u/s.11 and 12 of the Act and the finding of Coordinate Bench, Chandigarh in favour of the assessee reads as under :
“7. We have heard the contention of both the parties and perused the order of the authorities below. Admittedly the reopening in the present case was resorted to for the reason that the assessee had been refused approval u/s 10(23C)(vi) of the Act and had not filed its return of income. It is not A.Y.2012-13 disputed that the assessee had been granted registration u/s 12AA for the subsequent assessment year i.e. A.Y 2013-14. The contention o f the assessee challenging the reopening is that the second proviso to section 12A( 2) of the Act, debars resorting to reopening u/s 147 of the Act, for subjecting to tax the income for the impugned year merely on account of absence of registration u/s 12A.
The contention of the Revenue on the other hand is that since the assessee failed to fulfill the condition stipulated for claiming exemption u/s 11 &12 of the Act of filing return of income along with report of audit, u/s 12A(1)(b) of the Act, its income for the impugned year was taxable and the reopening therefore was valid.
Evidently it is not the case of the Revenue that the reopening was valid on the ground of absence of registration u/s 12A of the Act for the impugned year and therefore its income becoming taxable. I n fact, we find, that the CI T( A) has accepted that reopening could not have been resorted to on account of absence of registration u/s 12A for the impugned year on account of the second proviso to section 12A( 2) of the Act. Therefore the contention of the assessee on this count, w e find, stands accepted by the Re venue. But the argument of the Revenue we find is that, because the assessee failed to comply with the conditions of section 12A(1)(b) of the Act, which was necessary for claiming exemption u/s 11 & 12 of the Act, its income for the impugned year was taxable, which had thus escaped A.Y.2012-13 assessment and therefore the reopening was valid. The said conditions, as pointed out by the Ld.CI T( A) , are the filing of return of income accompanied with the report of an auditor in the prescribed form. It is relevant to reproduce the provisions of section 12A(1)(a) &(b) of the Act at this juncture.
"12A (1) The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless the following conditions are fulfilled, namely:-
(a) the person in receipt of the income has made an application for registration of the trust or institution in the prescribed form and in the prescribed manner to the Principal Commissioner or] Commissioner before the 1st day of July, 1973 , or before the expiry of a period of one year from the date of the creation of the trust or the establishment of the institution, [whichever is later and such trust or institution is registered under section 12AA]:
[Provided that where an application for registration of the trust or institution is made after the expiry of the period aforesaid, the provisions of sections 11 and 12 shall apply in relation to the income of such trust or institution,-
(b) where the total income of the trust or institution as computed under this Act without giving effect to the [provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year], the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub- section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.]"
Undoubtedly the requirement of filing of return of income and the report of audit have been specified for being eligible for claiming exemption u/s 11 & 12 of the Act, alongwith the grant of registration u/s 12AA of the Act. In the case of the assessee, we find, that the return of income has been A.Y.2012-13 filed in response to notice u/s 148 of the Act. Therefore the condition of filing of return of in come stands fulfilled. The section, we find, no where prescribes the filing of return by any due date, therefore the findings of the CI T( A) that the assessee having not filed its ret urn within the prescribed time it had failed to comply with the requirement prescribed, is not tenable. As for the requirement of filing report of audit in the prescribed form, the said condition has been held by courts to be merely procedural and therefore director y in nature and not mandatory for the purpose of claiming exemption u/s 11 & 12 of the Act. The Hon'bl e Jurisdictional High Court in the case of CI T vs Shahzadanand Charity Trust reported in 228 ITR 292,h as categorically held so in para 10-14 of its order as under:
"10. Calcutta High Court in Rai Bahadur Bissesswarlal's case (supra) while interpreting s. 12A(b) held that the provision was directory in nature and the AO could allow the assessee to file the audit report, at any time before the completion of the assessment. In this case the assessee, a charitable trust registered with the CIT filed its return on 17th Sept., 1984, declaring a deficit of Rs. 1,61,452. The return so filed was not accompanied by audited accounts and audit report in Form No. 10B as required under s. 12A of the Act. The audit report dt. 12th Nov., 1984 was, however, filed by the assessee in the prescribed form on 6th March, 19897, before the completion of the assessment. The ITO while completing the assessment refused to allow the benefit of exemption under s. 11 of the Act to the assessee on the ground that audit report in Form No. 10B was not filed along with the return. Income of the assessee was put to tax. Order of the ITO was upheld by the CIT(A) against which assessee filed further appeal before the Tribunal which was accepted. On these facts, it was held that the IT authority had taken hyper-technical view of the matter where the assessee has complied with the provisions of the Act in the course of assessment by curing the defect in the return by filing an audit report. The ITO cannot ignore such audit report or the return in completing the assessment. The delay in getting the account audited and in filing the return (sic-report) in Form No. 10B did not defeat any object of the A.Y.2012-13 Act and, therefore, the provision was directory in nature. It also referred to the circular of the Board dt. 9th Feb., 1978.
11. Gujarat High Court in Gujarat Oil & Allied Industries' case (supra) was considering s. 80J(6A). Gujarat High Court took the view put by this Court in Jaideep Industries' case (supra).
It was held that the provision about furnishing of the auditor's report along with the return has to be treated as procedural provision and, therefore, directory in nature.
Provisions of s. 80J(6A) and s. 12A of the Act are para materia. The ratio of the law laid down in Jaideep Industries' case (supra) would have been applicable to the facts of the present case as well had the CBDT not issued the Circular dt. 9th Feb., 1978, reproduced in the earlier part of the judgment. As per this circular, it is not mandatory under. s. 12A(b) to file the audit report along with return of income. Normally, a charitable religious trust or institution is expected to file auditor's report along with the return but in cases where for reasons beyond the control of the assessee some delay has occurred in filing the said report, the ITO, for reasons to be recorded, has been authorised to condone the delay in furnishing the auditor's report and accepting the same at a belated stage. It has been clarified that the exemption available to the trust under s. 11 may not be denied merely on account of delay in furnishing the auditor's report. The word "shall" occurring in s. 12A cannot, under the circumstances, be read as a "must" making it mandatory for the trust to furnish the auditor's report along with the filing of the return. If for certain unavoidable circumstances, the assessee is unable to furnish the auditor's report along with the return then the same can be furnished at a later date with the permission of the AO who may permit the assessee to do so after recording its reasons for so doing."
Counsel appearing for the Revenue then argued that as per this circular, the auditor's report could only be furnished upto the stage of framing of assessment as the power to condone the delay for accepting the auditor's report at a later date has only been given to the ITO and not thereafter, i.e., at the appellate stage. We find no merit in this submission. The CBDT by issuing the Circular dt. 9th Feb., 1978 has treated the provision regarding furnishing of auditor's report along with the return to be procedural and, therefore, directory in nature. By showing sufficient cause, the auditor's report could be produced at any later stage either before the ITO or before the appellate authority.
14. In view of the Board's Circular dt. 9th Feb., 1978, the requirement of filing auditor's report in Form 10B as provided in s. 12A(b) r/w r. 17B of the Rules, the ratio of the law laid down by this Court in Jaideep Industries' case (supra) would not apply to the present case." 11. In view of the above therefore we find no merit in the argument of the Revenue that the assessee was not eligible for exemption u/s 11 &12 on account of not having complied with the requirements of section 12A(1)(b) of the Act. Since this was the sole basis for upholding the validity of the reassessment proceedings resorted to, we hold that the reassessment resorted to in the present case was invalid, on account of the second proviso to section 12A(2) of the Act, which specifically debarred resort to the same in vi e w of registration having been granted from the immediately succeeding assessment year. The reassessment framed is therefore set aside. As a consequence the addition made is deleted.”
13. Similar view has also been taken by this Tribunal in the case of Indian Medical Association Vs. DCIT, Sahaj Seva Trust Vs. ITO (supra) and the judgment of Hon’ble Gujarat High Court in the case of Association of Indian Panelboard Manufacturer Vs. DCIT (supra).
After going through the above settled judicial precedents, it clearly manifest that filing of Audit Report on Form 10B during the course of assessment proceedings/appellate proceedings needs to be admitted and the same being procedural issue, exemption u/s.11 cannot be denied merely for the delay in filing of Audit Report. Similar is the situation in the present case where the Audit Report on Form 10B was filed prior to issue of notice u/s.148 of the Act and was very much available with the ld. Assessing Officer at the time of carrying out the assessment proceedings. Therefore, we find that ld. Assessing Officer made no error in accepting the Audit Report and after duly examining the details for the reasons mentioned for carrying out the re-assessment proceedings has rightly allowed the exemption u/s.11 of the Act. We are therefore of the considered view that ld. PCIT erred in assuming jurisdiction u/s.263 of the Act. Finding of ld.PCIT is set side, impugned order is quashed and the assessment order dated 25.03.2023 is restored to its original place. Grounds of appeal raised by the assessee are allowed as per terms indicated above.
In the result, appeal of the assessee is allowed.
Order pronounced on this 06th day of August, 2025.