Late Filing of Audit Report Not Fatal if Done Before Assessment is Completed.

Issue

Can a charitable trust be denied the tax exemption under Section 11 of the Income-tax Act solely on the grounds that its mandatory audit report in Form 10B was filed after the prescribed due date, even if the report was furnished before the assessment was finalized?

Facts

The assessee, a charitable trust engaged in educational activities, filed a ‘nil’ income tax return for the Assessment Year 2018-19, claiming exemption under Section 11.
It failed to file the required audit report in Form No. 10B by the original statutory due date.
Consequently, the Centralized Processing Centre (CPC) processed the return and denied the exemption, resulting in a tax demand.
However, the assessee did upload the audit report at a later date, but crucially, this was done before the CPC passed the final intimation under Section 143(1)(a) and before the conclusion of the subsequent appellate proceedings.
Despite the eventual filing of the report, the Commissioner (Appeals) upheld the denial of the exemption.

Decision

The High Court ruled decisively in favour of the assessee.
It held that the Commissioner (Appeals) had erred in not allowing the claim.
The court established that if the audit report is filed at any time before the assessment proceedings are completed, it should be considered, and the benefit of the exemption under Section 11 should be granted.
Since the report was on record well before the final intimation was passed, the initial delay in filing could not be a valid ground for denying the exemption.

Key Takeaways

Substance Over Form: This ruling is a strong affirmation that a substantive right to a tax exemption cannot be defeated by a curable procedural delay. The actual existence and eventual filing of the report are more important than the initial timing.
Curable Defect: The late filing of Form 10B is treated as a curable defect, not a fatal flaw that automatically disqualifies a trust from its exemption for the year.
Filing Before Assessment is Key: The critical timeline for a taxpayer is to ensure that all necessary documents, including a delayed audit report, are on record before the assessment is finalized by the tax authority.
Beneficial Provision: Section 11 is a beneficial provision intended to support charitable activities. Courts are inclined to interpret such provisions liberally and not deny claims on hyper-technical grounds when the trust’s charitable nature and application of income are not in dispute.

IN THE ITAT PUNE BENCH ‘SMC’

Masoomeen Education Society

Commissioner (Appeals), Sangli

Dr. Manish Borad, Accountant Member

IT Appeal No. 732 (PUNE) OF 2025
[Assessment year 2018-2019]

OCTOBER 10, 2025

Umesh Kumar Mali for the Appellant. R.Y. Balawade, Addl. CIT for the Respondent.

ORDER

Dr. Manish Borad, Accountant Member. – This appeal at the instance of the assessee is directed against the Order of Ld. CIT(A) dated 29.02.2024 framed u/s 250 of the Income Tax Act, 1961 fOr A.Y. 2018-19 which is arising out of order passed u/s 143(1) of the Act dated 04.03.2020.

2. Registry has informed that there is a delay of 323 days in filing of the present appeal. Application for condonation of delay alongwith affidavit dated 10.03.2025 stands filed. Main reason for the delay is on account of non communication about the impugned order from the earlier tax consultant who had received it on his e-mail address. Considering the fact that the assessee’s are dependant upon tax consultants for filing of the appeal, after hearing Ld. Departmental Representative (DR) and on perusal of the records I find that the sufficient cause prevented the assessee from filing the appeal in time. The delay is not intentional and therefore following the ratio laid down by the Hon’ble Apex Court in the case of Collector, Land & Acquisition v. Mst. Katiji ITR 471 (SC) and in the case of Inder Singh v. State of Madhya Pradesh (2025) INSC 382) judgement dated 21.03.2025, I hereby condone the delay of 323 days in filing of the instant appeal and admit it for adjudication.

3. Sole grievance of the assessee is that Ld. CIT(A) erred in confirming the action of the Assessing Officer (AO) in not allowing the application of income incurred for charitable purposes solely on the ground of non furnishing of audit report on Form 10B within the prescribed time limit.

4. Ld. Counsel for the assessee vehemently argued referring to the details placed on records and submitted that firstly filing of audit report is directory in nature and secondly he submitted that the assessee duly uploaded the audit report within 30 days of receiving the communication from the Central processing Centre (CPC) but without considering the assessee’s submissions, the CPC passed the order by not allowing the application of funds for charitable purposes at Rs. 39,95,991/

5. On the other hand Ld. Departmental Representative (DR) vehemently argued supporting the order of the Ld. CIT(A).

6. I have heard rival contentions and perused the record placed before me. The grievance of the assessee is that Ld. CIT(A) erred in not allowing the claim of application of income of Rs. 39,95,991/- claimed to be incurred for charitable purpose solely on the ground that audit report on Form 10B has not been furnished within the prescribed time limit. I note that the assessee is a charitable trust, mainly engaged in philanthropic activities more particularly in the field of Education and also runs a school in the name of Super English School at Sangli. During the F.Y. 2017-18 relevant to A.Y. 2018-19 gross Fees collection is Rs. 41,22,116/- and expenses towards administration and management of the school incurred at Rs. 35,20,913/- and also capital expenditure worth Rs. 4,75,078/- incurred towards laboratory items and other equipments. The return of income furnished on 31.08.2018 declaring Nil income. Audit report on Form 10B which was required to be uploaded upto 15.02.2018 was not filed. The CPC sent a communication to the assessee dated 04.12.2019 proposing the alleged adjustment for want of audit report on Form 10B and assessee was required to remove the defects within 30 days. The assessee on receiving the said communication from the CPC filed the audit report on Form 10B on 31.12.2019. Surprisingly the CPC did not consider the assessee’s reply and the audit report uploaded on 31.12.2019 and passed the order u/s 143(1)(a) of the Act dated 04.03.2020. Against the order of CPC u/s 143(1)(a) of the Act assessee preferred appeal before Ld. CIT(A) but failed to succeed on both the grounds firstly allowing of application of income u/s 11 and the alternate claim of expenditure u/s 10(23C)(iiiad) of the Act.

7. I find that firstly the CPC erred in not allowing the benefit of expenditure u/s 11 of the Act inspite of the fact that assessee has duly uploaded the audit report within the time given by the CPC. Even otherwise it has been consistently held that even if the audit report is filed before the conclusion of the appellate proceedings before Ld. CIT(A), the same should be considered for allowing the claim of the assessee u/s 11 of the Act and for this I place reliance on the decision of the Sahaj Seva Trust v. ITO, Exemption ITD 122 (Pune–Trib.)/ITA No. 541/PUN/2025 order dated 06.05.25 and the relevant finding of the Tribunal reads as under:-

2. The only grievance of the assessee is that the benefit of sections 11

and 12 has been denied to the assessee for non filing of Form No.10B within the prescribed time limit and that ld.CIT(E) has not considered the Form No.10B filed at the later stage on 02.03.2022 which was filed at the appellate proceedings. It was also submitted that filing of Form No.10B is directory in nature and the same should have been considered by Ld. CIT(A) while deciding the issue.

3. Ld. Departmental Representative supported the orders of the lower authorities.

4. We have heard both the sides and perused the record placed before us. We note that assessee holds valid registration u/s.12A of the Act vide letter dated 13.03.2022, but has filed Form No.10B belatedly on 02.03.2022 and ld.CIT(A) who has also the co-terminus powers to that of ld. AO did not accepted the audit report filed on Form No.10B and denied the benefits of sections 11 and 12 to the assessee.

5. We note that the Coordinate bench, Surat in the case of S.M. K.R. Vashi High School v. ITO (Exemption) reported in (ITAT, Surat) has held that even if the Form No.10B could not be uploaded due to some technical error on the income-tax portal, benefit of section 11 could not be denied merely on account of delay in furnishing the audit report. Hon’ble High Court in the case of CIT (Exemption) Anjana Foundation reported in (Gujarat) has held that filing of Form No.10B is a procedural requirement and benefit of section 11 should not be denied for delay in furnishing Form No.10B. Hon’ble Court thus affirmed the view taken by the Tribunal in its order dated 07.02.2023 in ITA No.695/Ahd/2023. We therefore following the ratio laid down in the above referred decisions hold that the assessee holding valid registration u/s.12A of the Act has filed Form No.10B belatedly but during the appeal proceedings itself and filing of such report is directory and not mandatory as held by Hon’ble Courts, therefore, benefit of sections 11 and 12 claimed by the assessee in income-tax return deserves to be allowed. Grounds of appeal raised by the assessee are allowed.

8. Respectively following the above decision and on due considering of the facts of the case, since the Audit Report for A.Y. 2019-20 already stands uploaded on 31.12.2019 which is much prior to the passing of the impugned order as well as the passing of the intimation u/s 143(1)(a) of the Act by CPC, Ld. CIT(A) erred in not considering the Audit Report and not allowing the claim of assessee of application of Rs. 39,95,991/- incurred for charitable purpose. Accordingly finding of the Ld. CIT(A) is reversed and grounds of appeal raised by assessee are allowed and Jurisdictional Assessing Officer (JAO) is directed to allow the claim of the assessee for application of income at Rs. 35,20,913/- and Capital expenditure at Rs. 4,75,078/- for charitable purposes. Grounds of appeal raised by the assessee are allowed.

9. In the result appeal of the assessee is allowed.