Charitable Trust's Exemption is Valid if Audit Report is Filed by Due Date, Even if After the ITR

Charitable Trust’s Exemption is Valid if Audit Report is Filed by Due Date, Even if After the ITR

Issue

The central legal question is whether a charitable institution can be denied tax exemption under sections 11 and 12 merely because its audit report in Form 10B was filed after its return of income, even though both documents were filed well within the statutory due date.

Brief Facts

A charitable institution filed its income tax return on October 27, 2018. It then filed the mandatory audit report in Form 10B on the very next day, October 28, 2018. The extended due date for filing the return, as notified by the CBDT, was October 31, 2018.

The Assessing Officer denied the trust’s claim for tax exemption. The sole reason for the denial was that the audit report was furnished subsequent to the filing of the income tax return, which the officer viewed as a non-compliance with the provisions of section 12A(1)(b).

Decision

The court ruled decisively in favor of the assessee.

It held that the assessee had substantively complied with the legal requirements. The court emphasized that since the audit report was filed within the extended due date, the condition for claiming the exemption was met.

The sequence of filing—the return being filed a day before the audit report—was treated as a minor procedural issue that should not defeat the assessee’s right to a substantive legal benefit. The purpose of the law is to ensure the audit is completed and the report is available before the assessment process begins, which was fulfilled by the assessee.

Consequently, the order denying the exemption was set aside, and the assessee was allowed the benefit of sections 11 and 12.

Key Takeaways

Substantive Compliance Over Procedural Technicality: The courts prioritize the fulfillment of the core objective of a legal provision over strict adherence to minor procedural steps.
Due Date is the Ultimate Deadline: For the purpose of section 12A(1)(b), the critical deadline is the due date for filing the return of income. As long as the audit report is filed by this date, the condition is satisfied.
Purpose of Form 10B: The requirement to file an audit report is to ensure the accounts of the trust are properly audited. This purpose is not defeated if the report is filed after the return but before the final deadline

IN THE ITAT RAIPUR BENCH

Jhaiji Shikshan Samiti

Dy. Commissioner of Income-tax, Exemption

Partha Sarathi Chaudhury, Judicial Member
and G.D. PADMAHSHALI, Accountant Member

IT Appeal No. 476 (RPR) OF 2025
[Assessment year 2018-19]

SEPTEMBER 9, 2025

ogesh Sethia, Ld. AR for the Appellant. Ms. Manisha Kinnu, Ld. DR for the Respondent.

ORDER

G.D. Padmahshali, Accountant Member. – The captioned appeal is filed by the assessee challenging DIN & Order No. ITBA/APL/S/250/2024-25/1074287119(1) dt. 10/03/2025 passed by Addl./Jt. Commissioner of Income Tax, Appeals-1, Visakhapatnam [‘Ld. CIT(A)’] u/s 250 of the Income Tax Act, 1961 [‘the Act’] which in turn sprung out of order of rectification passed u/s 154 of the Act by Centralized Processing Center, Bangaluru [‘Ld. CPC’] anent to assessment year 2018-19[‘AY’].

2. The only issue in this appeal revolves around denial of exemption u/s 11 & 12 of the Act for filing of audit report after filing return of income but within the prescribed/extended due date.

3. Briefly stated the facts of the case are that;

3.1 The assessee is a charitable institution registered u/s 12A of the Act which filed its return of Income on 27/10/2018. The Audit Report in prescribed Form No. 10B r.w.r. 17B of the Income Tax Rules, 1962[‘IT-Rules’] however was filed on 28/10/2018. The return of Income filed by the assessee was processed u/s 143(1) of the Act summarily on 17/10/2019 whereby the exemption for section 11 and 12 of the Act was denied by the Ld. CPC on the solitary ground that, the audit report was filed subsequent to filing of return. Thus, there was non-compliance with provisions of section 12A(1)(b) of the Act.

3.2 Against former denial, the assessee filed an application for rectification u/s 154 of the Act on 19/12/2019. Reverberating the reasons spelt in summary assessment the Ld. CPC rejected the said application for rectification on 06/01/2020. Aggrieved by the action of Ld. CPC the assessee filed first appeal u/s 246A of the Act before the Ld. CIT(A) which was dismissed bringing no relief to the assessee.

4. Being unsuccessful in first appeal, the assessee came in present appeal before the Tribunal on as many as four grounds, which considered to be inconsonance with rule 8 of Income Tax Appellate Rules, 1963 [ITAT-Rules’] hence reproduction thereof is dispensed with. However it shall suffice to state that, the only issue to be adjudicated here is that, ‘as to whether filing of Audit Report in Form No 10B after filing of return of income disentitles the assessee for claim of exemption u/s 11 & 12 of the Act.

5. During the course of hearing, the Ld. AR appearing on behalf of appellant assessee after adverting to Pg 27 of the paper book submitted that, neither the return nor the Form-10B was filed belatedly but within the extended due date allowed by the Central Board of Direct Tax [‘CBDT’] vide F.No. 225/358/2018/ITA.II dt. 08/10/2018. The sole reason behind denial of exemption by the Revenue is attributed towards filing of audit report after filing of return. As return as well as audit report were filed within the extended due date, therefore there was no default on the part of the assessee in complying with the provisions of section 12A r.w.r. 17B (supra). For the purpose of giving effect to section 11 and 12 of the Act, at the time of processing of ITR the audit report was already on record before Ld. CPC, therefore there was no logic in denying the exemption merely the audit report was filed after filing of return. To cut the denial to corner, the Ld. Sethia averred that, since the filing of audit report was obtained and filed within the extended due date therefore there was no disqualification attracted. Filing of audit report after filing of return cannot be fatal so as to take away the lawful exemption. To drive home this contention the Ld. AR relied on decision of co-ordinate benches in ITO (E) v. Takshshila Foundation (NGO) /208 ITD 677 (Ahmedabad – Trib.)and Sirur Shikshan Prasarak Mandal v. ACIT, Exemption 208 ITD 739 (Pune – Trib.).

6. Per contra the Ld. Ms Kinnu professed that, claim for exemption u/s 11 & 12 of the Act is subject to fulfilment of certain conditions and not automatic. The one of such condition requires furnishing of Form- 10B within the prescribed due date u/s 12A(b) r.w.s. 44AB r.w.s. 139(4A) r.w.s. 139(1) of the Act. Here the due for filing audit report was extended to 30/10/2018. Though both return and audit report were filed within the former extended due date, but report was filed post filing of return. Thus, there was clear violation of stipulated mandatory condition. It was submitted by Ld. DR that, once condition subject to fulfilment of which exemption available is faulted with, then exemption is no longer available. Placing reliance on the orders of tax authorities below, the Ld. Ms Kinnu prayed for dismissal of appeal in limine tenaciously on same reasoning.

7. We have heard the rival party’s submission and subxject to rule 18 of ITAT-Rules, 1963 perused the material placed on records and considered the facts of the case in the light of settled position of law.

8. Before we advance to settle the dispute, let us first indurate factual matrix in clear terms; for the assessment year under consideration, originally the due date for filing return of income and audit report for the year under consideration respectively were 30/09/2018 which the Ld. CBDT vide dt 24/09/2018 extended it to 15/10/2018 in first instance. On the representation of various stakeholders, the Ld. CBDT vide order u/s 119 of the Act dt. 08/10/2018 extended the said due date for filing of return of income and reports of audit further to 31/10/2018. It is an admitted fact that, in view of the aforestated extension return of income filed by the appellant, was well within the provisions of section r.w.s. 139(4A) of the Act. There is also much dispute that audit report in prescribed Form No 10B r.w.s. rule 17B of the IT-Rules too filed within such extended time allowed. Thus, both the return of income as well as the audit report in Form No 10B were filed before the expiry of extended period within which it was required to be filed u/s 12A(b) r.w.e (ii) to section 44AB of the Act. Therefore, there was much less default in complying with section 12A of the Act consequentially for to be eligible for exemption u/s 11 and 12 of the Act. The Revenue, however, set the denial on the solitary reasons that, audit report was not filed along-with return of income as per plain and stricter interpretation of the provisions of section 12A(b) of the Act but filed after the return of income.

9. We note that, not filing the report along-with return was the solitary reason which persuaded the Revenue to deny the exemption to the appellant. In doing so the Revenue contends that, the audit report subject to extension (if any) was not only required to be filed by the appellant within specified period as prescribed u/s 44AB of the Act but also along-with furnishing return of income u/s 139(1) r.w.s. 139(4A) r.w.s. 12A(B) of the Act. It is the case of the Revenue that, filing of audit report after filing of return was flaw and therefore the said amounted to non-compliance of s/s (b) of section 12A which is fatal to extinguish the claim for exemption to the appellant.

10. We note that, for the purpose of claiming exemption u/s 11 & 12 of the Act, the appellant assessee is required to comply with certain pre-conditions which are laid in section 12A of the Act. The lone condition relevant to present case in hand is worthy to note here;

(a)

…

(b)

where the total income of the trust or institution as computed under this Act without giving effect to the provisions of sections 11 and 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 defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and the person in receipt of the income furnishes by that date 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;]] (Emphasis supplied)

11. The bare perusal of aforestated provisions reveals that, filing of report by that date ensures the compliance stipulated u/s 12A(1)(b) of the Act for the purpose of claiming exemption u/s 11 and 12 of the Act. Since in the present case the required audit report in prescribed form was filed by the appellant well within the extended due date(supra), therefore the appellant substantively complied with the provisions of law in establishing its eligibility for the purpose of claiming exemption u/s 11 and 12 of the Act. Further in our considered view there was no violation of any condition attributed to filing the audit report when filed either before filing of return or after filing of return so long as the same was filed well within the due date prescribed for. Therefore, the action of the tax authorities below in holding the filing of audit report post filing of return as defective is vacated. The impugned order thus set-aside and the Ld. CPC directed to allow the benefit of exemption of section 11 and 12 of the Act to the appellant. The grounds thus stands allowed.

12. In result, the appeal of the assessee is ALLOWED.