Dayanand Social Welfare vs ITO, Ward 5(1)2)

PER MANISH AGARWAL, AM :

The present appeal is filed by the assessee against the order dated 16.10.2025 by Ld. Addl./Joint Commissioner of Income Tax (A)-1, Bangaluru [“Ld. CIT(A)”] in Appeal No. NFAC/2020-21/10254914 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the rectification order dated 28.04.2023 passed u/s 154 of the Act pertaining to Assessment Year 2021-22.

As per facts extracted from the orders, Assessee is a Trust registered u/s. 12A of the Income Tax Act, 1961 [the Act] and for the Assessment Year 2021- 22 filed its return of income on 31.01.2022 at Rs. Nil/- after claiming an exemption of Rs. 88,34,723/- u/s. 11 of the Act. The auditor has filed audit report in Form number 10B on 31.01.2022 however, due to the technical glitches, it was verified by the assessee only on 26.02.20222. The due date for filing of the audit report was 15.02.2022. Due to a bona fide oversight as stated, form 10B was verified only on 26.2.2022. It has caused a delay of only 11 days in filing form number 10B.

The above return was processed u/s. 143 [1] of the Act on 10.08.2022, and the total income of the Appellant was determined at Rs. 88,34,723/- denying exemption u/s 11 & 12 of the Act on account of delayed filing of form number 10B. Aggrieved with the intimation, Assessee filed request for rectification of the same that exemption claimed u/s. 11 of the Act should be allowed. However, such an application was rejected on 28.04.2023. Against this order it preferred an Appeal before the ld. CIT(A) which was disposed of on 16.10.2025 where in it was held that as Form number 10B is filed belatedly, the delay is procedural and caused by a bona fide mistake, the condonation of delay in filing form number 10B does not vests with the CIT Appeal. Such power is explicitly conferred on the jurisdictional Commissioner i.e. CIT (Exemption) u/s 119[2][b] of the Act and therefore the Assessee was directed to file a petition for condonation of delay before the jurisdictional Commissioner of Income Tax (Exemption). Accordingly, he dismissed the appeal of the Assessee.

Aggrieved with the said order of ld. CIT(A), assessee has preferred this appeal before the Tribunal where all the grounds of appeal are in respect to the denial of exemption u/s 12A of the Act for the reason of delay filing of Form Number 10B.

Before us, the Ld. AR submitted that the auditor has filed Form number 10B on 26.02.2022 which was available before the AO/CPC before processing of return and, therefore, the rectification application filed by the assessee should have been allowed by the Central Processing Centre and exemption u/s. 11 of the Act be allowed. Ld. AR submits that filing of form number 10B prior to completion of assessment proceedings satisfies the intent of the law that the audit report is available to the Ld. Assessing Officer at the time of processing the return and therefore the exemption claimed u/s. 11 of the Act could not have been denied. To support the contention, ld. AR placed reliance on the reasoning given in the decision of the Hon’ble Supreme Court in case of Commissioner of Income Tax versus Nagpur Hotel Owners Association [2001] 114 taxman 255 [SC] wherein it was held that the compliance of requirement to intimate the Ld. Assessing Officer with respect to Assesses claim u/s. 11 of the Act can be at any time before the Assessment Proceedings. Ld. AR submitted that assessee’s case is that Form number 10B was filed on 26.02.2022 which is well before the impugned intimation issued u/s. 143 [1] of the Act on 10.08.2022 and, therefore, the Central Processing Centre had all the necessary information in Form number 10B for allowing the exemption claimed u/s. 11 of the Act before issuance of impugned intimation. Ld. AR further submitted that a bona fide delay in filing form number 10B would not defeat the Appellant’s substantive right of claiming exemption. It was also the claim of the assessee that filing of Form number 10B is procedural in nature and delayed filing of Form number 10B would not result in denial of exemption u/s. 11 of the Act. Ld. AR referred to the rationale behind the above contention that the Appellant being a charitable trust would not be disentitled for claiming exemption u/s. 11 of the Act merely on account of delayed filing of form number 10B. It was further submitted that filing of form is construed as a directory requirement which must be substantially complied with and in the present case of the Appellant the said requirement has been sufficiently complied with. Ld. AR further referred CBDT circular No. 16/2022wherien the Board has empowered Commissioner of Income Tax to condone the delay of belated application where delay is upto 365 days.

Per contra, ld. Departmental Representative vehemently supported the order of the Central Processing Centre and ld. CIT(A) and submitted that the provisions of the Income Tax Act have specifically provided that the form number 10B is required to be filed before one month from the due date of filing of the return of income. The Assessee should have filed Form 10B before that time which was not filed. He further submitted that the ld. CIT(A) has directed the assessee to approach the CIT (E) for condonation of delay u/s 119(2)(b) of the Act and therefore there is no grievance caused by the order of the Commissioner of Income Tax Appeals and thus, the Appeal of the Assessee cannot be entertained.

We have carefully considered the contentions of the parties and considered the orders of the Ld. lower authorities. According to the provisions of section 12A of the Act, there are conditions for applicability of section 11 and 12 are specified categorically provides that the provisions of section 11 and section 12 shall not apply in a relation to the income of any trust unless certain conditions are fulfilled. According to subsection [b] the condition is prescribed that the Assessee, if the income exceeds the maximum amount which is not chargeable to income tax, the books of accounts of the trust are required to be audited before the specified date referred to in section 44AB and such report should be furnished in the prescribed form [10B] duly signed and verified. Thus, the timelines are mentioned in the Income Tax Act itself of filing such audit report. Further this is also stated to be a necessary condition for claiming the effect of provisions of section 11 and 12 off the Income Tax Act.

Before the Hon’ble Gujarat High Court, an issue arose that whether such timelines are though mentioned in the Income Tax Act itself are directory or mandatory. The Hon’ble High Court in its own wisdom has held that provision of filling of the form in 10B is a substantive condition, but the timelines are directory in nature.

In the present case, the facts clearly shows that the Assessee has filed form number 10B however, same was delayed as not filed in accordance with the provisions of the Income Tax Act wherein the timelines are stated. But admittedly prior to the processing of the return of the Assessee by Central Processing Centre relevant form No 10B was available before the Authorities. The reason of the notice was that the trust or institution registered under section 12A, 12AA, 12AB has not filed the audit report in form 10B one month prior to the due date for furnishing return under section 139[1] of the Act.

Identical issue arose before the Hon’ble Gujarat High court in Association of Indian Panel Board Manufacturer vs. Deputy Commissioner of Income Tax reported in [2023] 157 taxmann.com 550 (Gujarat)/ [2025] 482 ITR 54 (Gujarat) [21-03-2023] wherein audit report in Form No. 10B though was not filed with the return of income, the same was available with the Assessing Officer when he processed the return of income u/s. 143(1). It was held that the condition for claiming exemption u/s. 11 was satisfied. Although the requirement of furnishing audit report was mandatory, filing thereof is a procedural aspect. Even though Form No. 10B was filed at a later stage, when it was part of the record of the Assessing Officer in course of the processing of the return of income, the Assessing Officer could not have denied the exemption claimed by the Assessee u/s. 11(1) & (2) on the ground that the audit report was not filed. It further held that the import of section 119(2)(b) because the application contemplated thereunder is only additional remedy for the Assessee which could not be said to be compulsorily restored to by the Assessee. Circular No. 7/18, dated 20.12.2018 issued u/s. 119 could not, therefore, be said to have taken away the appellate remedy. It further held that the moot aspect thus centers around the requirement of the availability of the audit report when the Assessment was undertaken by the Ld. Assessing Officer even though the same may not have been filed along with the return of income. Filing of audit report is held to be substantive requirement but not the mode and stage of filing, which is procedural. Once the audit report in Form No. 10B is filed to be available with the Ld. Assessing Officer, before assessment proceedings take place, the requirement of law is satisfied.

Even Hon’ble High court went to the extent in saying that condonation request is no substitute for the Appeal remedy. Thus, though no condonation of delay application is filed before the Jurisdictional CIT, still in Appeal the Assessee can be granted benefit against the non-filing off form no 10B in time but before processing off return of income.

Further in Commissioner of Income Tax (Exemptions) vs. Laxminarayan Dev Shrishan Seva Khendra reported in [2024] 167 taxmann.com 548 (Gujarat) [10-09-2024] held that where Assessee, a public charitable trust, did not upload audit report in Form 10B along with its return of income and CPC processed return under section 143(1) denying benefit of section 11, 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 to be condoned.

Similar view is expressed by the hon’ble Bombay High court in the case of Dawat E Islami Hind vs Commissioner of Income Tax (Exemption) in WP No. 3 of 2026 [09.02.2026].

In view of above discussion and by respectfully following the decisions of the Hon’ble Gujarat High Court and Bombay high court, we hold that since Form 10B was available before CPC before the processing of the return, though not filed according to the timelines prescribed under the Act, is sufficient compliance for the claim of exemption u/s11 and 12 of the Act. All the grounds of appeal of the assessee are allowed.

In the result, the appeal of the assessee is allowed.