Clerical Error in ITR Cannot Defeat Trust’s Right to Exemption.

By | October 28, 2025
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Clerical Error in ITR Cannot Defeat Trust’s Right to Exemption.

Issue

Can a charitable trust, duly registered under Section 12A, be denied its substantive tax exemption under Section 11 due to an inadvertent clerical error in its income tax return form, even when it has fulfilled all the necessary statutory requirements, including filing the correct audit report?

Facts

  • The assessee, a trust registered under Section 12A, filed its return for AY 2019-20, claiming exemption under Section 11.
  • In the return form, the assessee inadvertently selected the option for registration under Section 10(23C)(iv) instead of the correct Section 12A.
  • Consequently, the Centralized Processing Centre (CPC) system demanded an audit report in Form 10BB (applicable to Section 10(23C) entities).
  • The assessee had correctly obtained and filed the audit report applicable to it, Form 10B, within four days of filing the return.
  • The CPC, ignoring the filed Form 10B and focusing on the absence of Form 10BB, denied the exemption claim while processing the return under Section 143(1).

Decision

  • The High Court ruled decisively in favour of the assessee and directed that the exemption be allowed.
  • It held that the benefit of exemption under Section 11 cannot be denied merely because the return form inadvertently mentioned the wrong section.
  • The court emphasized that the assessee’s substantive right to the exemption cannot be defeated by such technical discrepancies, especially when all statutory preconditions, like obtaining and furnishing the correct audit report (Form 10B) within the prescribed time, were duly satisfied.
  • The filing of the correct form was deemed to be the essential compliance, and the error in the return was a curable, procedural defect.

Key Takeaways

  • Substance Over Form: This ruling is a strong affirmation of the legal principle that substantive compliance should always prevail over minor procedural or clerical errors.
  • A Right Cannot Be Denied on Technicalities: A taxpayer’s vested right to a tax benefit, earned by fulfilling all material conditions, cannot be taken away on hyper-technical grounds.
  • Curable Defects: An inadvertent mistake in a form is a curable defect and should not be treated as a fatal flaw, especially when the taxpayer’s intent is clear and supported by other compliant actions.
  • Holistic View Required: Tax authorities are expected to take a holistic view of the filings rather than processing returns mechanically based on a single incorrect data field.
IN THE ITAT CHENNAI BENCH ‘B’
Alternative for India Development
v.
Income-tax Officer, Exemption
S.S. Viswanethra Ravi, Judicial Member
and S. R. RAGHUNATHA, Accountant Member
IT APPEAL No. 1732 (Chny) OF 2025
[Assessment year 2019-20]
OCTOBER  9, 2025
K. Vishwa Padmanabhan, C.A. for the Appellant. Ms. Gauthami Manivasagam, J.C.I.T. for the Respondent.
ORDER
S.R. Raghunatha, Accountant Member.- This appeal by the assessee is directed against the order dated 03.09.2024 passed by the Learned Additional/Joint Commissioner of Income Tax (Appeals)-2, Gurugram [hereinafter referred to as the “ld.JCIT(A)”], arising out of the intimation dated 26.05.2020 passed u/s.143(1) of the Income-tax Act, 1961 [hereinafter referred to as “the Act”], by the Centralized Processing Centre, Bengaluru [hereinafter referred to as the “CPC”], pertaining to the Assessment Year 2019-20.
2. At the outset, we observe that the present appeal filed by the assessee is delayed by 198 days beyond the prescribed period of limitation. Along with the appeal, the assessee has filed a petition for condonation of delay, duly supported by an affidavit explaining the reasons for such belated filing. In the said petition, the assessee has, submitted that the delay occurred on account of pursuing alternate remedy. The ld.DR, on the other hand, has vehemently opposed the condonation of delay and contended that the assessee has failed to demonstrate any justifiable or bona fide reason warranting condonation under law. We have carefully considered the reasons adduced by the assessee in the condonation petition. Upon due consideration, we find that the explanation tendered by the assessee is reasonable, bona fide and supported by sufficient cause. It is a settled principle of law that when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred, as held by the Hon’ble Supreme Court in various judicial pronouncements. In the totality of facts and circumstances, and being satisfied that the assessee was prevented by reasonable and sufficient cause from filing the appeal within the stipulated period, we hereby condone the delay of 198 days in filing the present appeal. The appeal is thus admitted for adjudication on merits.
3. The assessee is a charitable trust duly registered u/s.12A of the Act. For the A.Y.2019-20, the assessee filed its return of income on 31.08.2019 declaring ‘Nil’ total income after claiming exemption u/s.11 of the Act. It is observed that while filing the said return of income, the assessee inadvertently selected the option of approval u/s.10(23C)(iv) of the Act instead of section 12A/12AA of the Act, under which it is actually registered. On account of this clerical error, the Centralized Processing Centre (CPC) treated the assessee as being registered u/s.10(23C)(iv) of the Act and consequently required the assessee to furnish an audit report in Form No.10BB, as applicable to institutions approved under that provision. The assessee, however, had duly obtained and furnished the audit report in Form No.10B, as prescribed for trusts registered u/s.12A of the Act, on 04.09.2019 i.e., within four days of filing the return of income. The CPC, while processing the return u/s.143(1) of the Act, took the view that in the absence of an audit report in Form No.10BB, the assessee was not entitled to exemption u/s.11 of the Act. Consequently, the CPC denied the assessee’s claim of exemption and brought to tax the entire gross receipts amounting to Rs.2,83,02,078/- as taxable income, while issuing the intimation u/s.143(1) of the Act dated 26.05.2020.
4. Aggrieved by the aforesaid intimation passed by the CPC, the assessee preferred an appeal before the ld.JCIT(A). During the course of appellate proceedings, the assessee brought to the notice of the ld.JCIT(A) that it is a trust duly registered u/s.12A of the Act and not u/s.10(23C)(iv) of the Act. It was, therefore, submitted that the assessee was required to furnish its audit report in Form No. 10B as prescribed, and not in Form No. 10BB. It was further submitted that the assessee had duly complied with the said requirement and had filed the audit report in Form No.10B on 04.09.2019. Accordingly, it was contended before the ld.JCIT(A) that the exemption claimed u/s.11 of the Act, which had been denied by the CPC while processing the return, ought to be allowed.
5. The ld.JCIT(A), while disposing of the appeal, observed that the assessee is a registered trust u/s.12A of the Act. The ld.JCIT(A) further held that, in terms of Rule 12(2) of the Income-tax Rules, 1962, the assessee was mandatorily required to furnish the audit report in Form No.10B on or before the due date of filing the return of income. It was noted by the ld.JCIT(A) that the assessee had uploaded the audit report in Form No.10B on 04.09.2019, which was subsequent to the filing of the return of income. The ld.JCIT(A) therefore held that he was not vested with the authority to condone the delay in furnishing the said audit report. Consequently, the ld.JCIT(A) upheld the action of the CPC in denying the assessee’s claim of exemption u/s.11 of the Act and dismissed the appeal of the assessee.
6. Aggrieved of the above order of the ld.JCIT(A), assessee is in appeal before us.
7. The ld.AR appearing on behalf of the assessee submitted that the extended due date for filing the return of income for the impugned assessment year was 31.10.2019, and consequently, the due date for furnishing the audit report under the provisions of the Act was 30.09.2019. It was contended that the assessee had duly furnished the audit report in Form No. 10B on 04.09.2019, which is well within the prescribed statutory due date. The ld. AR further submitted that the mere fact that the audit report in Form No. 10B was uploaded after the filing of the return of income cannot be a valid ground to deny the assessee the benefit of exemption u/s.11 of the Act. In support of this contention, the ld. AR placed reliance on the decision of this Tribunal in the assessee’s own case for the A.Y.2016-17 in Alternative India for Development No.1 v. ITO [IT Appeal No. 2114/Chny/2024, dated 22.01.2025], wherein it was held that the requirement of filing the audit report in Form No.10B is directory in nature and not mandatory, and accordingly, the exemption u/s.11 of the Act was allowed. Relying upon the aforesaid decision and the factual position that the audit report had been filed within the statutory due date, the ld.AR prayed that the assessee’s claim for exemption u/s.11 of the Act be allowed.
8. Per contra, the ld.DR, appearing on behalf of the Revenue, filed written submissions and vehemently contended that, in view of the express mandate contained in section 12A(1)(b) of the Act, the assessee-trust, in order to be eligible to claim exemption u/s.11 of the Act, is statutorily required to furnish the audit report in Form No.10B within the due date prescribed u/s.139(1) of the Act. It was further submitted that, as per the provisions of Rule 12(2) of the Income-tax Rules, 1962, the return of income is required to be accompanied by the said audit report. The ld.DR argued that, for the purpose of effective processing of the return by the CPC, the filing of Form 10B contemporaneously with the return of income is a sine qua non. In the present case, the ld.DR pointed out that the assessee filed the return of income on 31.08.2019, whereas the audit report in Form 10B was uploaded subsequently on 04.09.2019, i.e., after the filing of the return. Hence, it was contended that the audit report so furnished cannot be treated as valid compliance in terms of section 12A(1)(b) of the Act. According to the ld.DR, the requirement of furnishing the audit report within the prescribed time limit is mandatory and not merely directory, and any deviation therefrom disentitles the assessee from availing the exemption u/s.11 of the Act. In light of the aforesaid submissions, the ld.DR prayed that the order of the ld.JCIT(A) be upheld and the claim of the assessee for exemption u/s.11 be rejected.
9. We have heard the rival submissions, perused the material available on record, and carefully considered the orders of the authorities below. It is an admitted fact that the assessee is duly registered u/s.12A of the Act and had filed its return of income on 31.08.2019 declaring ‘Nil’ income. It is observed that the audit report in Form No.10B was duly uploaded on 04.09.2019, whereas the statutory due date for furnishing the said audit report under the Act was 30.09.2019. Hence, it is evident that the assessee had furnished the audit report within the prescribed due date, though there was a gap of four days between the date of filing of the return and the uploading of the audit report.
10. It is a settled position of law, as consistently held in a catena of judicial pronouncements, that the requirement of filing the audit report along with the return of income is directory and not mandatory in nature. It has been further held that exemption u/s.11 of the Act cannot be denied merely on account of procedural or technical lapses, provided the substantive conditions prescribed under the law are duly complied with. In the present case, it is not the case of the Revenue that the assessee is otherwise ineligible to claim exemption u/s.11 of the Act.
11. We, therefore, hold that once the assessee in the peculiar facts of the case has obtained and furnished the audit report in Form No.10B within the time prescribed under law, the benefit of exemption u/s.11 of the Act cannot be denied merely on the ground that such report was uploaded a few days subsequent to the filing of the return, or that the return had inadvertently mentioned section 10(23C)(iv) of the Act instead of section 11 of the Act. Such technical discrepancies cannot defeat the substantive right of the assessee, particularly when all the statutory preconditions for availing exemption have been duly satisfied.
12. We further note that an identical issue had arisen in the assessee’s own case for the A.Y.2016-17 in ITA No.2114/Chny/2024, wherein this Tribunal, after considering several judicial pronouncements, held that the filing of Form No.10B along with the return of income is a procedural requirement and not a statutory mandate, and that the exemption u/s.11 cannot be denied merely for not filing Form No.10B simultaneously with the return. The relevant operative portion of the order reads as under:
“3.0 We have heard the rival submissions in the light of material available on records. The Ld. DR placed reliance upon the order of the lower authorities. It is the case of the assessee that filing of Form-10B is merely a directory exercise and not a mandatory requirement. In support of its contentions, the Ld. Counsel for the assessee has relied upon the decisions of Hon’ble Madras, Bombay and Gujarat High Courts and Hon’ble Coordinate benches of this tribunal as well as those emanating from Delhi Benches, Ahmadabad Benches, Bangalore Benches. Thus, our attention is drawn to the decisions of ITA No.1166/Chny/2024 of Chennai in the case of Kaakkum Karangal, ITA No.302/DEL/2024 of Delhi in the case of Rajdhani Maitri Club Foundation, ITA No.209/Ahd/2022 of Ahmedabad in the case of Gujarat Energy Development Agency, ITA No.3657/Del/2023 of Delhi in the case of Bhagwant Kishore Memorial Educational Society, ITA No.1396/Bang/2024 of Banglore in the case of M/s.Sarvadeivatha Education Trust and ITA No.695/Ahd/2023 of Ahmedabad in the case of Anjana Foundation Vadodara and of Hon’ble Gujarat High Court decision in the case of Indian Panel Board Manufacturer v. DICT (ITA No.655 of 2022 dated 21.03.2022), decision of the Hon’ble Madras High Court in the case of Chandraprabhuji Maharaj Jain v. DCIT reported in  11, decision of the Hon’ble jurisdictional High Court in the case of CIT v. SPIC Educational Foundation (TCA No.1593 of 2008 dated 12.12.2018 and of Hon’ble Bombay High Court in the case of Xavier Mandel Pvt Ltd. As regards decision of Hon’ble Coordinate bench of this tribunal in the case of Kakkum Karangal ITA No.1166/Chny/2024 the following was held:-
“.10. For completeness, we make it clear that the Ld.CIT(A) erred in rejecting the appeal preferred by the assessee on a ground which was not raised/flagged by the CPC i.e. delay of less than one month in filing / uploading of Audit Report. In this context, it is noted that such an issue is no longer res integra i.e. filing of Form 10AB (Audit Report) would be directory in nature and as such if the assessee files the Audit Report before completion of assessment, then, the same should be considered by the Income Tax Authorities for processing of the assessment/appellate order (refer the Hon’ble Gujarat High Court decision in the case of Indian Panel Board Manufacturer v. DICT (ITA No.655 of 2022 dated 21.03.2022) and also the decision of the Hon’ble Madras High Court in the case of Chandraprabhuji Maharaj Jain v. DCIT reported in  11; and also the decision of the Hon’ble jurisdictional High Court in the case of CIT v. SPIC Educational Foundation (TCA No.1593 of 2008 dated 12.12.2018), wherein the Hon’ble High Court has held that filing of Form 10 for accumulation of income u/s.11(2) of the Act which was filed beyond due date couldn’t disentitle the trust from exemption claimed u/s.11 of the Act. The Hon’ble Court directed the AO to examine the benefit of admissibility rather than to foreclose the claim of assessee on technicalities. Therefore, respectfully taking note of the binding decision of the Hon’ble High Court (supra), we hold that the Ld.CIT(A) erred by misdirecting on an issue which wasn’t raised by CPC; and since the TAR had been filed while the CPC was processing the RoI, it rightly didn’t raise any objection on belated filing of TAR, and therefore the First Appellate Authority erred in passing the impugned order, which we set aside and direct granting exemption claimed by the assessee u/s. 11 of the Act.”
3.1 We have noted that Hon’ble Delhi Tribunal in its latest decision in the case of Rajthani Maithri Club Foundation vide ITA No.302/Del/2024 dated 21.11.2024 has ruled as under:
“.3. Suffice to say, the substantive issue between the parties herein appears to be that of correctness of learned lower authorities’ action in disallowing the assessee section 11 exemption claim on the ground that it had belatedly filed its form 10B audit report dated 22.09.2022 than the due date of filing return u/s 139(1) of the Act. The Revenue’s case is that this tax audit report compliance is a mandatory provision for an assessee who claims section 11 exemption. 4. We note in this factual backdrop that the instant issue is no more res integra in light of ACIT v. Xavier Kelvani Mandal Pvt. Ltd. (Gujarat), wherein their lordships have already settled the same at rest in assessee’s favour and against the department that such a compliance could be even made in first appellate proceedings before the CIT(A)/NFAC. I thus accept the assessee’s instant sole substantive grievance in principle and direct the learned CIT(A)/NFAC to readjudicate the lower appeal on merits as per law preferably within three effective opportunities subject to a rider that it shall be the taxpayer’s risk and responsibility only to plead and prove all the relevant facts within three effective opportunities accordingly.”
4.0 We have also noted with respectful deference the decision of Hon’ble Bombay High Court in the case of Xavier Mandel Pvt Ltd holding that “in order to claim exemption u/s 11, the assessee can file audit report in Form-10B even at later stage either before the assessing officer or appellate authority.”
5.0 Thus, we find force in the argument of the assessee that filing of Form-10B along with return of income is a mere procedural requirement and not a statutory mandate, absence of which would disentitle an assessee from claim of its deduction u/s 11 & 12 of the act. In respectful compliance to the decisions of Hon’ble Coordinate Benches including those delivered by this tribunal as well as decisions of Hon’ble Madras, Gujarat and Bombay High Court supra, we are inclined to hold that the filing of Form-10B is merely directory in nature. Thus, the order of the Ld.CIT(A) is not justified and set aside. We direct the Ld. AO to allow the claim of exemption u/s 11 of the act. appeal raised by the assessee are allowed.”
13. In light of the foregoing and respectfully following the decision of the coordinate bench of this Tribunal in the assessee’s own case for the earlier assessment year, we hold that the filing of Form No.10B is a procedural formality and its delayed filing cannot be a ground to deny exemption otherwise available u/s.11 of the Act. Accordingly, we hold that the CPC as well as the ld.JCIT(A) were not justified in denying the assessee exemption u/s.11 of the Act. We therefore set aside the order of the ld.JCIT(A) and direct the AO to consider the Form 10B filed on 04.09.2019 as valid and hence delete the addition of Rs.2,83,02,078/- and to allow the assessee’s claim for exemption u/s.11 of the Act. Thus, the grounds of appeal raised by the assessee are allowed.
14. In the result, the appeal of the assessee stands allowed.