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Facts
The assessee, eligible for exemption under Section 10(23C)(iiiab) as it was substantially financed by the Government of Gujarat, erroneously filed its return in Form ITR-5 instead of the prescribed Form ITR-7. This led to the disallowance of its exemption claim and a significant tax demand. The assessee contended that the error was a bona fide technical mistake.
Held
The Tribunal held that the inadvertent filing of the return in the wrong form was a technical error and not a valid ground to deny a legitimate exemption. Relying on various judicial precedents, the Tribunal noted that technical errors should not override the substantive entitlement to exemption when all conditions are met.
Key Issues
Whether the assessee's claim for exemption under Section 10(23C)(iiiab) could be denied solely on the ground of filing the return in the incorrect form (ITR-5 instead of ITR-7) when other conditions for exemption were met.
Sections Cited
10(23C)(iiiab), 143(1), 2BBB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C” BENCH, AHMEDABAD
Before: SMT. ANNAPURNA GUPTA & SHRI SIDDHARTHA NAUTIYAL
(Assessment Year: 2012-13) Society For Creation of Vs. Income Tax Officer, Opportunities Through Ward-1 (Exemptions), Proficiency In English (Scope), Ahmedabad Faculty Block, First Floor, “Prajna Puram”, (KCG Campus), Opp. PRL, Nr. L.D. Engineering College, Navrangpura, Ahmedabad-380015 [PAN No.AAGTS6774H] (Appellant) .. (Respondent) Appellant by : Shri M.K. Patel, AR Respondent by: Shri Rignesh Das, CIT- DR Date of Hearing 22.07.2025 Date of Pronouncement 16.09.2025 O R D E R
PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER:
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT (A)-5, Delhi vide order dated 17.01.2025 passed for A.Y. 2012- 13.
The assessee has raised the following grounds of appeal:
“1. That on facts, in law, and on evidence on record, the learned Addl/JCIT(A)-5, Delhi has grievously erred in confirming the rejection of claim of exemption u/s 10(23C)(iiiab) of the Act.
2. That on facts, in law, and on evidence on record, the learned Addl/JCIT (A)-5, Delhi ought to have considered the fact that the appellant ahs filed the return of income in the correct Form ITR-7 on 31/03/2013, which is a valid return, and the exemption ought to have been granted u/s 10(23C) (iiiab) of the Act as prayed for.
Society For Creation of Opportunities Through Proficiency In English (Scope) vs. ITO(E) Asst.Year –2012-13 - 2– 3. That in the alternate, and without prejudice to the above grounds of appeal
, the CPC and Addl / JCIT(A)-5, Delhi has grievously erred in confirming the addition of gross receipts of Rs. 16,30,63,750/- without granting deduction of the expenses incurred by the appellant. The appellant craves leave to add, alter, amend any ground of appeal.” 4.
3. The brief facts of the case are that in the case of the assessee, the Assessing Officer CPC, raised a tax demand of ₹6,51,13,960/- by disallowing the exemption claimed under Section 10(23C)(iiiab) of the Income Tax Act, 1961 (Act) for A.Y. 2012–13. The cause for this disallowance was the assessee's failure to file its return in the correct statutory form. The assessee, though eligible for exemption as it was substantially financed by the Government of Gujarat, erroneously filed its return in Form ITR-5 instead of Form ITR-7, which is the prescribed form for entities claiming exemption under Section 10(23C) of the Act. In the return filed by the assessee on 31.03.2013, he declared total income as NIL after claiming exemption of ₹16,30,63,750/-. However, due to the incorrect form, the AO processed the return under Section 143(1) of the Act and treated the entire receipts as taxable income.
4. Before CIT(Appeals), the assessee contended that the error was inadvertent and caused by internal administrative issues which included frequent changes in staff and misplacement of documents. The assessee submitted that there was a delay in discovering the tax since the assessee did not receive copy of the intimation under Section 143(1) of the Act and the assessee came to know about denial of exemption only when the assessee received recovery letter dated 16.08.2018 towards recovery of outstanding demand. The assessee submitted that that it was substantially financed by the Government of Gujarat and was thus clearly entitled to exemption under Section 10(23C)(iiiab), read with Rule 2BBB of the Income Tax Rules, 1962. The assessee submitted supporting documents viz. Grant Orders, audited Society For Creation of Opportunities Through Proficiency In English (Scope) vs. ITO(E) Asst.Year –2012-13 - 3– financial statements, and evidence of more than 50% of its funding being through Government grants during the relevant assessment year under consideration. The CIT(A), while admitting the appeal and condoning the delay, dismissed the appeal on merits. The CIT(Appeals) held that procedural compliance is mandatory, and filing the return in the prescribed form is not a mere technicality but a legal requirement. Since the return was filed in Form ITR-5 instead of ITR-7, the exemption claim was considered invalid. The CIT(A) relied on judicial precedents, including Goetze India Ltd. vs. CIT, to hold that a claim for exemption or deduction not made in the original return could only be entertained through a revised return filed within the statutory time limit. Since the time for filing a revised return had lapsed, and no rectification was processed, the assessee’s exemption claim could not be allowed. Accordingly, CIT(Appeals) held that the assessee’s failure to comply with the mandatory return-filing format rendered its exemption claim untenable. Consequently, the appeal of the assessee was dismissed, and the tax demand of ₹6,51,13,960/- was upheld.
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 reiterated the submissions made before CIT(Appeals). In response, Ld. DR placed reliance on the observations made by the Assessing Officer and CIT(Appeals) in their respective orders.
We have heard the rival contentions and perused the material on record. We note that while dealing with identical set of facts, ITAT Pune in the case of Shahu Shikshan Prasarak Mandal vs. ACIT (Exmp.) [2025] 171 taxmann.com 346 (Pune-Trib.)[15-01-2025] held that where assessee, educational trust, filed its return in ITR-5 instead of ITR-7 but had evidently demonstrated that it was eligible for claim of exemption under section Society For Creation of Opportunities Through Proficiency In English (Scope) vs. ITO(E) Asst.Year –2012-13 - 4– 10(23C) and all conditions laid therein had been duly satisfied by assessee trust, matter was to be remanded to Assessing Officer to verify claim of assessee afresh. In the case of Kathikode Charitable Trust vs. Income-tax Officer [2024] 162 taxmann.com 866 (Cochin - Trib.)/[2024] 207 ITD 588 (Cochin - Trib.)[10-05-2024], ITAT held that where assessee-trust filed its return in Form 5 claiming loss, which was meant for business income, however, it was a charitable trust working for promotion of education, culture and philosophy, since returning income in a wrong Form could not result in converting loss into income, Assessing Officer was to be directed to consider assessee's return as a rectification petition. In the case of Desh Bharti Public School Samiti vs. Assessing Officer/Deputy Commissioner of Income-tax [2022] 139 taxmann.com 231 (Lucknow-Trib.)/[2022] 195 ITD 600 (Lucknow-Trib.)[05-04-2022], ITAT held that where assessee, a trust, in earlier years had been claiming exemption under section 10(23C) and it got registration under section 12A on 02-09-2014 and it in return filed for assessment year 2014-15 claimed exempt income under section 10(23C) instead of claiming same under section 12A, mistake had occurred as a human error and thus Assessing Officer was to be directed to allow exemption under section 12A of the Act.
In view of the foregoing, and having regard to the facts and circumstances of the case, it is evident that the assessee was substantially financed by the Government of Gujarat during the relevant assessment year and had duly satisfied the conditions for claiming exemption under Section 10(23C)(iiiab) read with Rule 2BBB of the Income Tax Rules, 1962. The only basis for denial of such exemption was the inadvertent filing of the return in Form ITR-5 instead of the prescribed Form ITR-7. The assessee had placed on record sufficient documentary evidence including audited financials and Government grant orders substantiating its eligibility for the Society For Creation of Opportunities Through Proficiency In English (Scope) vs. ITO(E) Asst.Year –2012-13 - 5– exemption claimed. We find merit in the contention of the assessee that the mistake in form selection was a bona fide and technical error, and the same cannot be a valid ground to deny a substantive exemption otherwise legally available under the Act. Support on this issue is also drawn from various decisions including Shahu Shikshan Prasarak Mandal vs. ACIT (Exmp.) [2025] 171 taxmann.com 346 (Pune-Trib.), Kathikode Charitable Trust vs. ITO [2024] 162 taxmann.com 866 (Cochin-Trib.), and Desh Bharti Public School Samiti vs. DCIT [2022] 139 taxmann.com 231 (Lucknow- Trib.), wherein the Hon'ble Tribunals have consistently held that technical errors in filing of returns should not override the legitimate entitlement of exemption under the Act, particularly when all conditions for such exemption stand duly satisfied. Accordingly, we are of the considered view that the exemption under Section 10(23C)(iiiab) ought to have been allowed to the assessee. The disallowance made by the Assessing Officer and upheld by the CIT(Appeals) is, therefore, not sustainable in law. The demand raised on the assessee on account of denial of exemption is hereby directed to be deleted.
In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 16/09/2025
Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 16/09/2025 TANMAY, Sr. PS TRUE COPY आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. 2. ��थ� / The Respondent. संबंिधत आयकर आयु� / Concerned CIT 3. आयकर आयु�(अपील) / The CIT(A)- 4. 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad गाड� फाईल / Guard file. 6. आदेशानुसार/ BY ORDER,