Section 11 Exemption | Delayed Form 10B Audit Report Filing Does Not Disqualify Charitable Trusts from Tax Benefits : ITAT Chennai

The Income Tax Appellate Tribunal (ITAT), Chennai, has clarified that charitable trusts cannot be denied exemption under Section 11 of the Income Tax Act, 1961 merely because the audit report in Form 10B was filed belatedly, provided the report was available to the tax authorities during processing. This ruling underscores that procedural compliance, while important, should not override substantive justice when no prejudice is caused to the revenue.

Background & Facts

The Dispute

The appellant, T.K.Raja Educational Charitable Trust, is a charitable trust registered under Section 12A of the Income Tax Act (Registration No. DIT(E) No. 902/08-09 dated 29.01.2009). The trust filed its Return of Income for Assessment Year (A.Y.) 2018-19 on 01.10.2018, claiming exemption under Section 11 of the Act. The prescribed Audit Report in Form 10B was filed on 08.10.2018, after the return but before the extended due date of 31.10.2018 (as per CBDT Notification dated 08.10.2018). The Centralized Processing Center (CPC) processed the return under Section 143(1) vide intimation dated 31.12.2020, denying the exemption solely on the ground that Form 10B was not filed along with the return.

Key Facts

• The trust was registered under Section 12A on 29.01.2009
• Return of Income for A.Y. 2018-19 filed on 01.10.2018 (NIL income claimed)
• Form 10B filed on 08.10.2018 (within extended due date of 31.10.2018)
• Intimation u/s 143(1) issued on 31.12.2020, denying exemption due to belated filing of Form 10B
• Grounds of appeal raised before ITAT:
  • Intimation barred by limitation under Section 143(1)
  • Form 10B filing is directory, not mandatory
  • Trust treated as Association of Persons (AOP), disallowing expenditure
  • Compliance with all conditions for Section 11 exemption

Procedural History

• 01.10.2018: Return of Income filed
• 08.10.2018: Form 10B filed
• 31.12.2020: Intimation u/s 143(1) issued denying exemption
• 02.12.2025: CIT(A) dismissed appeal, relying on PCIT vs. Wipro Ltd. (2022) 446 ITR 1 (SC)
• 08.01.2026: Separate order for A.Y. 2016-17 (ITA No. 518/CHNY/2026)
• 17.03.2026: ITAT hearing
• 29.04.2026: ITAT order pronouncing partial allowance

Relief Sought

The appellant sought:

• Quashing of the intimation dated 31.12.2020 denying Section 11 exemption
• Direction to the CPC to consider Form 10B filed on 08.10.2018 for exemption
• Allowance of expenditure incurred for trust objectives against gross receipts
• Recognition of compliance with all conditions for Section 11 exemption

The Legal Issue

The central question was whether the CPC was justified in denying exemption under Section 11 of the Income Tax Act solely because the Audit Report in Form 10B was not filed along with the return of income, even though the report was available on record before processing.

Arguments Presented

For the Appellant

1. Limitation Bar: The intimation u/s 143(1) dated 31.12.2020 was barred by limitation under the second proviso to Section 143(1), which mandates that no intimation shall be sent after one year from the end of the financial year in which the return is made. The return was filed on 01.10.2018, making the deadline 31.03.2020. The intimation issued on 31.12.2020 was thus time-barred.

2. Directory Nature of Form 10B: Filing of Form 10B is directory, not mandatory. The appellant relied on:

   • Shri Vetri Vinayagar Education Trust Vs. ITO (ITA No. 903/2023 dated 13.12.2023), where ITAT Chennai held that mere non-filing of Form 10B along with the return cannot deny exemption
   • M/s Kingston Education Trust Vs. DCIT (ITA No. 567/CHNY/2019), where ITAT Chennai held that gross receipts cannot be taxed without considering expenditure

3. Expenditure Allowance: The trust argued that it was incorrectly treated as an AOP, and expenditure incurred for trust objectives should be allowed as deduction against gross receipts.

4. Compliance with Section 11: The trust contended that all conditions for Section 11 exemption were met, including registration, return filing, and audit report submission within the extended due date.

For the Respondent

The revenue relied on PCIT vs. Wipro Ltd. (2022) 446 ITR 1 (SC), arguing that filing of Form 10B along with the return is a mandatory condition for claiming Section 11 exemption. The CIT(A) upheld this view, holding that belated filing disentitles the assessee to exemption.

The Court's Analysis

The ITAT examined the nature of Form 10B filing and the prejudice caused to the revenue due to belated submission. Key observations:

1. Availability of Form 10B: The Audit Report in Form 10B was filed on 08.10.2018, before the return was processed on 31.12.2020. The report was thus available on record, and no prejudice was caused to the revenue.

2. Directory vs. Mandatory: The ITAT distinguished PCIT vs. Wipro Ltd., noting that the Supreme Court in that case dealt with a different factual matrix where the assessee had not filed the audit report at all. Here, the report was filed, albeit belatedly, and was available during processing.

3. Gujarat High Court Precedent: The ITAT relied on CIT(Exemptions) Vs. Laxmanarayan Dev Shrishan Seva Khendra (2024) 167 taxmann.com 548 (Guj), where the Gujarat High Court held that exemption under Section 11 cannot be denied merely due to belated filing of Form 10B, provided the report was available on record.

4. Substantive Justice: The ITAT emphasized that taxing authorities exercise quasi-judicial powers and must act fairly. Denying exemption for a procedural lapse without prejudice to the revenue would be unjust and partisan.

"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."

The Verdict

The ITAT partly allowed the appeals for statistical purposes, directing the Assessing Officer (AO)/CPC to amend the intimation by considering the Form 10B filed on 08.10.2018. The key holdings were:

• Form 10B filing is directory, not mandatory, if the report is available on record
• Section 11 exemption cannot be denied solely for belated filing of Form 10B
• The intimation dated 31.12.2020 was not time-barred (limitation ground not addressed in the final order)

What This Means For Similar Cases

Form 10B Filing Is Directory, Not Mandatory

• Practitioners can argue that belated filing of Form 10B does not disqualify Section 11 exemption if the audit report was available during processing
• Revenue authorities cannot deny exemption solely on procedural grounds without demonstrating prejudice
• Trusts should ensure Form 10B is filed before return processing, even if belatedly

Precedential Value of Gujarat High Court Ruling

• The ITAT relied on CIT(Exemptions) Vs. Laxmanarayan Dev Shrishan Seva Khendra, reinforcing that High Court judgments hold persuasive value
• Supreme Court judgments like Wipro Ltd. must be distinguished on facts - mere belated filing without prejudice does not warrant denial of exemption

Expenditure Must Be Considered Against Gross Receipts

• Gross receipts cannot be taxed without allowing expenditure incurred for trust objectives
• AO/CPC must adopt a fair and non-partisan approach while processing returns under Section 143(1)
• Trusts should maintain proper records of expenditure to claim deductions against gross receipts