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Facts
The assessee, a charitable trust, filed its return of income claiming exemption under section 11/12. The Assessing Officer (AO) denied this exemption, treating the entire receipts as income. The assessee's rectification application was rejected by the AO, and the first appellate authority (CIT(A)) dismissed the appeal as time-barred.
Held
The Tribunal condoned the delay in filing the appeal before the CIT(A) as it was due to a bona fide misunderstanding regarding the validity of the AO's order. The Tribunal held that the denial of exemption under section 11/12 solely on account of a procedural lapse in filing the audit report (Form 10B) without audited accounts was unjustified, as the law considers this requirement directory.
Key Issues
Whether the benefit of exemption under section 11/12 can be denied due to a procedural defect in filing the audit report? Whether the delay in filing the first appeal should be condoned?
Sections Cited
11, 12, 154, 139(1), 143(1), 12A(1)(b)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI PARESH M. JOSHI
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 30.06.2025 passed by learned Commissioner of Income-Tax (Appeals)-Addl/JCIT(A)-2, Pune [“CIT(A)”] which in turn arises out of rectification-order dated 11.05.2023 passed by learned ITO (Exemption), Indore [“AO”] u/s 154 of Income-tax Act, 1961 [“the Act”] for Assessment-Year [“AY”] 2020-21, the assessee has filed this appeal on following grounds:
| “1. On the facts and in the circumstances of the case and in law, the Ld. | |
|---|---|
| Joint Commissioner of Income Tax (Appeals)-2, Pune [hereinafter referred to | |
| as 'the Ld. Jt. CIT(A)] has erred in not allowing the benefit of exemption u/s. | |
| 11 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') without | |
| Page 1 of 9 |
| Savitri Bai Jhawar Sewa Nyas | |
|---|---|
| ITA No. 753/Ind/2025 – AY 2020-21 | |
| appreciating that the assessee trust had duly filed its return of income and | |
| Audit Report in Form No. 10B within due date u/s. 139(1) of the Act and thus | |
| the exemption u/s. 11 of the Act may kindly be allowed to the assessee trust. | |
| 2. On the facts and in the circumstances of the case and in law, the Ld. AO | |
| and the Ld. Jt. CIT(A) have erred in not allowing benefit of exemption u/s. 11 | |
| of the Act without assigning any reasons thereof which is against the | |
| principles of natural justice and thus, the exemption u/s. 11 of the Act may | |
| kindly be allowed to the assessee trust. | |
| 3. On the facts and in the circumstances of the case and in law, the Ld. AO | |
| and the Ld. Jt. CIT(A) have erred in not allowing benefit of the exemption u/s. | |
| 11 of the Act merely due to some technical/clerical/data entry error in ITR | |
| Form without appreciating that the assessee trust is a genuine charitable | |
| trust. Thus, the exemption u/s. 11 of the Act may kindly be allowed to the | |
| assessee trust. | |
| 4. On the facts and in the circumstances of the case and in law, the Ld. Jt. | |
| CIT(A) has erred in not condoning the delay in filing the appeal before the | |
| first appellate authority, which is against the principles of natural justice and | |
| thus, the Appellate Order dated 30.06.2025 passed by the Ld. Jt. CIT(A), is | |
| liable to be quashed. | |
| 5. On the facts and in the circumstances of the case and in law and without | |
| prejudice to the above, the Ld. AO and the Ld. Jt. CIT(A) have erred in | |
| determining income at Rs. 27,42,960/- being Gross Amount without | |
| appreciating that the net income of the assessee trust after deducting | |
| revenue expenses was only Rs. 20,080/-, which was below the basic | |
| exemption limit. Thus, the action of the Ld. AO and the Ld. Jt. CIT(A) is liable | |
| to be quashed.” |
2. On the facts and in the circumstances of the case and in law, the Ld. AO and the Ld. Jt. CIT(A) have erred in not allowing benefit of exemption u/s. 11 of the Act without assigning any reasons thereof which is against the principles of natural justice and thus, the exemption u/s. 11 of the Act may kindly be allowed to the assessee trust.
3. On the facts and in the circumstances of the case and in law, the Ld. AO and the Ld. Jt. CIT(A) have erred in not allowing benefit of the exemption u/s. 11 of the Act merely due to some technical/clerical/data entry error in ITR Form without appreciating that the assessee trust is a genuine charitable trust. Thus, the exemption u/s. 11 of the Act may kindly be allowed to the assessee trust.
4. On the facts and in the circumstances of the case and in law, the Ld. Jt. CIT(A) has erred in not condoning the delay in filing the appeal before the first appellate authority, which is against the principles of natural justice and thus, the Appellate Order dated 30.06.2025 passed by the Ld. Jt. CIT(A), is liable to be quashed.
5. On the facts and in the circumstances of the case and in law and without prejudice to the above, the Ld. AO and the Ld. Jt. CIT(A) have erred in determining income at Rs. 27,42,960/- being Gross Amount without appreciating that the net income of the assessee trust after deducting revenue expenses was only Rs. 20,080/-, which was below the basic exemption limit. Thus, the action of the Ld. AO and the Ld. Jt. CIT(A) is liable to be quashed.”
The background facts leading to present appeal are such that the assessee-institution filed its return of income of AY 2020-21 on 07.01.2021 u/s 139(1) [due date was 15.02.2021] in ITR-7 declaring a total income of Rs. 20,080/- after claiming exemption u/s 11/12. The AO processed assessee’s return vide intimation dated 25.12.2021 u/s 143(1) at a total income of Rs. 27,42,960/- after denying the exemption claimed by assessee. The assessee filed an application dated 27.03.2023 u/s 154 to AO seeking rectification of intimation and allowing exemption. The AO, however, rejected assessee’s application vide rectification-order dated 11.05.2023 citing as under:
| Savitri Bai Jhawar Sewa Nyas | |
|---|---|
| ITA No. 753/Ind/2025 – AY 2020-21 | |
| “After considering the application and facts of the case, the application | |
| of the assessee is hereby rejected in view of the following facts and | |
| circumstances of the case. | |
| As per the copy submitted by the assessee, the assessee is Registered | |
| U/s 12A (A) vide registration No. 25/97-98 dated 11.02.1998 as per | |
| the order issued by Ld. Commissioner of income tax Indore. | |
| 2. The assessee has e-filed the Audit Report in Form No 10B vide e- | |
| filing ack.no. 963504961301220 on 30.12.20 without copy of audited | |
| accounts le income and expenditure A/c, balance sheet etc. | |
| 3. While processing the ITR U/s 143(1) the CPC has not allowed the | |
| exemption U/s 11 as No Forms filed. As per Section 12A(1)(b) of the IT. | |
| Act read with 1st Provisio to Rule 12(2) of the 1.T. Rules, the audit | |
| report has to be e-filed along with or before filing the return of income. | |
| But the assessee has e-filed the Audit Report in Form No 10B without | |
| copy of audited accounts ie. income and expenditure A/c, balance | |
| sheet etc Hence exemption/s 11 was not allowed. | |
| In view of the above facts and circumstance of the case there is no | |
| mistake found in the intimation Passed by the CPC U/s 143(1) dated | |
| 25.12.2021. It is, therefore, the application filed by the assessee U/s | |
| 154 of the I.T.Act is hereby rejected. |
2. The assessee has e-filed the Audit Report in Form No 10B vide e- filing ack.no. 963504961301220 on 30.12.20 without copy of audited accounts le income and expenditure A/c, balance sheet etc.
3. While processing the ITR U/s 143(1) the CPC has not allowed the exemption U/s 11 as No Forms filed. As per Section 12A(1)(b) of the IT. Act read with 1st Provisio to Rule 12(2) of the 1.T. Rules, the audit report has to be e-filed along with or before filing the return of income. But the assessee has e-filed the Audit Report in Form No 10B without copy of audited accounts ie. income and expenditure A/c, balance sheet etc Hence exemption/s 11 was not allowed. In view of the above facts and circumstance of the case there is no mistake found in the intimation Passed by the CPC U/s 143(1) dated 25.12.2021. It is, therefore, the application filed by the assessee U/s 154 of the I.T.Act is hereby rejected. Aggrieved, the assessee carried matter in first-appeal before CIT(A). However, the CIT(A) observed that the appeal filed by assessee was time-barred by 505 days, accordingly the CIT(A) dismissed assessee’s appeal in limine without giving any adjudication on merit. Now, the assessee has come in next appeal before us.
Ld. AR for assessee at first explained the reason of delay in filing first- appeal before CIT(A). He drew us to the impugned rectification-order passed by AO u/s 154. He demonstrated that the said order does not bear Document Identification No. (DIN). Therefore, the assessee got an understanding that the order passed by AO u/s 154 was null and void in absence of DIN and no appeal was required to be filed to CIT(A) against
| Savitri Bai Jhawar Sewa Nyas | |
|---|---|
| ITA No. 753/Ind/2025 – AY 2020-21 | |
| appreciating that the assessee trust had duly filed its return of income and | |
| Audit Report in Form No. 10B within due date u/s. 139(1) of the Act and thus | |
| the exemption u/s. 11 of the Act may kindly be allowed to the assessee trust. | |
| 2. On the facts and in the circumstances of the case and in law, the Ld. AO | |
| and the Ld. Jt. CIT(A) have erred in not allowing benefit of exemption u/s. 11 | |
| of the Act without assigning any reasons thereof which is against the | |
| principles of natural justice and thus, the exemption u/s. 11 of the Act may | |
| kindly be allowed to the assessee trust. | |
| 3. On the facts and in the circumstances of the case and in law, the Ld. AO | |
| and the Ld. Jt. CIT(A) have erred in not allowing benefit of the exemption u/s. | |
| 11 of the Act merely due to some technical/clerical/data entry error in ITR | |
| Form without appreciating that the assessee trust is a genuine charitable | |
| trust. Thus, the exemption u/s. 11 of the Act may kindly be allowed to the | |
| assessee trust. | |
| 4. On the facts and in the circumstances of the case and in law, the Ld. Jt. | |
| CIT(A) has erred in not condoning the delay in filing the appeal before the | |
| first appellate authority, which is against the principles of natural justice and | |
| thus, the Appellate Order dated 30.06.2025 passed by the Ld. Jt. CIT(A), is | |
| liable to be quashed. | |
| 5. On the facts and in the circumstances of the case and in law and without | |
| prejudice to the above, the Ld. AO and the Ld. Jt. CIT(A) have erred in | |
| determining income at Rs. 27,42,960/- being Gross Amount without | |
| appreciating that the net income of the assessee trust after deducting | |
| revenue expenses was only Rs. 20,080/-, which was below the basic | |
| exemption limit. Thus, the action of the Ld. AO and the Ld. Jt. CIT(A) is liable | |
| to be quashed.” |
“2.2 It is further noted that the Appellant has filled "Yes" in the column No. 14 of the Form 35 "Whether there is delay in fling appear. The reason given by the Appellant in Form No. 35 is reproduced below: "Appellant is a Public Charitabletrust registered u/s12A. Despitetimely filing of Audit report in Form 10BB and Income TaxReturn it was denied deduction u/s 11 and entire receipts have been treated as Income and has been taxed exorbitantly while processing the Return by CPO u/s143(1)(a). For rectification application u/s 154 was made which was rejected by the Id. AO without giving proper opportunity. More over this Rejection order is passed violating the instructions given by CBDT vide it's circular19/2019 dated 14/08/2019 as AO did not mention the DIN on this order. Thus, this violation of instructions given under above circular made the Rejection order of AO void ab initio. Appellant trust is fully dependent on advices of legal advisors where it was advised to not to file any appeal against the order which is Null and void as it is not inconformity with the above said circular but later on seeing to the demand appearing outstanding against the appellant, trust decided to file an appeal before your honor with a condonation for delay in filing the appeal. It is therefore requested that looking to the condition that the appellant charitable trust was fully dependent on legal advices and where two different opinions were there for and against the decision of filing appeal one of which stopped appellant to file the appeal in time, it be kindly condoned for delayed submission of appeal and appeal be kindly entertained and oblige."
Thus, Ld. AR submitted that there was a sufficient cause for delay in filing first-appeal before CIT(A) which should be condoned by this bench.
Having said thus, Ld. AR next submitted that in present case, the admitted fact (as can be seen from rectification-order passed by AO, re- produced above) are such that the assessee filed Form No. 10B on 30.12.2020 before filing return of income on 07.01.2021. However, the Form
Page 4 of 9 Exp. A/c, Balance-Sheet, etc.), which was a technical lapse on the part of assessee. However, the assessee has already filed the copies of audited accounts to AO alongwith application for rectification u/s 154 and the same are also available in Paper-Book which the assessee is still ready to file to Jurisdictional Assessing Officer (JAO). Ld. AR submitted that except the procedural lapse in submitting audited accounts, there is no other reason to deny the benefit of section 11/12 to assessee. Ld. AR submitted that the assessee should not be denied the legitimate exemption of section 11/12 when the assessee is genuinely doing charitable activities for the welfare of public and satisfying all conditions prescribed in income-tax law for being entitled to exemption including submission of Form No. 10B in time. Ld. AR submitted that the courts have granted exemption u/s 11/12 even in those cases where the assessees have not filed audit report before filing of return but subsequently filed during assessment-proceeding or even during first appellate proceedings. Hence, the assessee’s case stands on a better footing in as much as the assessee has filed audit report in Form No. 10B before filing return of income. The following decisions of High Courts and ITAT Benches have held that the requirement of filing audit-report in time is one of the conditions for claiming benefit of exemption u/s 11/12 but it is a procedural-cum-directory requirement and even if the report is subsequently filed to AO, the exemption u/s 11/12 can’t be denied:
Page 5 of 9 (b) ITAT, Indore - Navratna Sukrat Foundation Vs. CPC, Bangalore, dated 21.04.2023 (c) ITAT, Indore - DCIT Vs. Shri Vaishnav Polytechnic College, Indore order dated 06.11.2020 (d) ITAT, Jodhpur - ITO, Exemption Ward Vs. Society for Education Conscietisation Awareness & Training, dated 06.05.2019 (e) ITAT, Ahmedabad - Puravanchal Lokhit Mandal Vs. ITO, Exemption Ward, Vadodara, dated 30.11.2022 (f) ITAT, Ahmedabad - Hari Gyan Pracharak Trust Vs. DCIT, CPC, Bangalore in order dated 16.06.2023 (g) Hon’ble Gujrat High Court - Sarvodaya Charitable Trust Vs. ITO, Exemption (2021) 125 taxmann.com 75 (Gujrat)
(h) Hon’ble Gujrat High Court - Indian Panel Board Manufacturer Vs. DCIT Tax Appeal No. 655 of 2022 dated 21.03.2023.
Therefore, in the interest of justice and fair play, the present matter be restored to the file of JAO with a direction to allow exemption u/s 11/12 after necessary examination of Form No. 10B and assessee’s audited accounts.
Ld. DR for revenue, though dutifully relied upon orders of lower authorities yet could not controvert the submissions made by Ld. AR.
Page 6 of 9 present case in the light of judicial decisions. After a careful consideration, we have following analysis and adjudication:
(i) So far as the condonation of delay is concerned, we find that the assessee has duly explained the reasons for delay in filing the appeal before Ld. CIT(A). The explanation of the assessee that the rectification-order passed by the AO u/s 154 did not bear a valid
Document Identification Number (DIN) and, therefore, the assessee was under a bona fide belief that such order was invalid and non-est in the eyes of law, appears to be reasonable and plausible. It is further observed that immediately upon noticing the outstanding demand, the assessee took corrective steps and filed the appeal alongwith condonation application. In our considered view, the delay has occurred due to a bona fide misunderstanding and not on account of any deliberate or mala fide conduct. It is a settled principle that substantial justice should prevail over technical considerations.
| Savitri Bai Jhawar Sewa Nyas | |
|---|---|
| ITA No. 753/Ind/2025 – AY 2020-21 | |
| appreciating that the assessee trust had duly filed its return of income and | |
| Audit Report in Form No. 10B within due date u/s. 139(1) of the Act and thus | |
| the exemption u/s. 11 of the Act may kindly be allowed to the assessee trust. | |
| 2. On the facts and in the circumstances of the case and in law, the Ld. AO | |
| and the Ld. Jt. CIT(A) have erred in not allowing benefit of exemption u/s. 11 | |
| of the Act without assigning any reasons thereof which is against the | |
| principles of natural justice and thus, the exemption u/s. 11 of the Act may | |
| kindly be allowed to the assessee trust. | |
| 3. On the facts and in the circumstances of the case and in law, the Ld. AO | |
| and the Ld. Jt. CIT(A) have erred in not allowing benefit of the exemption u/s. | |
| 11 of the Act merely due to some technical/clerical/data entry error in ITR | |
| Form without appreciating that the assessee trust is a genuine charitable | |
| trust. Thus, the exemption u/s. 11 of the Act may kindly be allowed to the | |
| assessee trust. | |
| 4. On the facts and in the circumstances of the case and in law, the Ld. Jt. | |
| CIT(A) has erred in not condoning the delay in filing the appeal before the | |
| first appellate authority, which is against the principles of natural justice and | |
| thus, the Appellate Order dated 30.06.2025 passed by the Ld. Jt. CIT(A), is | |
| liable to be quashed. | |
| 5. On the facts and in the circumstances of the case and in law and without | |
| prejudice to the above, the Ld. AO and the Ld. Jt. CIT(A) have erred in | |
| determining income at Rs. 27,42,960/- being Gross Amount without | |
| appreciating that the net income of the assessee trust after deducting | |
| revenue expenses was only Rs. 20,080/-, which was below the basic | |
| exemption limit. Thus, the action of the Ld. AO and the Ld. Jt. CIT(A) is liable | |
| to be quashed.” |
(ii) So far as the allowability of exemption u/s 11/12 in case of delayed filing or defective filing of audit report in Form No. 10B is concerned, we find that the issue is no longer res integra and stands settled in favour of the assessee by various judicial pronouncements as relied upon by the Ld. AR. It is observed that in the present case, the Page 7 of 9 income, though without enclosing audited financial statements, which is a procedural lapse. The assessee has subsequently furnished the audited accounts during rectification proceedings and is still willing to furnish the same before the JAO. The consistent view taken by various Hon’ble High Courts and ITAT Benches is that the requirement of filing audit report is directory in nature and the exemption u/s 11/12 cannot be denied merely on account of technical or procedural defects, especially when substantive conditions are fulfilled. Therefore, in the facts of present case, denial of exemption merely for such technical lapse is not justified.
In view of the foregoing discussion, we set aside the impugned order passed by Ld. CIT(A) and condone the delay in filing the appeal before him.
Further, in the interest of justice, we restore the matter to the file of the JAO with a direction to verify the audit report in Form No. 10B alongwith audited financial statements and allow exemption u/s 11/12 in accordance with law after providing adequate opportunity of being heard to assessee.
Order pronounced in open court on 10/04/2026