Implied Condonation of Delay and the Directory Nature of Form 10B: ITAT Mumbai Restores Exemption for Charitable Society

The taxation of charitable institutions in India is governed by a strict set of procedural and substantive compliance requirements. Among these, the filing of the audit report in Form No. 10B is a critical prerequisite for claiming exemptions under the Income Tax Act 1961. However, a recurring subject of litigation is whether the delayed filing of this procedural form should result in the outright denial of substantive tax exemptions.

In a significant judicial pronouncement, the Income Tax Appellate Tribunal (ITAT), Mumbai Bench, in the case of Sadhubella Education Society Vs ITO, addressed two fundamental legal questions. First, whether an appellate authority's decision to adjudicate an appeal on its merits inherently constitutes an implied condonation of a filing delay. Second, whether the failure to file Form No. 10B within the strict statutory timeframe warrants the denial of exemptions under Section 11 and Section 12 of the Income Tax Act 1961.

This article provides a comprehensive summary and detailed legal analysis of the ITAT Mumbai's order dated 18/06/2026 (Appeal Number ITA 411/MUM/2026) pertaining to Assessment Year 2020-21.

Factual Matrix of the Dispute

The assessee, Sadhubella Education Society, is a registered society entitled to claim tax exemptions under the provisions of Section 11 and Section 12 of the Income Tax Act 1961. For the Assessment Year (AY) 2020-21, the assessee fulfilled its initial compliance by filing its original return of income on 15.02.2021, declaring a total income of 'Nil'. Subsequently, a revised return was filed on 31.05.2021, which also declared a 'Nil' income.

The dispute originated when the Centralized Processing Centre (CPC) processed the assessee's return under Section 143(1) of the Act. Vide an intimation dated 24.12.2021, the CPC denied the claimed exemptions and computed the assessee's total income at Rs. 6,11,36,748/-. This income was brought to tax by treating the assessee in the status of an Association of Persons (AOP).

The primary justification provided for this massive addition and the denial of the charitable exemption was the alleged failure of the assessee to furnish Form No. 10B—the mandatory audit report prescribed under Section 12A(1)(b) of the Act—within the stipulated timeframe.

The First Appellate Stage: A Paradoxical Adjudication

Aggrieved by the Section 143(1) intimation, the assessee escalated the matter by filing a first appeal before the National Faceless Appeal Centre (NFAC) / Commissioner of Income Tax (Appeals) under Section 250 of the Act. This appeal was filed on 29.04.2025. However, there was a substantial delay of 1,184 days in instituting this appeal.

To rectify this procedural lapse, the assessee submitted an application for the condonation of delay, backed by a sworn affidavit. The assessee outlined several compelling reasons for the delay:

  • Change in Auditors: The resignation of the previous auditors and the subsequent transition to a newly appointed auditor caused administrative bottlenecks.
  • Technological Hurdles: The trust was managed by senior citizens who faced genuine difficulties in navigating the newly implemented faceless assessment proceedings and complex electronic compliance portals.
  • Pandemic Disruptions: The severe global disruptions and consequential nationwide lockdowns induced by the COVID-19 pandemic between March 2020 and March 2022 severely paralyzed normal operations.
  • Pursuit of Alternative Remedies: The assessee was actively pursuing an alternative legal remedy by filing a rectification application under Section 154 of the Act, which was ultimately rejected, leading them to file the appeal.