ITAT Delhi Allows Section 10(23C)(iiiad) Exemption Despite Mistaken ITR Selection

The Delhi Bench of the Income Tax Appellate Tribunal, in M D Education Society Vs DCIT, has reiterated that a mere clerical mistake in the income tax return cannot be the basis for denying a substantive exemption otherwise available under Section 10(23C)(iiiad) of the Income Tax Act 1961. The Tribunal held that where an educational society satisfies all statutory conditions, exemption cannot be refused solely because the assessee inadvertently selected an incorrect option in the ITR.

This decision is particularly relevant for educational institutions and charitable entities that claim exemption under Section 10(23C)(iiiad) and may face issues due to technical or procedural lapses while filing returns.

Background of the Case

Constitution and Activities of the Assessee

  • The assessee, M D Education Society, is a charitable society registered under the Societies Registration Act, 1860 on 15.05.2004.
  • The objects of the society are centered on running and promoting educational institutions.
  • The society is managing M D S Public High School, located in District Gurugram.
  • The school had been affiliated with the Haryana Board of Secondary Education since 2005 and subsequently obtained affiliation from the Central Board of Secondary Education [CBSE] with effect from 29.10.2015.

For the Assessment Year (A.Y.) 2014-15, the society filed its return of income declaring NIL income, claiming that its receipts were exempt under Section 10(23C)(iiiad).

Processing of Return and CPC Action

During processing of the return by the Centralized Processing Centre (CPC), Bengaluru, a significant issue arose:

  • In the income tax return form, there is a specific column where an assessee has to indicate whether it is a "University/Educational Institution" entitled to exemption under Section 10(23C).
  • While filing the return, the assessee erroneously selected "No" in this field, though in substance it was indeed running an educational institution and intended to claim exemption.
  • The assessee’s total receipts amounted to ₹49,95,490/-, which were below the threshold of ₹1 crore prescribed in Section 10(23C)(iiiad) for educational institutions existing solely for educational purposes and not for profit.

Relying solely on the incorrect “No” selection, the CPC:

  • Issued a notice under Section 154 (rectification of mistake apparent from record);
  • Held that the assessee was not utilizing its receipts for charitable/educational purposes;
  • Denied exemption under Section 10(23C)(iiiad)`; and
  • Treated the entire receipts of ₹49,95,490/- as taxable income.

The CPC action effectively ignored the audited financial statements and other documents filed along with the return, which clearly demonstrated that the assessee was running an educational institution.

Appeal Before CIT(A)/NFAC

Aggrieved by the CPC order under Section 154, the assessee filed an appeal before the CIT(A)/NFAC, New Delhi.

Findings of CIT(A)

Vide order dated 03.09.2025, the CIT(A):

  • Accepted that receipts could not be straightaway treated as income without allowing corresponding expenditure;
  • Directed the Assessing Officer to restrict the addition to ₹6,95,940/-, after granting deduction of expenses claimed against the receipts;
  • However, upheld the denial of exemption under Section 10(23C)(iiiad) on the ground that the assessee itself had declared in the return that it was not eligible by choosing “No” in the relevant column.

Thus, CIT(A):