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Facts
The assessee, Dayalal Meghji & Co. Employees Group Gratuity Scheme, claimed exemption under Section 10(25)(iv) of the Income Tax Act, 1961, but filed its return of income in ITR-7 instead of ITR-5. The Assessing Officer (AO) and CIT(A) disallowed the exemption solely on the technical ground of filing the return in the wrong ITR form.
Held
The tribunal held that a legitimate claim should not be disallowed merely on a technical ground if the mistake was bona fide. However, instead of granting the exemption outright, the tribunal remanded the case back to the AO to re-examine the assessee's eligibility for the exemption on its merits, rather than just on the technicality of the ITR form.
Key Issues
The key legal issue was whether a legitimate tax exemption claim could be denied solely due to the assessee filing the return in an incorrect ITR form, and if so, whether the matter should be decided on technicality or merits.
Sections Cited
Section 10(25)(iv), Section 10(26AAB)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, RAIPUR BENCH, RAIPUR
Before: SHRI PARTHA SARATHI CHAUDHURY & SHRI AVDHESH KUMAR MISHRA
आदेश / ORDER
PER PARTHA SARATHI CHAUDHURY, JM:
The present appeal preferred by the assessee emanates from the order of the Ld. CIT(Appeals)/ADDL/JCIT(A), Mysore dated 29.07.2025 for the assessment year 2014-15 as per the following grounds of appeal:
1. Ld. CIT(A) erred in confirming action of A.O in not allowing exemption u/s.10(25)(iv) claimed by the appellant. The appellant is entitled for exemption u/s.10(25)(iv). Ld. CIT(A) erred in affirming rectification order passed by A.O without appreciating facts of the case properly.
2. The appellant reserves the right to add, amend or alter any ground/s of appeal.”
2. The limited issue for adjudication is that the assessee had claimed exemption u/s.10(25)(iv) of the Income Tax Act, 1961 (for short ‘the Act’), however, had filed return of income in ITR-7 instead of ITR-5. The Revenue had disallowed the said exemption on the ground that it was mistake voluntarily done by the assessee in not filing the return in proper ITR and therefore, since the return of income had been filed in ITR-7 wherein there is no provision for exemption u/s.10(25)(iv) of the Act is concerned, therefore, the said exemption was declined to the assessee.
In this regard, the ITAT, Division Bench, Raipur in the case of 3. Income Tax Officer-3(1), Raipur Vs. Chhattisgarh State Agricultural Marketing Board, A.Y.2014-15, dated 31.01.2025 had held that so far as claim of tax payer assessee is 3 Dayalal Meghji & Co. Employees Group Gratuity Scheme Vs. ITO-4(1), Raipur (C.G.) concerned, the key point is that quasi-judicial authority’s decision should be based on reasonability and rationality and it should not be done in an arbitrary manner. That when the Department has not brought any evidence on record to suggest that such mistake by the assesse was not bonafide, in such circumstances, due to such inadvertent mistake, the legitimate claim of the assessee should not be disallowed merely on the technical ground that the assessee had filed return in wrong ITR. The relevant extract of the aforesaid order (supra) are extracted as follows:
“13. We have considered the rival submissions, perused the material available on record and case laws referred to by the Ld. AR. Admittedly, there is no dispute that the assessee board i.e., “Chhattisgarh State Agricultural Marketing Board” is an authority or board covered under the provisions of section 10(26AAB) of the Act, however the exemption claimed by the assessee is denied by the CPC on account of assessee’s filing of return in Form No. ITR-7 instead of Form No. ITR-5 for which the reasons stated by the Ld. AR was that, the assessee board is having Alphabet T in their PAN No., the extant Income Tax Portal / system had not permitted the assessee to file the return in Form No. ITR-5. This was an inadvertent error on the part of assessee, which was very mechanically dealt with by the CPC and have disallowed the exemption without going through the merits of the claim of the assessee. On this issue, Ld. CIT(A) had rightly taken the support from the order of Coordinate Bench of ITAT, i.e., “B” Bench, Kolkata in the case of Young Mends Welfare Society in &614/Kol/2022, wherein it is categorically observed that the action of lower authorities in mechanical manner, without considering the claim of assessee on merits was not justified. It has been held time and again that the Income Tax Authority was not supposed to punish assessee for their Bonafide mistakes.
Further, we find support to the contention raised by the Ld. AR, from the CBDT’s Circular No. 18/2017 referred to (supra) that the assessee board’s income is unconditionally
In backdrop of aforesaid facts and circumstances, we do not find any infirmity in the order of Ld. CIT(A) in allowing the exemption claimed by the assessee u/s 10(26AAB) of the Act, therefore, we do not see any reason to interfere with the said decision of the Ld. CIT(A).
Resultantly, the appeal filed by the revenue in absence of any contention contradicting the arguments of Ld. AR or the case laws or the directions under Circular No. 18/2017 of CBDT referred to supra, therefore the appeal of department in being bereft of merits, stands dismissed.”
However, in the above referred decision (supra), the Tribunal had given relief without examining on merits of the claim of the assessee whether it was in terms with the provisions of the Act or not. Therefore, in the matter before us is concerned following the basic spirit of the above referred decision that the order passed by any quasi-judicial authority has to be done in a reasonable manner based on reasoning and cannot be concluded arbitrarily, we uphold the same to the extent. However, whether the assessee is eligible for the claim of exemption u/s. 10(25)(iv) of the Act or not is concerned, the matter has to be revisited by the A.O and then decide the same afresh. We order accordingly.
The order of the Ld. CIT(Appeal) is set-aside and remanded back to the file of the A.O as per our aforesaid directions.
That as per the aforesaid terms grounds of appeal by the assessee are partly allowed for statistical purposes.
In the result, appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on 10th February, 2026.