The ITAT Delhi has clarified that charitable trusts with annual receipts below Rs.5 crores are not required to file an audit report in Form 10B to claim exemption under Section 11 of the Income Tax Act. Denial of such exemption on this ground, without regard to statutory thresholds, constitutes a legal error.
Background & Facts
The Dispute
The appellant, Zindagi Society, is a registered charitable society incorporated on 24.09.2013, engaged in charitable activities under its objects. It obtained registration under Section 12A of the Income Tax Act, 1961, for the regime applicable from Assessment Year (AY) 2022-23 to 2026-27. The Society filed its return of income for AY 2023-24 on 23.11.2023, declaring nil income. Its total receipts for the year amounted to Rs.25,53,998, well below the Rs.5 crore threshold under Section 12A(1)(b) of the Act.
Key Facts
- The Society’s total receipts for AY 2023-24 were Rs.25,53,998
- As per Section 12A(1)(b), trusts with receipts below Rs.5 crores are required to file audit report in Form 10BB, not Form 10B
- The Society duly filed Form 10BB with its return
- On 18.11.2024, the CPC, Bengaluru, issued an order under Section 143(1) denying exemption under Section 11 on the ground that Form 10B was not filed
- The CPC erroneously treated Form 10B as mandatory despite the receipt threshold
- The assessee filed a rectification application under Section 154 on 29.07.2025, which was rejected
- The Ld. CIT(A)-9, Mumbai, upheld the CPC’s order on 14.10.2025
Procedural History
- 24.09.2013: Zindagi Society registered as a charitable trust
- 05.04.2022: Initial registration under Section 12A granted for AY 2022-23 to 2026-27
- 23.11.2023: Return filed for AY 2023-24 with Form 10BB
- 18.11.2024: CPC, Bengaluru, issued order under Section 143(1) denying Section 11 exemption due to non-filing of Form 10B
- 29.07.2025: Rectification application filed under Section 154
- 14.10.2025: Ld. CIT(A)-9, Mumbai, dismissed rectification and upheld CPC’s order
- 09.03.2026: Hearing before ITAT Delhi
- 23.04.2026: ITAT Delhi pronounced order
The Parties' Positions
For the Appellant
The appellant argued that Form 10B is applicable only when receipts exceed Rs.5 crores. Since its receipts were Rs.25,53,998, Form 10BB was the correct form, which was duly filed. The denial of exemption was based on a misapplication of law. Further, the CIT(E)’s rejection of its Section 80G application (dated 07.08.2024) was irrelevant to Section 11 exemption and had been set aside by a coordinate bench of ITAT Delhi in ITA No.3716/Del/2024 dated 19.12.2024, which relied on Sonepat Hindu Educational and Charitable Society v. CIT (2005) 278 ITR 262 (P&H). The CIT(E)’s order was subsequently withdrawn and registration under Section 12A and 80G was granted.
For the Respondent
The Departmental Representative contended that the assessee had failed to file the requisite audit report, without specifying which form was legally required. No rebuttal was made to the appellant’s argument that Form 10B was inapplicable.
Relief Sought
The appellant sought quashing of the order dated 14.10.2025 of the Ld. CIT(A), restoration of the claim under Section 11, and deletion of the demand of Rs.2,37,130/- raised by the CPC.
The Legal Issue
Whether the denial of exemption under Section 11 of the Income Tax Act on the ground of non-filing of audit report in Form 10B is legally sustainable when the assessee’s total receipts are below Rs.5 crores and Form 10BB has been duly filed?
Arguments Presented
For the Appellant
The appellant relied on the statutory distinction under Section 12A(1)(b), which mandates Form 10BB for trusts with receipts below Rs.5 crores and Form 10B only for those exceeding that threshold. It cited the coordinate bench decision in ITA No.3716/Del/2024 (Zindagi Society’s own case), which relied on Sonepat Hindu Educational and Charitable Society v. CIT (2005) 278 ITR 262 (P&H), holding that registration under Section 12A is conclusive proof of charitable purpose and that Section 80G denial cannot affect Section 11 claims. The appellant emphasized that the CPC’s error was purely mechanical and the CIT(A) compounded it by upholding a jurisdictionally invalid ground.
For the Respondent
The Departmental Representative offered no substantive legal argument to counter the statutory interpretation or the binding precedent. The submission was limited to a general assertion that documents were not filed, without specifying the correct form or addressing the Rs.5 crore threshold.
The Court's Analysis
The ITAT observed that the denial of exemption under Section 11 was based solely on the non-filing of Form 10B, a requirement that applies only when receipts exceed Rs.5 crores. The assessee’s receipts were Rs.25,53,998, making Form 10BB the only applicable form, which was duly submitted. The CPC’s error was not merely procedural but rooted in a fundamental misreading of the law.
"Registration of an institution under section 12A of the Act is sufficient to establish its being established for charitable purposes. Thus, registration under section 80G of the Act cannot be denied."
The Court noted that the coordinate bench had already set aside the CIT(E)’s order rejecting the Section 80G application, and that the CIT(E) had since granted registration under both Section 12A and 80G. The Court held that even if Section 80G status were in dispute - which it was not - the denial of Section 11 exemption on that basis would be legally impermissible, as the two provisions operate independently.
The Court further emphasized that the CIT(A) had no jurisdiction to raise the issue of Form 10B suo moto, as it was not part of the CPC’s original order under Section 143(1). The CIT(A)’s reliance on an irrelevant and invalid ground rendered the order unsustainable.
The ITAT concluded that the impugned order was palpably bad in law, contrary to statutory provisions and binding precedent, and could not be allowed to stand.
The Verdict
The appeal is allowed. The order dated 14.10.2025 of the Ld. CIT(A)-9, Mumbai, is quashed. The demand of Rs.2,37,130/- raised by the CPC under Section 143(1) is deleted. The claim under Section 11 is restored. The assessee’s return for AY 2023-24 stands accepted as filed.
What This Means For Similar Cases
Form 10B Is Not a Universal Requirement
- Practitioners must verify the receipt threshold before advising on audit report compliance
- For trusts with receipts below Rs.5 crores, Form 10BB is mandatory; Form 10B is irrelevant
- Demands raised on Form 10B non-filing in such cases are legally void and must be challenged
Section 80G Denial Cannot Affect Section 11 Claims
- Exemption under Section 11 is independent of Section 80G status
- Even if 80G registration is pending or rejected, Section 11 exemption cannot be denied on that basis
- Tribunals and AO’s must not conflate the two statutory regimes
Jurisdictional Limits on Appellate Authorities
- CIT(A) cannot introduce new grounds not raised by the AO in the original order
- Sua sponte rejection of claims on unrelated grounds violates principles of natural justice
- Appeals must be decided on the grounds actually adjudicated below
