Exemption Under Section 11 Cannot Be Denied If Audit Form 10B

Exemption Under Section 11 Cannot Be Denied If Audit Form 10B Was Available Before Return Processing

Issue

Whether the Central Processing Centre (CPC) was justified in denying the exemption under Section 11 under Section 143(1) solely because the prescribed audit report in Form 10B was filed after the return of income, even though the report was fully available with the CPC at the time the return was actually processed.

Facts

Profile: The assessee is a charitable trust duly registered under Section 12A of the Income-tax Act, 1961.
Filing Timelines: For the relevant assessment years (2016-17 and 2018-19), the assessee filed its return of income on 01-10-2018, claiming an exemption under Section 11.
Belated Audit Report: The prescribed audit report in Form 10B was filed subsequently on 08-10-2018.
CPC Action: The CPC processed the return under Section 143(1) and completely denied the Section 11 exemption on the sole ground that Form 10B was not filed along with the return of income.
Availability of Records: At the time the CPC actually processed the return and issued the intimation, the Form 10B audit report was already available on the department’s portal. No prejudice or loss was caused to the revenue due to this short delay.

Decision

Prejudice Absent: The ITAT/Court noted that the primary requirement of having the accounts audited and the report available was met before the assessment/processing took place.
Mechanical Denial Unjustified: The CPC was not justified in taking a hyper-technical approach to deny the substantive exemption when the verification document was already in its database.
Directions Issued: The revenue authorities were directed to amend the Section 143(1) intimation by taking into consideration the Form 10B filed on 08-10-2018 and allow the exemption.
Outcome: Decided in favor of the assessee.

Key Takeaways

Directory vs. Mandatory Timelines: The requirement to file Form 10B is procedural. If the audit report is available with the Assessing Officer or CPC before the actual processing or assessment is completed, the exemption cannot be disallowed merely for a technical delay in filing.

Scope of Section 143(1) Adjustments: The CPC cannot make mechanical disallowances for procedural mismatches when the underlying statutory compliance has been fulfilled prior to adjudication.

Substance Over Form: In beneficial tax provisions governing charitable trusts, procedural lapses that do not cause prejudice to the revenue should not defeat the substantive legislative intent of granting exemptions.

IN THE ITAT CHENNAI BENCH ‘D’

T.K. Raja Educational Charitable Trust

Income-tax Officer^*

S.S. Viswanethra ravi, Judicial Member
and Inturi Rama Rao, Accountant Member

IT Appeal Nos. 518 & 519 (CHNY) of 2026
[Assessment years 2016-17 and 2018-19]

APRIL 29, 2026

Varun Ranganathan, Adv. for the Appellant. ARV Sreenivasan, CIT for the Respondent.

ORDER

Inturi Rama Rao, Accountant Member.- These two appeals filed by the Assessee are directed against the separate orders of ld.Addl./Joint Commissioner of Income Tax(Appeal)-3, Ahmedabad dated 08.01.2026 and 02.12.2025 passed under section 250 of the Income Tax Act, 1961 for the A.Y.2016-17 & 2018-19 respectively.

2. Since identical facts are issues involved in both the appeals, these appeals were heard together and are being disposed of by this common order.

3. For the sake of convenience and clarity, the facts relevant to the appeal in ITA No.519/CHNY/2026 for A.Y.2018-19 are stated herein :

4. The Assessee for Assessment Year 2018-19 filed the following grounds of appeal :

“Ground No:1: The Intimation passed u/s 143(1) dated 31.12.2020 is barred by limitation.

1. As per the 2nd proviso to Section 143(1), the time limit for passing an intimation u/s 143(1) is One year from the end of the Financial Year in which the return is made. The provisions of the same is reproduced for your kind reference: “Provided further that no intimation under this sub-section shall be sent after the expiry of one year from the end of the financial year in which the return is made.”

2. The date and event chart is as follows:

S No	Particulars	Date
1	The Return was filed on	01.10.2018
2	End of the financial year in which the return is made	31.03.2019
3	One year from the end of the Financial year in which the return is made	31.03.2020
4	Date of passing the intimation u/s 143(1)

3. Since the Order of Intimation u/s 143(1) is passed on 31.12.2020, it is barred by limitation and hence Invalid. Therefore, the demand raised under such Intimation u/s 143(1) is not valid.

Ground No: 2: Exemption cannot be denied on the ground that the Audit Report in Form 108 has not been filed within timeline, in view of the fact that Filing of Form 108 is directory in nature and not mandatory.

1. The Asst. Dir. of Income Tax CPC has erred in facts and on Law, by not considering the fact, filing of the Audit Report in Form 108 is directory in nature and not mandatory In the present case, the Appellant has filed the Return of Income on 01.10.2018 and the Audit report in Form 108 was filed on 08.10.2018

2. This is well before the extended due date of filing the return of Income. As per the Notification dt. 08.10.2018, the CBDT had passed an order u/s 119 extending the due date for filing the Income tax returns and the audit Reports from 30 September 2018 to 31 October 2018.

3. Also both the Income tax Return as well as the Audit Report in Form 108 were available on the record of the Asst. Dir of Income Tax CPC as on the date of passing of the Intimation u/s 143(1) on 31.12.2020, which have not been considered.

4. The Appellant relies upon the decision of Shri Vetri vinayagar Education Trust v. ITO of Sri Vetri Vinayagar Educational Trust v. ITO Exemptions in ITA No.903 /2023 dated 13.12.2023, where the Chennai Bench of the ITAT had held that Mere non filing of Audit Report in Form 10B along with the Income Tax Returns, could not be a ground for denial of exemption.

Ground 3: Without prejudice to the above, The Appellant trust was treated as an AOP while assessment u/s 143(1) was framed. Being so, expenditure incurred for achievement of the objectives of the Trust are to be allowed as deduction in arriving at the Income of the Appellant Trust.

1. Without prejudice to the above, The Asst. Dir of Income Tax CPC has erred in facts and in law by not appreciating the fact that the expenditure incurred by the Trust are exclusively spent for the purpose of attaining the objectives of the trust and have been spent for earning the said receipts. Therefore expenditure ought to have been considered for setoff against the said receipts.

2. The Appellant derives support from the case of M/s Kingston Education Trust v. DCIT CPC (2019) ITA No 567/CHNY/2019, where the Chennai Bench of the Hon’ble ITAT held in para 8 that the approach of the AO in treating the Gross Receipts as taxable Income is totally untenable, as the phrase “Taxable Income” does not mean Gross Income. It also held that when the AO considered the Gross receipts as Income, he should have also considered the expenditure claimed to be incurred in connection with the earing of the Gross receipts. It also held that the taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair but not a partisan manner.

Ground No. 4: All the conditions for grant of exemption are complied with. Therefore exemption cannot be denied:

1. The Appellant submits that all the necessary conditions for grant of exemption have been complied with, which are as follows:

a. the Trust is registered;

b. it has complied with all the Conditions for claiming the exemption under section 11;

c. It has filed the Returns of Income as well as the Audit Report in Form 10B well within the time limits provided u/s 139.”

ITA No.519/CHNY/2026

5. Briefly the facts of the case are that appellant is a Charitable Trust formed with the object of providing education. It was duly registered u/s.12A of the Income Tax Act vide Registration No.DIT(E) No.902/08-09 dt 29.01.2009. The appellant trust filed Return of Income for the Assessment Year 2018-19 on 01.10.2018 disclosing NIL income after claiming exemption u/s.11 of the Income Tax Act. The appellant trust also filed the prescribed Audit Report in Form 10B on 08.10.2018. The said return of income was processed by CPC of the Department u/s.143(1) of the Act vide intimation dated 31.12.2020 denying the exemption u/s.11 of the Act for the reason that the prescribed report in Form 10B had to be e-Filed along with the Return of Income. Since the appellant is failed to file the Audit Report along with the Return of Income, the exemption u/s.11 was denied.

6. Being aggrieved, an appeal was filed before the ld.CIT(A) who vide impugned order confirmed the action of the CPC placing reliance on the decision of Hon’ble Supreme Court in the case of Hon’ble Supreme Court in the case of Pr. CIT v. Wipro Ltd. ITR 1 (SC) by holding that failure on the part of the appellant to comply with the mandatory condition of filing the Audit Report before due date along with Return of Income disentitle the assessee to claim exemption u/s.11 of the Act.

7. Being aggrieved, the appellant is in appeal before us in the present appeal. The ld.Counsel submits that filing of prescribed Audit Report in Form-10B is merely a directory. The appellant had filed the Audit Report before the processing of the return of income by CPC.

8. The issue that arises for our consideration is whether the CPC was justified in denying the exemption u/s.11 of the Act while processing the Return of Income u/s.143(1) of the Act solely for the reason that the prescribed report in Form 10B was filed belatedly. Admittedly, the appellant has filed prescribed Audit Report in Form 10B on 08.10.2018. However, the Return of Income was filed on 01.10.2018. The return of income was processed by CPC u/s.143(1) vide intimation dated 31.12.2020 denying exemption u/s.11 solely for the reason that the prescribed Audit Report in Form 10B was not filed along with the Return of Income. Thus, it is clear that the prescribed Audit Report was very much available with the CPC at the time of processing Return of Income and no prejudice caused to the Department on account of belated filing of Audit Report. Therefore, CPC was not justified in denying the exemption u/s.11 of the Act. We are fortified in taking this view by the decision of Hon’ble Gujarat High Court in the case of CIT (Exemptions) v. Laxmanarayan Dev Shrishan Seva Khendra (Gujarat) wherein, the Hon’ble Gujarat High Court after making a reference to the decision of Hon’ble Supreme Court’s decision in Wipro Ltd. (supra) held that the exemption u/s.11 of the Act cannot be denied merely on account of belated filing of Form 10B. We therefore direct the AO/CPC to amend the intimation by taking into consideration the Form 10B filed on 08.10.2018.

9. In the result, appeal of the assessee is partly allowed for statistical purpose.

ITA No.518/CHNY/2026

10. We find that the identical facts and issues are involved in assessee’s appeal bearing Appeal No.519/CHNY/2026 for A.Y.2018-19. Accordingly, our findings given above shall apply mutatis mutandis to this appeal in ITA No.518/CHNY/2026 also. Accordingly, we therefore direct the AO/CPC to amend the intimation by taking into consideration the Form 10B filed on 08.10.2018.

11. Accordingly, appeal filed by the assessee in ITA No.518/CHNY/2026 is partly allowed for statistical purpose.

12. To sum up, both appeals of the assessee are partly allowed for statistical purpose.