Invalidation of Rectification Order Withdrawing Section 11 Exemption (Section 154)

Facts

The Assessee: A charitable trust registered under the Income-tax Act.
The Filing: For AY 2021-22, the trust filed its return claiming exemption under Section 11. Due to technical issues on the income tax portal, its Form 10B (Audit Report) was refiled on 19-2-2022 after an initial attempt on 11-1-2022.
The Intimation: The CPC initially issued a communication proposing to deny the exemption because Form 10B was not filed one month prior to the due date. The trust provided an explanation regarding the portal glitches.
The Acceptance: After considering the explanation, the CPC processed the return under Section 143(1), accepting the returned income and allowing the Section 11 exemption.
The Rectification: Subsequently, the CPC issued a rectification order under Section 154, reversing its earlier stance and withdrawing the exemption on the grounds that Form 10B was filed belatedly.
Procedural Lapse: The CPC passed this rectification order without issuing a prior notice to the Assessee as required under Section 154(3).

Decision

The Tribunal ruled in favor of the Assessee, setting aside the rectification order based on the following legal reasoning:

No Power of Review under Section 154: Section 154 is strictly for correcting “mistakes apparent from the record.” It is not a tool for the Assessing Officer to review or change a conscious decision already made. Since the CPC had already called for an explanation regarding the filing date and subsequently accepted it in the 143(1) intimation, it could not later “review” that decision under the guise of rectification.
Debatable Issue: A mistake apparent from the record must be an obvious and patent error. Whether a delay in filing Form 10B due to technical portal issues should result in a loss of exemption is a “debatable issue” and requires a long process of reasoning; therefore, it falls outside the scope of Section 154.
Violation of Natural Justice: Section 154(3) mandates that if an amendment has the effect of increasing an assessment or reducing a refund, the Assessee must be given notice and a reasonable opportunity of being heard. The CPC’s failure to issue this notice rendered the rectification order legally unsustainable.

Key Takeaways

Section 143(1) Finality: Once the CPC or an AO accepts an explanation during the processing of a return and passes an intimation order, they cannot use Section 154 to perform a “U-turn” on that specific issue.
Technical Glitches as Defense: Taxpayers can successfully defend delays in statutory filings (like Form 10B or Form 10) by documenting and proving technical hardships on the official portal, especially when the Department has initially accepted such explanations.
Procedural Safeguards: Any rectification that adversely affects a taxpayer without a prior show-cause notice is void ab initio. Tax professionals should always check for the service of notice under Section 154(3) when challenging adverse rectification orders.
Scope of Rectification: This ruling reinforces the principle that Section 154 is not an alternative to Section 147 (Reassessment) or Section 263 (Revision). If the Revenue wishes to contest a previously accepted position, it must use the appropriate statutory pathways rather than a simple rectification.

IN THE ITAT MUMBAI BENCH ‘H (SMC)’

Tehmina K. Katrak Charitable Trust

Income-tax Officer Exemption^*

Rahul Chaudhary, Judicial Member
and Vikram Singh Yadav, Accountant Member

ITA NO. 549 (MUM) OF 2026
[Assessment year 2021-22]

MARCH 12, 2026

Porus Kaka and Divesh Chawla, Advs. for the Appellant. Pravin Salunkhe for the Respondent.

ORDER

Rahul Chaudhary, Judicial Member. – The present appeal has been preferred by the Assessee against the Order, dated 11/11/2025, passed by the Additional/Joint Commissioner of Income Tax (Appeals), Mysore [hereinafter referred to as the ‘CIT(A)’], whereby the Learned CIT(A) had dismissed the appeal of the Assessee against the Order, dated 15/03/2022, passed under Section 154 of the Income Tax Act, 1961 [hereinafter referred to as ‘the Act’], for the Assessment Year 2021-2022.

2. The Assessee has raised following grounds of appeal:

“1.

That the Ld. CIT(A) erred in law and on facts in confirming the disallowance of exemption under section 11 of The Income Tax Act, 1961.

The CIT(A) erred in holding that there was alleged delay in filing Form 10B, ignoring that the return filing due date stood extended to 15.03.2022 by CBDT Circular No. 01/2022

That the Ld. CIT(A) ought to have held that Form 10B was in fact uploaded within the extended time and due to the technical glitches of the new portal (Launch date 07.06.2021) cannot deprive a charitable trust of substantive exemption.

Without prejudice to the above, the Ld. CIT(A) erred in holding that delay in uploading Form 10B is fatal, contrary to settled law that such requirement is directory and procedural, and delay (if any) is condonable.

The Ld. CIT(A) ought to have held that the rectification u/s 154 denying the Trust exemption itself was without jurisdiction, and not a “mistake apparent from record”.

Your Appellant prays that the Deputy Commissioner of Income Tax, CPC, (DCIT) be directed to grant the exemption under Section 11 of The Income Tax ACT, 1961 and cancel the demand accordingly. “

3. We have heard the Learned Senior Counsel appearing on behalf of the Assessee and the Learned Departmental Representative and have perused the material on record.

4. The present appeal pertains to the Assessment Year 2021-2022. On consideration of difficulties faced due to COVID Pandemic and in electronic filing of various reports of audit under the provisions Act, the Central Board of Direct Taxes (CBDT), in exercise of its powers under Section 119 of the Act, relaxed the timelines for compliances under the vide Circular No. 01/2022 [F. No. 225/49/2021/ITA-II] dated 11th January, 2022. The relevant extract of the said circular reads as under:

“Subject: – Extension of timelines for filing of Income-tax returns and various reports of audit for the Assessment Year 2021-22- reg.

On consideration of difficulties reported by the taxpayers and other stakeholders due to COVID and in electronic filing of various reports of audit under the provisions of the Income-tax Act,1961 (Act), the Central Board of Direct Taxes (CBDT), in exercise of its powers under Section 119 of the Act, provides relaxation in respect of the following compliances:

The due date of furnishing of Report of Audit under any provision of the Act for the Previous Year 2020-21, which was 30th September 2021, in the case of assessees referred in clause (a) of Explanation 2 to subsection (1) of section 139 of the Act, as extended to 31 st October 2021 and 15 January 2022 by Circular No.9/2021 dated 20.05.2021 and Circular No.17/2021 dated 09.09.2021 respectively, is hereby further extended to 15^h February, 2022;

The due date of furnishing of Report of Audit under any provision of the Act for the Previous Year 2020-21, which was 31st October, 2021, in the case of assessees referred in clause (aa) of Explanation 2 to subsection (1) of section 139 of the Act, is hereby extended to 15^th February, 2022;

The due date of furnishing of Report from an Accountant by persons entering into international transaction or specified domestic transaction under section 92E of the Act for the Previous Year 2020-21, which was 31^st October 2021, as extended to 30h November 2021 and 31^st January 2022 by Circular No.9/2021 dated 20.05.2021 and Circular No.17/2021 dated 09.09.2021 respectively, is hereby further extended to 15^h February, 2022;

The due date of furnishing of Return of Income for the Assessment Year 2021-22, which was 31^st October 2021 under sub-section (1) of section 139 of the Act, as extended to 30^th November 2021 and 15^th February 2022 by Circular No.9/2021 dated 20.05.2021 and Circular No.17/2021 dated 09.09.2021 respectively, is hereby further extended to 15^h March, 2022;

The due date of furnishing of Return of Income for the Assessment Year 2021-22, which was 30^th November 2021 under sub-section (1) of section 139 of the Act, as extended to 31^st December 2021 and 28th February 2022 by Circular No. 9/2021 dated 20.05.2021 and Circular No.17/2021 dated 09.09.2021 respectively, is hereby further extended to 15^th March, 2022.

Clarification 1: It is clarified that this extension shall not apply to Explanation 1 to section 234A of the Act, in cases where the amount of tax on the total income as reduced by the amount as specified in clauses (i) to (vi) of sub-section (1) of that section exceeds one lakh rupees.

Clarification 2: For the purpose of Clarification 1, in case of an individual resident in India referred to in sub-section (2) of section 207 of the Act, the tax paid by him under section 140A of the Act within the due date (without extension under Circular No.9/2021, Circular No.17/2021 and this Circular) provided in that Act, shall be deemed to be the advance tax.” (Emphasis Supplied)

5. Thus, extended time till 15/03/2022, was granted for filing return of income for the Assessment Year 2021-2022. In the present case the Assessee, a registered charitable trust, filed return of income for the Assessment Year 2021-2022 on 11/01/2022 claiming exemption under Section 11 of the Act. It is admitted position that the return of income was filed within the extended time granted by the above Circular No. 1/2022. The exemption claimed by the Assessee under Section 11 of the Act was denied to the Assessee on the ground that Form 10B was filed by the Assessee belatedly on 19/02/2022.

6. The claim of the Assessee is that Form 10B was filed on 11/01/2022 along with the return of income. However, on account of technical issues that same was not reflected at the income tax portal. Therefore, Form 10B was refilled on 19/02/2022. It was submitted that, initially, Intimation Order, dated 10/08/2022, was passed under Section 143(1) of the Act accepting the return of income filed by the Assessee for the Assessment Year 2021-2022. However, subsequently, by way of suo-moto Rectification Order, dated 13/2/2023, passed under Section 154 of the Act, the exemption claimed by the Assessee under Section 11 of the Act was denied on the ground that Form 10B was filed by the Assessee belatedly on 19/02/2022.

7. The primary contention of the Assessee is that 11/01/2022 should be taken as the date of filling Form 10B. While the contention of the Revenue is that the Form 10B was finally uploaded on 19/02/2022 and therefore, 19/02/2022 should be taken as date of filing Form 10B.

8. On perusal of record we find that there is no dispute as to the fact that on 11/01/2022, the chartered accountant had ‘accepted the request for F10B for the Assessment Year 2021’. The Learned CIT(A) has observed that mere acceptance of assignment to file Form 10B by the chartered accountant does not constitute filing of audit report. The Learned CIT(A) has also noted that no proof of filing Form 10B on 11/01/2022 was furnished by the Assessee.

9. We note that the Assessee had explained before the Learned CIT(A) that the Form 10B could not be uploaded but ‘ due to technical issues in the new income tax portal at the time, the same had not been reflected on the income tax portal’. The fact that the taxpayers were experiencing difficulties in undertaking compliances under the Act ‘in electronic filing of various reports of audit’ was recognized while issuing Circular No. 1/2022. As a result, the timelines for filing audit report and return of income were relaxed.

10. It is admitted position that in the present case the Assessee had attempted to file Form 10B within the specified time. The material on record shows that the Assessee had filed return of income for the Assessment Year 2021-2022 on 11/01/2022 and had, on the same day (i.e. 11/01/2022), taken steps to file Form 10B. We note that while processing return of income, specific query in this regard was raised upon the Assessee. The Assessee received intimation, dated 01/07/2022, as per Proviso to Section 143(1) of the Act regarding proposed adjustments wherein it was stated as under:

“The Trust or Institution registered under Section 12A/12AA/12AB has not E filed the Audit Report in Form 10B one month prior to the due date for furnishing return under Section 139(1). Hence the exemption amounting to INR.3,29,425/-claimed in Sr.no. 2 exemption claimed u/s 11(1)(d) and Sr.no. 4i to 4viii of Part B-TI is not allowable in accordance with the provisions of Section-12A (1) (b) of the Income tax Act. “

11. In response the Assessee provided following explanation:

“Form 10B had been filed which due to technical issues in the Income Tax Website was not approved even after submission. Hence the form was resubmitted. As it is a technical issue of website exemption should be allowed”

12. After considering the above explanation, the return of the Assessee was processed by the Central Processing Centre – Assessing Officer [for short ‘CPC – Assessing Officer’] accepting the returned income and allowing the exemption claimed by the Assessee under Section 11 of the Act vide Intimation Order, dated 10/08/2022, issued under Section 143(1) of the Act.

13. We note that, thereafter, vide suo-moto Rectification Order, dated 13/02/2023, the CPC-Assessing Officer rectified the above Intimation Order, dated 10/08/2022, disallowing the exemption claimed by the Assessee under Section 11 of the Act on the ground that Form 10B was filed belatedly. On perusal of the aforesaid Rectification Order we find the reasoning given is identical to the reasoning given for the proposed adjustment and the same reads as under:

“Incorrect Claim under Section 143(1)(a)(ii)

Amount in INR
SI No.	Schedule	Error Description	In Income Tax Return	As computed	Variance
1.	Part B-TI/part A-General Information	The rust or Institution registered u/s 12A/12AA/12AB has not Efiled the Audit Report in Form 10B one month prior to the due date for furnishing return u/s.139(1). Hence the exemption claimed in Sr. no.2 [exemption claimed u/s.11(1)(d) and Sr. no.4i to 4viii of Part B-TI is not allowable in accordance with the provisions of Section-12A(1)(b) of the Income tax Act.	3,29,425	0	3,29,425

….”(Emphasis Supplied)

14. From the material on record it is clear that the query regarding belated filing of Form 10B was raised at the time of processing return of income. The Assessee had explained that the Form 10B was originally filed on 11/01/2022 but ‘due to technical issues in the new income tax portal, the same had not been reflected on the income tax portal. Therefore, Form 10B was refilled on 18/02/2022. The CPC -Assessing Officer considered the explanation furnished by the Assessee and accepted the same. We are of the view, having proceeded as aforesaid, the CPC-Assessing Officer erred in invoking the provisions contained in Section 154 of the Act; and that too without granting the Assessee any opportunity of being heard. It is not the case of the Revenue that the Assessee had acted in a malafide manner. On the other hand, the material on record shows that the CPC – Assessing Officer had accepted the contention of the Assessee that Form 10B for Assessment Year 2021-2022 was originally filled on 11/01/2022. In case the CPC-Assessing Officer was to dispute the aforesaid position, and contend that Form 10B was filed by the Assessee belatedly on 18/02/2022, the same would amount to adjudicating a disputed question of fact and review of the earlier decision to accept 11/01/2022 as the date of filing Form 10B. In our view, having called for explanation from the Assessee regarding the date of filing of Form 10B and having accepted the same vide Intimation Order, dated 10/08/2022, passed under Section 143(1) of the Act, the CPC-Assessing Officer cannot be permitted to review the earlier decision in the guise of correcting a mistake apparent on record under Section 154 of the Act. We have already noted hereinabove that the Assessee was not put to notice in terms of Section 154(3) of the Act before passing the Rectification Order under Section 154(1)(b) of the Act. Accordingly, we set aside the Order, dated 13/02/2023, passed under Section 154 of the Act. As a result, the Intimation Order, dated 10/08/2022, issued under Section 143(1) of the Act stands restored. In view of the aforesaid, Ground No.1,2,3,5 and 6 raised by the Assessee are allowed, while Ground No. 4, raised on without prejudice basis, is dismissed as having been rendered infructuous.

15. In result, in terms of above, the Appeal preferred by the Assessee is allowed.