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Facts
The assessee, a charitable trust, filed its Income Tax Return for AY 2019-20 and Form 10B belatedly. The Centralized Processing Centre (CPC) denied the exemption claimed under Sections 11 and 12, treating gross receipts as taxable income, which was upheld by the CIT(A) stating that the delay was a procedural lapse not rectifiable under Section 154 of the Act. The assessee contended that the delay was due to the serious health condition of its controlling trustee and that the filing was within the extended timelines provided due to the Covid pandemic.
Held
The Tribunal, relying on judicial precedents and CBDT circulars, held that the return filed within the extended period permissible under Section 139(4) of the Act is a valid return. It concluded that the belated filing of Form 10B constitutes substantial compliance, and thus, the benefit of exemption under Section 11 cannot be denied on technical grounds. The Tribunal found the CPC was not justified in denying the exemption.
Key Issues
Whether a charitable trust can be denied exemption under Section 11 of the Income Tax Act solely due to the belated filing of its income tax return and audit report (Form 10B) if filed within the extended period permitted under Section 139(4) of the Act.
Sections Cited
250, 154, 11, 12, 12A, 12A(1)(b), 119(2)(b), 119(2)(a), 143(1), 139(1), 139(4), 139, 12A(1)(ba), 139(4A)
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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI NARENDRA PRASAD SINHA
O R D E R
PER SIDDHARTHA NAUTIYAL, JM:
The present appeal has been preferred by the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘CIT(A)’] dated 21/02/2025 passed u/s.250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the Assessment Year (AY) 2019-2020.
The assessee has raised the following grounds of appeal: Rural Development Foundation vs. CPC, Bengaluru Juris AO The ITO, Ward-Exemption Asst. Year : 2019-20
1. The Hon'ble Commissioner of Income-tax (Appeals) [CIT(A)] has erred in law and on facts in upholding the order passed under section 154 of the Income-tax Act, 1961 ("the Act"), by the learned CPC, Bengaluru (hereinafter referred to as 'the Learned AO'), wherein the appellant was denied the benefit of exemption under section 11 of the Act despite being a trust registered under section 12A of the Act.
2. The Hon'ble CIT(A) has erred in law and on facts in denying benefit of section 11 of the Act solely on the ground of procedural lapse in filing the income-tax return and the audit report in Form 10B despite there being a reasonable cause for such lapse.
3. The Hon'ble CIT(A) has erred in law and on facts in not allowing deduction of Rs. 1,13,37,985/- representing expenditure incurred towards the objects of the trust.
The Appellant reserves the right to add, alter, amend and/or withdraw any of the above Grounds of Appeal.”
3. The brief facts of the case are that the assessee, Rural Development Foundation, an exempted charitable society registered under the Income-tax Act, 1961, filed its return of income for the Assessment Year 2019-20 belatedly with a delay of 332 days and without submitting the requisite audit report in Form No. 10B as mandated under the provisions of section 12A(1)(b) read with Rule 17B. The return of income was processed by the Centralized Processing Centre (CPC), Bengaluru, under section 143(1) of the Act, wherein the exemption claimed under sections 11 and 12 was denied due to the delay in filing and non-submission of the audit report. Consequently, the CPC raised a demand of Rs. 63,13,848/- after disallowing the expenditure of Rs. 1,13,37,985/- claimed by the assessee as application of income for charitable purposes. Rural Development Foundation vs. CPC, Bengaluru Juris AO The ITO, Ward-Exemption Asst. Year : 2019-20 3.1. Subsequently, the assessee filed a rectification petition under section 154 of the Act contending that the delay in filing the return and audit report was due to reasonable cause arising from the serious health condition of its controlling trustee. It was pleaded that the denial of exemption was merely a procedural lapse and did not affect the charitable nature of its activities. The assessee requested the CPC to allow the expenditure of Rs. 1,13,37,985/- and grant exemption as per law. However, the CPC, Bengaluru, rejected the rectification petition vide order dated 27.06.2023, holding that such an issue did not fall within the ambit of a “mistake apparent from record” under section 154 of the Act.
4. Aggrieved by the said order, the assessee preferred an appeal before the CIT(Appeals). Before the CIT(Appeals), the assessee reiterated that the delay in filing the return and Form 10B was caused by genuine hardship due to the serious illness of its controlling trustee and relied upon the decision of the Hon’ble ITAT Ahmedabad in the case of Shardaben Education Trust (ITA No. 190/Ahd/2022, order dated 16.11.2022), wherein under similar circumstances, the delay in filing the audit report was condoned and exemption under section 11 was allowed to a charitable trust. The CIT(Appeals), after considering the submissions of the assessee and perusing the order of the ITAT Ahmedabad relied upon by the appellant, observed that though the reasons for delay appeared to be genuine, the statutory requirement of filing the audit report in Form 10B and the return of income within the prescribed due date is a mandatory condition precedent for availing the benefit of sections 11 and 12 of the Act. The CIT(Appeals) held that such a procedural lapse cannot be rectified under section 154, as the Rural Development Foundation vs. CPC, Bengaluru Juris AO The ITO, Ward-Exemption Asst. Year : 2019-20 scope of that provision is confined to mistakes apparent from record, and not to condonation of delay or relaxation of statutory conditions. The appellate authority further noted that the Act provides a specific remedy under section 119(2)(b) empowering the Central Board of Direct Taxes (CBDT) to condone delay in filing returns or audit reports, and directed the assessee to approach the competent authority for such relief. In view of this finding, the CIT(Appeals) concluded that the defect in the instant case was not curable through the appellate process and accordingly dismissed the appeal filed by the assessee.
The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. Before us, the ld. counsel for the assessee submitted that due to Covid pandemic, there was an extension in timelines wherein the belated return of income could be filed by the assessee by 30th November 2020 for the impugned assessment year 2019- 20. The ld. counsel for the assessee drew our attention to Order u/s 119(2)(a) of the Act dated 30th September 2020 in this regard. The ld. counsel for the assessee submitted that that the assessee filed return of income on 28-09-2020 along-with Form 10B (which was also filed on the same date) and therefore, benefit of section 11 of the Act should not be denied to the assessee.
In response, Ld. DR placed reliance on the observations made by CIT(Appeals) in the appellate order.
We have carefully considered the rival submissions and perused the material available on record. The undisputed facts of the case are that the assessee is a trust duly registered under section 12A of the Act belatedly with a delay of 332 days and without submitting the requisite audit report in Form Rural Development Foundation vs. CPC, Bengaluru Juris AO The ITO, Ward-Exemption Asst. Year : 2019-20 No. 10B as mandated under the provisions of section 12A(1)(b) read with Rule 17B. It is an admitted position that although the return of income was filed belatedly beyond the due date prescribed under section 139(1) of the Act, it was nonetheless filed within the permissible time limit allowed under section 139(4) of the Act in view of Order u/s 119(2)(a) of the Act dated 30th September 2020 in this regard. The audit report in Form No. 10B was also duly furnished, albeit belatedly. The CPC, while processing the return under section 143(1) of the Act, denied the benefit of exemption under section 11 solely on the ground that Form No. 10B had not been filed within the specified date and accordingly treated the entire gross receipts as taxable income. We are of the considered view the disallowance of exemption on such a technical ground is contrary to the settled legal position and the consistent view taken by various judicial forums.
The Hon’ble Income Tax Appellate Tribunal, Nagpur Bench, in the case of Shri Panchmurti Education Society vs. Income-tax Officer [2025] 171 taxmann.com 546 (Nagpur - Trib.) [21-01-2025], has categorically held that where a return of income is filed within the extended time limit permissible under section 139(4) of the Act, such a return is to be treated as a valid return under section 139 and the benefit of section 11 cannot be denied merely on the ground that Form 10B was not filed along with the original return. The Tribunal in the said decision further observed that the amendment to section 12A(1)(ba) of the Act is effective only from assessment year 2018-19 and that, as clarified by CBDT Instruction dated 23.04.2019, the expression “time allowed under section 139” includes a belated return filed under section 139(4) of the Act. The decision also emphasized that the beneficial amendment made by the Finance Act, 2023, w.e.f. 01.04.2023, expressly recognizes that return of income filed under section 139(1) or Rural Development Foundation vs. CPC, Bengaluru Juris AO The ITO, Ward-Exemption Asst. Year : 2019-20 section 139(4) would satisfy the compliance requirement of section 139(4A), thus clarifying the legislative intent that belated returns are also valid for the purpose of claiming exemption under section 11 of the Act. Similarly, in Rajasthan Nursing Council vs. Assistant Director of Income-tax [2025] 175 taxmann.com 358 (Jaipur - Trib.) [07-05-2025], ITAT held that a trust registered under section 12AA of the Act cannot be denied exemption under section 11 merely because the return of income was filed after the due date under section 139(1) of the Act but within the extended period permitted under section 139(4) of the Act. The Tribunal, relying on CBDT Circular F. No. 173/193/2019-ITA-I dated 23.04.2019 and Circular No. 6/2020 dated 19.02.2020, observed that the expression “section 139” used in section 12A(1)(ba) encompasses both sub-sections (1) and (4) thereof and that a return filed under section 139(4) must be considered as filed within the time prescribed under section 139(1) for the purposes of availing exemption under section 11 of the Act.
Further, support is drawn from the decision of the Pune Bench of the Tribunal in Indian Medical Association vs. Deputy Commissioner of Income-tax [2025] 175 taxmann.com 811 (Pune - Trib.) [16-06-2025], wherein it was held that where the assessee trust had filed a valid belated return under section 139(4) along with the audit report in Form 10B, the benefit of exemption under section 11 could not be denied merely because both were filed after the due date prescribed under section 139(1). The Tribunal categorically held that once the return is filed under section 139(4), it is a valid return in law, and the assessee is entitled to claim exemption accordingly. Rural Development Foundation vs. CPC, Bengaluru Juris AO The ITO, Ward-Exemption Asst. Year : 2019-20
In the present case, the assessee trust had duly filed its return of income within the extended statutory limit permissible under section 139(4) of the Act and had subsequently filed its audit report in Form 10B. The filing of the audit report, though belated, constitutes substantial compliance with the procedural requirement of section 12A(1)(b), and in view of the above judicial precedents and CBDT circulars, denial of exemption under section 11 on this procedural ground is wholly unjustified. It is well settled that beneficial provisions granting exemption to charitable trusts must be interpreted liberally so as to advance the object of charity and not to defeat it on mere technicalities. Accordingly, we are of the considered view that the assessee trust has duly complied with the conditions prescribed under section 12A(1)(b) read with section 139 of the Act, and the CPC was not justified in denying the exemption under section 11 merely on account of belated filing of Form 10B.
In the result, the appeal of the assessee is allowed.