Form 10B Delay Condoned: ITAT Pune Rules That Exemption Under Section 11 Cannot Be Withheld Once Procedural Lapse Is Regularised
Overview of the Dispute
A recent ruling by the Income Tax Appellate Tribunal, Pune Bench, in the matter of ITO Vs Chinchwad Shikshan Prasarak Mandal (Assessment Year 2018-19) addresses a significant question concerning the interplay between procedural compliance, condonation powers, and the right of a charitable trust to claim exemption under Section 11 of the Income Tax Act, 1961.
The case arose from a Centralised Processing Centre adjustment of ₹5,30,10,522 that was triggered solely because the trust had not filed its audit report in Form No. 10B within the prescribed time limit. The Tribunal's decision, pronounced on 02nd September 2026, affirmed that once a competent authority condones the delay in filing Form 10B, the consequential denial of exemption under Section 11 cannot continue to operate against the assessee.
Factual Background
The Assessee and Its Return Filing
The assessee, Chinchwad Shikshan Prasarak Mandal, is a charitable trust. For Assessment Year 2018-19, it electronically filed its return of income declaring nil income, having claimed exemption under Section 11 of the Income Tax Act, 1961.
CPC Adjustment on Account of Delayed Form 10B
When the return was processed by the Centralised Processing Centre, it came to light that the trust had not uploaded its audit report in Form No. 10B within the time stipulated under the statute. Consequently, the CPC issued an intimation under Section 143(1)(a) proposing an upward adjustment of ₹5,30,10,522, primarily on the ground that the exemption claimed under Section 11 was not admissible owing to the delayed submission of the audit report.
Selection for Limited Scrutiny Through CASS
Following the CPC processing, the case was selected for limited scrutiny through the Computer-Assisted Scrutiny Selection system. The designated scrutiny issue pertained to "Transaction of Trust with Specified Persons" — in particular, large payments made in the nature of salary, rent, interest, or similar amounts to persons falling within the specified-person category under the relevant provisions.
Statutory notices were duly served upon the trust. However, the assessee did not participate in the assessment proceedings and failed to furnish the requisite information called for by the Assessing Officer.
Assessing Officer Accepts CPC Income Without Separate Scrutiny
The Assessing Officer noted that the CPC had already denied the Section 11 exemption on account of the delayed Form 10B filing. He took the view that since the CPC adjustment subsumed the very issue for which the case had been selected under CASS, there was no independent need to examine the transactions between the trust and its specified persons. On this basis, he completed the assessment under Section 143(3) read with Section 144B of the Act on 21.08.2021, simply adopting the income as computed by the CPC.
The result was that while the assessment was formally carried out pursuant to the limited scrutiny selection, the CASS issue — transactions with specified persons — was never examined on its merits.
Condonation of Delay in Filing Form 10B
After the assessment was completed, the trust approached the Commissioner of Income Tax (Exemptions) seeking condonation of the delay in filing Form 10B for AY 2018-19. Invoking the authority vested under Section 119(2)(b) of the Income Tax Act, 1961, read with CBDT Circular No. 2/2020 dated 03.01.2020, the CIT (Exemption), Pune granted the condonation and regularised the delayed filing.
Armed with this condonation order, the trust filed an appeal before the CIT(A), contending that the technical ground for denying exemption under Section 11 had been completely removed by virtue of the regularisation order.
Decision of the CIT(A)
Deletion of the CPC Adjustment
The CIT(A), National Faceless Appeal Centre, Delhi, vide order dated 07.11.2025 passed under Section 250 of the Income Tax Act, 1961, accepted the trust's position. The relevant portion of the CIT(A)'s findings reads as follows: