Filing Return in Form ITR-7 Without Examination of Excluded

Filing Return in Form ITR-7 Without Examination of Excluded Income Cannot Justify Rejection of Trust Registration

Issue

Whether the mere filing of returns in Form ITR-7 by an assessee-trust conclusively proves that it availed exemption under Sections 11 and 12, justifying the rejection of its registration application under Section 12A (Form 10AB) without examining the actual contents and assessment of those returns.

Facts

The assessee-institution filed an application in Form 10AB under section code 4A seeking registration under Section 12A of the Income-tax Act, 1961.
The CIT(E) observed that the assessee had filed returns in Form ITR-7 for A.Y. 2021-22 to 2024-25 and inferred that it had claimed tax exemptions under Sections 11 and 12.
The CIT(E) held this claim of exemption to be contrary to the assessee’s declaration in Form 10AB that no part of its income had been excluded under Sections 11, 12, or Section 10(23C) since commencing activities on 02.11.2021.
Consequently, the CIT(E) treated the application as non-maintainable and rejected it via an order in Form 10AD.
The CIT(E)’s impugned order failed to identify any specific amount, schedule, or entry within the filed returns to substantiate that exemption under Sections 11 or 12 was actually claimed.

Decision

Merely selecting or filing a specific return form (Form ITR-7) does not, without examining the return’s contents, processing, or assessment, conclusively establish that income was actually excluded from the total income under Sections 11 or 12.
The statutory test under the law is the actual exclusion of income from total income due to the applicability of specified provisions, rather than the form type used to file returns.
The CIT(E) was directed not to treat the mere filing of Form ITR-7 as conclusive proof of having claimed exemptions without verifying the return contents and subsequent assessments.
The matter was accordingly remanded back for fresh consideration.

Key Takeaways

Substance Over Form: Form selection alone does not determine statutory compliance or exemption status; revenue authorities must inspect the actual contents, schedules, and calculations in the return.
Actual Exclusion Test: Registration maintainability under Section 12A/Form 10AB depends on whether income was factually excluded from total income under Sections 11/12, not on procedural tax filing choices.
Burden on Revenue: Rejection of a trust’s registration application requires explicit evidentiary findings of claimed exemptions rather than broad assumptions based on return types.

IN THE ITAT JODHPUR BENCH ‘DB’

Jai Shri Ram Anath Gaushala Samiti

Commissioner of Income-tax (Exemption)^*

SAKTIJIT DEY, Vice President
and MAKARAND VASANT MAHADEOKAR, Accountant Member

IT Appeal No. 1027 (Jodh) of 2025
[Assessment year 2025-26]

AUGUST 31, 2026

Rajesh Bhagsinghka, CA for the Appellant. Ms. Shivani Bansal, CIT-DR for the Respondent.

ORDER

Makarand Vasant Mahadeokar, Accountant Member. – This appeal by the assessee is directed against the order dated 27.09.2025 passed by the learned Commissioner of Income Tax (Exemptions), Jaipur [“CIT(E)”] in Form No. 10AD, in proceedings under section 12AB(1)(b)(ii) of the Income-tax Act, 1961 [“the Act”], whereby the application dated 28.02.2025 filed by the assessee in Form No. 10ABfor registration under section 12A of the Act was rejected.

2. The assessee has raised the following grounds of appeal, which are reproduced verbatim:

On the facts and in the circumstances of the case and in law, the learned CIT (Exemptions) erred in rejecting the appellant’s application for registration as a charitable institution, filed on 28/02/2025 in Form 10AB, by passing the impugned rejection order dated 27/09/2025 in Form 10AD.

The learned CIT (Exemptions) further erred in treating the mere filing of ITR-7 as conclusive proof of the appellant having availed exemption under Sections 11 and 12, even though the appellant consistently had a deficit or income below the taxable limit, and there is no material or evidence whatsoever to show that any income was excluded from total income or that any exemption was ever claimed or allowed in any assessment year.

The appellant hereby craves the leave to add, delete, amend or abandon any grounds of this appeal at the time of or before the hearing of the case.”

3. The relevant facts, in brief, are that the assessee filed an application on 28.02.2025 in Form No. 10AB, bearing section code 4A, seeking registration under section 12A of the Act. The CIT(E), for examining the application and the genuineness of the activities of the assessee, issued a questionnaire dated 19.05.2025 fixing the matter for compliance on 02.06.2025. The assessee furnished a point-wise reply along with enclosures on 02.06.2025. Upon examination of the reply, the CIT(E) noticed certain discrepancies and issued a show-cause notice dated 04.09.2025 fixing the matter for 09.09.2025. The assessee furnished replies on 07.09.2025 and 13.09.2025. However, the explanations furnished by the assessee were not found acceptable by the CIT(E).

4. In paragraph 2.1 of the annexure to the impugned order, the CIT(E) stated that, through a questionnaire dated 11.07.2025, the assessee was required to clarify whether it had availed the benefit of sections 11 and 12 or the specified provisions of section 10(23C) in any earlier year. The assessee was also required to furnish an affidavit and copies of the returns of income for the preceding years in support of its declaration that no such benefit had been availed. The assessee furnished an affidavit in response thereto.

5. The CIT(E), however, observed that the assessee had filed returns of income in Form ITR-7 for A.Ys. 2021-22 to 2024-25. According to the CIT(E), Form ITR-7 was filed by entities claiming exemption under sections 11 and 12 and, therefore, the assessee had availed the benefit of the said provisions during those assessment years. The CIT(E) held that this was contrary to the declaration made by the assessee in Form No. 10AB that, after commencement of its activities on 02.11.2021, no part of its income had been excluded from total income by applying sections 11 and 12 or the specified provisions of section 10(23C).

6. On the aforesaid basis, the CIT(E) concluded that the assessee did not fall within the scope of the category under which the application had been filed. The application was accordingly treated as non-maintainable and rejected by the impugned order dated 27.09.2025. We also notice that, while narrating the nature of the application at the beginning of the annexure, the CIT(E) referred to section 12A(1)(ac)(ivB). However, in the concluding portion of the order, the application was described as having been filed under section 12A(1)(ac)(vi), under code 4A.

7. Before us, the learned Authorised Representative (AR) submitted that the impugned order did not record any adverse finding regarding the charitable nature of the objects of the assessee, the genuineness of its activities, the reliability of its books and records, diversion of its income or property for noncharitable purposes, personal benefit to any specified person, or violation of any law material to the attainment of its objects. The rejection was founded solely on the premise that the assessee had availed the benefit of sections 11 and 12 merely because it had filed its returns in Form ITR-7.

8. The learned AR further submitted that the filing of a return in Form ITR-7 did not, by itself, establish that exemption under sections 11 and 12 had actually been claimed, allowed or acted upon. It was contended that the assessee had consistently incurred a deficit or had income below the taxable limit and no part of its income had been excluded from total income by applying sections 11 and 12. The CIT(E) had neither referred to any relevant schedule of the returns of income, computation of income, intimation under section 143(1), assessment order under section 143(3), nor any other material demonstrating that exemption under sections 11 and 12 had actually been allowed to the assessee. According to the learned AR, the selection of a particular return form was a matter of procedural compliance and did not constitute conclusive proof of the actual availment of exemption.

9. The learned AR also contended that the impugned order was vitiated for violation of the principles of natural justice. It was submitted that the assessee was never specifically put to notice that its application would be rejected on the ground that the filing of Form ITR-7 amounted to availing exemption under sections 11 and 12. The learned AR further submitted that the reference in paragraph 2.1 of the impugned order to a questionnaire dated 11.07.2025 was factually incorrect, as no such questionnaire was issued or served upon the assessee. The learned AR, therefore, prayed that the impugned order be set aside and the matter be restored to the file of the CIT(E) for fresh adjudication.

10. Per contra, the learned DR relied upon the impugned order passed by the CIT(E). However, he raised no objection to the matter being restored to the file of the CIT(E) for fresh consideration in accordance with law.

We have considered the rival submissions and perused the material available on record. The principal controversy before us is whether the application filed by the assessee under section code 4A could be rejected as non-maintainable merely because the assessee had filed returns in Form ITR-7 for A.Ys. 2021-22 to 2024-25.

11. The notes prescribed for filling Form No. 10AB expressly provide that section code 4A corresponds to item (B) of subclause (vi) of clause (ac) of sub-section (1) of section 12A of the Act. The said category applies to a case where the activities of the trust or institution have commenced and no income or part thereof has been excluded from total income on account of the applicability of the specified provisions of section 10(23C) or sections 11 or 12 for any previous year ending on or before the date of the application.

12. It is, therefore, evident that the assessee’s selection of section code 4A corresponded to section 12A(1)(ac)(vi)(B) of the Act. The reference made in the opening portion of the annexure to the impugned order to section “12A(1)(ac)(ivB)” is an apparent error. Code 4A does not correspond to any clause described as section 12A(1)(ac)(ivB). The correct statutory reference corresponding to code 4A is item (B) of section 12A(1)(ac)(vi).

13. However, the assessee’s eligibility to apply under code 4A is subject to satisfaction of the substantive condition prescribed in section 12A(1)(ac)(vi)(B), namely, that no income or part thereof had been excluded from total income by applying sections 11 or 12 or the specified provisions of section 10(23C) for any previous year ending on or before the date of the application. The correctness of the declaration furnished by the assessee under code 4A is, therefore, a matter requiring verification from the relevant records.

14. The CIT(E) inferred that the assessee had availed the benefit of sections 11 and 12 from the fact that returns in Form ITR-7 had been filed for A.Ys. 2021-22 to 2024-25. In our considered view, the mere selection or filing of a particular return form cannot, without examination of the contents of the return and its processing or assessment, conclusively establish that any income was actually excluded from total income under sections 11 or 12. The statutory test is the actual exclusion of income from total income on account of the applicability of the specified provisions. The return form may constitute a relevant part of the record, but it cannot be treated as conclusive in isolation.

15. The impugned order does not identify the amount, schedule or entry in any of the returns on the basis of which it was concluded that exemption under sections 11 or 12 had been claimed. It also does not refer to the relevant computations of income, intimations issued under section 143(1), assessment orders, if any, or any other material demonstrating that any income of the assessee was actually excluded from total income by applying sections 11 or 12. The assessee, on the other hand, contends that it had consistently incurred a deficit or had income below the taxable limit and that no exemption had ever been claimed or allowed. The relevant returns, computations, intimations and assessment records are not presently available before us. The correctness of the rival factual assertions cannot, therefore, be conclusively determined on the material presently on record.

16. We further notice that the impugned order records the issuance of notices dated 19.05.2025 and 04.09.2025 and also refers, in paragraph 2.1, to a questionnaire dated 11.07.2025. The learned AR disputes the issuance and service of the questionnaire dated 11.07.2025 and further contends that the precise ground ultimately adopted for rejection was not specifically put to the assessee. Copies of the aforesaid notices, questionnaire and the complete replies furnished by the assessee are not available before us. In these circumstances, we do not consider it appropriate to record a conclusive finding on the disputed question of service or adequacy of the opportunity afforded. The requirements of natural justice can, however, be adequately secured by directing the CIT(E) to furnish the assessee with the precise material proposed to be relied upon and to afford an effective opportunity of rebuttal before taking a fresh decision.

17. In view of the foregoing discussion and having regard to the fact that the learned DR has raised no objection to restoration of the matter, we consider it just and proper to set aside the impugned order dated 27.09.2025 and restore the application to the file of the CIT(E) for fresh adjudication. The CIT(E) shall:

(i)

treat code 4A as corresponding to item (B) of section 12A(1)(ac)(vi) and shall not treat the erroneous reference to clause “(ivB)” in the impugned order as an error attributable to the assessee;

(ii)

verify the returns of income in Form ITR-7, the relevant schedules, computations of income, intimations under section 143(1), assessment orders, if any, and other relevant records for A.Ys. 2021-22 to 202425;

(iii)

determine, on the basis of such records, whether any income or part thereof of the assessee was actually excluded from total income by applying sections 11 or 12 or the specified provisions of section 10(23C);

(iv)

not treat the mere filing of returns in Form ITR-7, without examination of their contents and subsequent processing or assessment, as conclusive proof that the assessee had availed exemption under sections 11 and 12;

(v)

furnish to the assessee the material proposed to be relied upon and afford a reasonable and effective opportunity to furnish its explanation and supporting evidence; and

(vi)

thereafter decide the application afresh, by a speaking order, in accordance with the provisions of sections 12A and 12AB of the Act.

18. We clarify that we have not expressed any conclusive opinion on whether the assessee had, in fact, obtained exclusion of any income under sections 11 or 12 in any of the earlier assessment years. This issue is left open for verification and determination by the CIT(E) on the basis of the relevant primary records. All other contentions of the assessee concerning its eligibility for registration are also left open.

19. Accordingly, Ground Nos. 1 and 2 are allowed for statistical purposes. Ground No. 3 is general in nature and does not require separate adjudication.

20. In the result, the appeal of the assessee is allowed for statistical purposes.