Delhi ITAT Clarifies: Technical Error in Form 10B Cannot Override Section 11 Exemption
The Delhi Bench of the Income Tax Appellate Tribunal in Youthreach Vs ITO (ITAT Delhi) has delivered a significant ruling for charitable and religious institutions claiming exemption under Section 11 of the Income Tax Act 1961. The Tribunal held that a bona fide reporting mistake in Form 10B (audit report) cannot be used as a ground to deny exemption where the substantive conditions of law are otherwise fulfilled.
Further, the Tribunal found that the adjustment made while processing the return under Section 143(1) was invalid, as the mandatory opportunity contemplated in the first proviso to Section 143(1A) had not been provided. The matter was remanded to the Assessing Officer (AO) with a direction to consider the revised Form 10B dated 21.05.2026, examine the assessee’s rectification request under Section 154, and recompute the correct taxable income.
Background of the Case
Profile of the assessee and filings
- The assessee, a charitable organisation engaged in educational activities for youth in India, was registered and enjoying approval under relevant provisions for claiming exemption under
Section 11. - For Assessment Year 2020-21, the assessee filed:
- Return of income in ITR-7 on 31.12.2020
- Form 10B (audit report) on 18.12.2020
- Form 10 (for accumulation under
Section 11(2)) on 31.12.2020`
The return was processed by the Centralized Processing Centre (CPC) under Section 143(1) on **30.11.2021. While doing so, an adjustment of **Rs. 47,00,000/-** was made to the returned income, allegedly without issuing the show-cause notice required by the first proviso to Section 143(1A)`.
CPC adjustment and subsequent scrutiny
- The case was subsequently selected for scrutiny, and notice under
Section 143(2)was issued on **30.06.2021`. - Assessment under
Section 143(3)was eventually completed on 27.09.2022`. - In the scrutiny assessment:
- No new addition to income was made beyond what had already been adjusted in the intimation under
Section 143(1). - The upward adjustment of Rs. 47,00,000/- made earlier under
Section 143(1)was simply carried forward in the final assessed income by applying the principle of merger.
- No new addition to income was made beyond what had already been adjusted in the intimation under
Thus, although the regular assessment did not introduce fresh additions, the assessee remained aggrieved due to the retention of the Section 143(1) adjustment.
Nature of the Mistake and Rectification Request
What went wrong in the return and Form 10B
The assessee later discovered that the amount of Rs. 47,00,000/- had been wrongly reflected in the return in the incorrect field of Schedule TI, Part B. Specifically:
- The sum of Rs. 47,00,000/-, which was intended to be shown as accumulated under
Section 11(2)(for specified purposes), was mistakenly entered in:- Column 4(iv) of Schedule TI Part B,
instead of in - Column 4(vi), which is meant for "Amount in addition to amount referred to in (iv) above, accumulated or set apart for specified purpose if all the conditions in section 11(2) and 11(5) or third proviso to section 10(23C) are fulfilled."
- Column 4(iv) of Schedule TI Part B,
This clerical misplacement effectively led to the amount being treated as deemed application rather than as accumulation under Section 11(2).
Crucially:
- Form 10 had indeed been filed on 31.12.2020 vide receipt no. 973330020311220, within the prescribed timelines, thereby evidencing the assessee’s intention to accumulate income under
Section 11(2).
Rectification applications under Section 154
Realising the error, the assessee moved rectification applications before the AO under Section 154 on:
- 04.11.2026, and
- 16.04.2025`
In these applications, the assessee explained:
- The claim of Rs. 47,00,000/- as deemed application under clause (2) of Explanation to
Section 11(1)was erroneous, and - The amount should in fact have been reflected as accumulation under
Section 11(2)in the correct column of the return.
The assessee also: