Case Summary: Denial of Section 11 Exemption for Belated Form 10B Overruled

ORDER

Siddhartha Nautiyal, Judicial Member. – This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT(A)-3, Hyderabad vide order dated 26.11.2024 passed for A.Y. 2022-23.

2. The assessee has raised the following grounds of appeal:

“1. The Ld. Addl. CIT(A) – 3, Hyderabad has erred in law and on facts of the case by partly allowing the appeal for statistical purpose only and thereby not deleting the adjustments u/s.143(1)(a) of the I.T. Act, 1961, made by the Ld. Dy. D1T, CPC, Bengaluru, by denying exemption and disallowing all the deductions claimed u/s.11 of the I.T. Act, 1961 in the Revised Return of Income, though such disallowances are beyond the scope of provisions of section 143(1)(a) of the I.T. Act, 1961.

2. The Ld. Addl. C1T(A) – 3, Hyderabad has erred in law and on facts of the case by partly allowing the appeal for statistical purpose, merely on the technical ground that the Appellant has not filed Audit Report in Form-10B in time and therefore, setting aside the matter to the file of the Ld. Assessing Officer, directing to verify whether the Appellant has filed application for condonation of delay in filing Audit Report in Form-10B.

3. The Ld. Addl. C1T(A) – 3, Hyderabad has also erred in law and on facts of the case by partly allowing the appeal or statistical purpose only and not deciding the appeal on merits even though the Appellant has duly e-filed Audit Report in Form 10B along with the Revised Return of Income filed u/s.139(5) on 31.12.2022.

4. The Ld. Addl. CIT(A) – 3, Hyderabad has also erred in law and on facts of the case by not taking into consideration that, Audit Report in Form 10Bfiled with the Revised Return on 31.12.2022 was already available on records when Intimation u/s.143(1) was issued on 04.04.2023 without taking cognizance of the Audit Report in Form No. 10B duly e-filed along with that Revised Return, as stated above.

5. The Ld. Addl. CIT(A)-3, Hyderabad has also erred in law and on facts by not properly appreciating that it is well settled that the requirement offiling Form-10B in time is procedural and Form – 10B can be filed during assessment proceedings or even during appellate stage and as such, issues involving delay in filing Form-10B and condonation of delay are highly debatable issues and claim for exemption cannot be denied on basis on such technical ground.

6. The Ld. Addl. CIT(A)-3, Hyderabad has also erred in law and on facts that while not deciding the appeal on merits, it is also not appreciated that the Ld. Assessing Officer has committed gross error by raising tax demand of Rs. 7,87,93,310/- which is 68.89% of assessed income of’Rs. 10,04,64,687/-.

7. The Ld. Addl. CIT(A) – 3, Hyderabad has erred in law and on facts of the case by partly allowing the appeal for statistical purpose only and thereby not deleting the adjustments u/s.143(1)(a) of the I.T. Act, 1961, made by the Ld. Dy. DIT, CPC, Bengaluru, by disallowing all the deductions claimed u/s.11 of the I.T. Act, 1961 in the Revised Return of Income, though such disallowances are beyond the scope ofprovisions of section 143(l)(a) of the I.T. Act, 1961.

8. The Appellant therefore, prays for the following:

9. The Appellant prays to reserve the right to add, alter, amend or withdraw any of the above grounds of appeal. “

3. The brief facts of the case are that the assessee, Electronics & Quality Development Centre, filed its original return of income for Assessment Year 2022-23 on 07.11.2022 declaring nil income under section 139(1) of the Income-tax Act, 1961 (“the Act”). Thereafter, the assessee filed a revised return of income on 31.12.2022 under section 139(5) of the Act, again declaring nil income after claiming exemption under section 11 of the Act. The return was processed by the Assessing Officer, CPC, Bangalore under section 143(1) of the Act vide intimation dated 04.04.2023, wherein the total income was assessed at ^10,04,64,687/- and a demand of ^7,87,93,310/- was raised. The demand arose solely on account of denial of exemption under section 11 of the Act on the ground that Form No. 10B was not filed within the prescribed time. The Assessing Officer noted that although the assessee had filed Form No. 10 on 07.11.2022 and subsequently filed Form No. 10B along with the revised return, the same was not filed within the statutory time limit, and therefore the exemption claimed under section 11 was not considered while processing the return under section 143(1) of the Act.

4. Aggrieved by the intimation issued by CPC denying exemption under section 11, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). Before the CIT(Appeals), the assessee submitted that the delay in filing Form No. 10B was procedural in nature and that the exemption under section 11 could not be denied merely on account of such delay, especially when the audit report was eventually filed along with the revised return of income. The assessee also placed reliance on the subsequent CBDT Circular No. 16/2024 dated 18.11.2024, which provides a mechanism for condonation of delay in filing Forms No. 9A, 10, 10B and 10BB for Assessment Y ear 2018-19 and subsequent years, subject to fulfillment of prescribed conditions.

5. The learned CIT(Appeals) examined the facts of the case and took note of the said CBDT Circular, which authorizes the Commissioner of Income-tax or the Principal Commissioner of Income-tax to condone delay in filing Form No. 10B, depending upon the period of delay. The CIT(Appeals) observed that in view of the said circular, the assessee had a statutory remedy available to seek condonation of delay in filing Form No. 10B under section 119(2)(b) of the Act. Accordingly, the CIT(Appeals) held that the exemption under section 11 could be allowed only if the delay in filing Form No. 10B is condoned by the competent authority. With these directions, the CIT(Appeals) did not grant immediate relief on merits but restored the issue back to the Assessing Officer for verification and consequential action.

6. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee.

7. It was argued that once the audit report in Form No. 10B had been duly e-filed along with the revised return of income under section 139(5), the appellate authority ought to have examined the claim of exemption on merits instead of directing verification of condonation proceedings. The Counsel submitted that the audit report was already available on the records of the Department when the intimation under section 143(1) of the Act was issued, and therefore ignoring the same amounted to a clear error apparent on record. the Counsel for the assessee also submitted that the Ld. Addl. CIT(A) failed to appreciate the settled legal position that filing of Form No. 10B within the prescribed time is a procedural requirement and not a substantive condition for allowing exemption under section 11 of the Act. The Counsel argued that the audit report can be filed even during assessment proceedings or at the appellate stage and that issues relating to delay and condonation are inherently debatable. Therefore, exemption under section 11 cannot be denied on such a purely technical ground, particularly at the stage of processing under section 143(1). The Counsel also drew attention to the grave prejudice caused to the assessee by the action of the Assessing Officer in raising an exorbitant tax demand, which constituted a substantial percentage of the assessed income, without adjudicating the eligibility of exemption on merits. According to the Counsel, the Ld. Addl. CIT(A), by not quashing the adjustments made under section 143(1)(a) and by not granting complete relief, failed to exercise appellate jurisdiction properly.

8. In response, the Ld. DR placed reliance on the observations made by the Ld. CIT(Appeals) in their respective orders.

9. We have heard the rival contentions and perused the material on record.

10. In the case of Commissioner of Income Tax (Exemptions) v. Laxmanarayan Dev Shrishan Seva Khendra (Gujarat)[10-09-2024], the Assessee, a public charitable trust, did not upload audit report in Form 10B along with its return of income. Accordingly, Centralised Processing Centre (CPC) processed return under section 143(1) of the Act denying benefit of exemption under section 11 to assessee. During pendency of appeal before Commissioner (Appeals), assessee electronically uploaded Form 10B. The Commissioner (Appeals) admitted report in Form 10B filed during course of appellate proceedings and allowed benefit of section 11 of the Act to assessee – Tribunal upheld order of Commissioner (Appeals). The Hon’ble High Court held that since assessee had already filed audit report in Form 10B electronically during pendency of appellate proceedings along with copy of audited financial statements, delay in filing said form was rightly condoned by Commissioner (Appeals) and Tribunal.

11. In the case of Parul Mahila Pragati Mandal v. Income-tax Officer (Exemption) (Gujarat)[30-04-2025], the assessee -trust, registered under provisions of Bombay Public Trusts Act, 1950, filed its return of income claiming exemption under section 11 of the Act. The Assessee had obtained audit report in Form 10B within due date as prescribed under Act. However, owing to an inadvertent administrative lapse and oversight, said audit report was not electronically filed along with return of income for relevant assessment year. Accordingly, CPC passed an intimation disallowing exemption under section 11 of the Act. The Assessee filed Form 10B electronically in accordance with requirements of section 12A(1)(b) of the Act. The Assessee also filed an application under section 119(2)(b) for condonation of delay in filing Form 10B. However, said application was rejected. The Hon’ble High Court that filing of Form 10B is only a procedural requirement and failure to file same along with return of income cannot be treated as mandatory requirement for purpose of claiming exemption under section 11 and even if such Form is filed at a later stage, assessee will still be entitled to claim exemption. Therefore, assessee could not be denied exemption merely because Form 10B was not filed within time.

12. In the case of Babubhai C Jariwala Charitable Trust v. Central Board of Direct Taxes (ITA Cell) (Gujarat)[16-10-2025], the assessee, a charitable trust, filed its return of income along with Form 10. However, Form 10B was inadvertently not filed by Chartered Accountant along with return. Subsequently, assessee filed belated Form 10B and also filed application for condonation of delay under section 119(2)(b) of the Act which was rejected by authority concerned. It was noted that inadvertent oversight had occurred in not filing Form 10B due to impending due dates and overwhelming workload of CA. the Hon’ble High Court held that since delay in filing Form 10B was due to inadvertent oversight of CA, same was to be condoned by authority concerned under section 119(2)(b) of the Act.

13. In the case of Brahmchari Wadi Trust v. Commissioner of Income-tax (Exemption) (Gujarat)[17-03-2025], Assessee-trust was running educational institutions. It filed its return of income claiming benefits under section 11 and 12 of the Act. The assessee also exercised option of accumulation of income as per provision of section 11(2) of the Act and accordingly filed Form No. 10 showing accumulation. However, assessee filed Form No. 10 belatedly, The Assessing Officer disallowed benefit claimed under section 11(2) of the Act on ground that assessee had failed to furnish Form No. 10 before date of furnishing return under section 139(1) – Assessee filed an application under section 119(2)(b) of the Act praying for condonation of delay in filing Form No. 10 and accordingly, the same was rejected. The Hon’ble High Court noted that it was not in dispute that assessee had explained in detail cause for late filing of Form that same was due to internal administrative problems of assessee-trust. The Hon’ble High Court noted that in similar circumstances in case of Shri 108 Parshwanath Bhakti V ihar Jain Trust v. CIT (Exemption) (Gujarat) it was held that where assessee-trust for past many years had substantially satisfied conditions for claiming exemption under section 11 of the Act, same could not be denied for non-filing of Form No. 10 in time. Accordingly, following same, Hon’ble High Court held that impugned order passed rejecting assessee’s application for condonation of delay in filing Form No. 10 was to be set aside and matter was to be remanded back to pass appropriate order to condone said delay.

14. In the case of Shree Vardhman Stanakvasi Jain Shravak Trust v. Income-tax Officer (Ahmedabad – Trib.) [14-02-2025], the Ahmedabad ITAT held that delay in submission of Form No. 10B is a procedural defect, hence, where assessee had filed Form No. 10B before Commissioner (Appeals) before conclusion of appellate proceedings, exemption under sections 11 and 12 could not be denied to assessee only on account of late filing of Form No. 10B.

15. In the case of Shree Bhakt Samaj Vikas Education Trust v. Assistant Commissioner of Income-tax (Exemption) (Ahmedabad – Trib.)/[2025] 213 ITD 639 (Ahmedabad – Trib.)[25-06-2025], the Ahmedabad ITAT held that where assessee trust had filed Form 10B and same was available with Department before passing of order/intimation under section 143(1) of the Act, claim of exemption under section 11 could not be denied only on account of delay in filing of Form 10B before due stipulated date.

16. In the instant case, the sole basis for denial of exemption under section 11 of the Act while processing the return under section 143(1) was the alleged delay in filing the audit report in Form No. 10B. It is an undisputed fact that the assessee had e-filed the audit report in Form No. 10B along with the revised return of income filed under section 139(5) of the Act on 31.12.2022 and that the said audit report was already available on the records of the Department when the intimation under section 143(1) was issued on 04.04.2023. Therefore, the action of the CPC in ignoring the audit report and denying exemption under section 11 at the stage of processing under section 143(1) was clearly beyond the scope of permissible adjustments under section 143(1)(a) of the Act. We further find that the learned CIT(Appeals), instead of adjudicating the issue on merits, merely restored the matter to the file of the Assessing Officer for verification of condonation proceedings, despite the fact that the audit report was already on record. This approach, in our considered view, is not sustainable in law. The legal position is now well settled that filing of audit report in Form No. 10B is a procedural requirement and not a substantive condition for claiming exemption under section 11 of the Act. Delay in filing such audit report is a curable defect and exemption cannot be denied merely on such technical ground, particularly when the audit report is furnished during assessment or appellate proceedings. In this regard, we draw support from the judgment of the Hon’ble Gujarat High Court in Laxmanarayan Dev Shrishan Seva Khendra (supra) wherein it was held that once Form No. 10B is filed during appellate proceedings, delay in filing the same stands rightly condoned and exemption under section 11 cannot be denied. Similar view has been taken by the Hon’ble Gujarat High Court in Parul Mahila Pragati Mandal (supra) holding that filing of Form No. 10B is only procedural and exemption under section 11 cannot be denied merely for delayed filing of such form. The Hon’ble Gujarat High Court in Babubhai C. Jariwala Charitable Trust (supra) has also held that delay in filing Form No. 10B due to inadvertent or bona fide reasons deserves to be condoned under section 119(2)(b) of the Act. Similar principles have been reiterated in Brahmchari Wadi Trust (supra) and Shri 108 Parshwanath Bhakti Vihar Jain Trust (supra). The coordinate benches of the Tribunal have also consistently held that delayed filing of Form No. 10B is a procedural lapse and cannot be the basis for denial of exemption under sections 11 and 12. Reference may be made to Shree Vardhman Stanakvasi Jain Shravak Trust (supra) and Shree Bhakt Samaj Vikas Education Trust (supra) wherein it was held that if Form No. 10B is available on record before completion of proceedings, exemption under section 11 cannot be denied on the ground of delay.

17. Respectfully following the aforesaid binding judicial precedents and having regard to the fact that the audit report in Form No. 10B was duly filed along with the revised return and was available on record prior to issuance of intimation under section 143(1) of the Act, we hold that the denial of exemption under section 11 of the Act was not justified. The appeal of the assessee is accordingly allowed.

18. In the result, the appeal filed by the assessee is allowed.