Exemption Under Section 11 Cannot Be Denied Due to Incorrect Form Selection: ITAT Jaipur

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has delivered a significant ruling regarding the procedural compliance required by charitable trusts to claim tax exemptions. In the matter of Charitable Trust Motilal Gulab Devi Fatehpuria Vs ITO (Exemption), the Tribunal held that a bona fide mistake in filing the incorrect audit report form—specifically uploading Form 10B instead of the newly mandated Form 10BB—should not lead to the outright denial of substantive exemptions available under the Income Tax Act 1961.

This judicial summary explores the factual matrix, the appellate proceedings, and the extensive legal precedents relied upon by the Tribunal to grant relief to the assessee.

Factual Background of the Dispute

The assessee in the present appeal is a public charitable trust holding valid registration under Section 12AB of the Income Tax Act 1961. For the Assessment Year (AY) 2023-24, the assessee submitted its income tax return using ITR-7 on 05.11.2023. In this return, the trust declared a 'Nil' income, having claimed the statutory exemption available under Section 11 of the Income Tax Act 1961.

AY 2023-24 marked the first year of a regulatory transition regarding the applicability of specific audit reports for charitable entities. Consequently, confusion arose regarding the correct form to be filed. Instead of submitting the newly applicable Form 10BB, the assessee inadvertently filed its audit report using Form 10B on 28.10.2023.

The Central Processing Centre (CPC) processed the return under Section 143(1) of the Income Tax Act 1961 and issued an intimation dated 25.11.2024. During this processing, the CPC completely denied the Section 11 exemption claimed by the assessee solely due to the non-furnishing of Form 10BB. As a result of this denial, the assessee's income was determined at Rs. 8,22,391/-, and a corresponding tax demand was raised.

First Appellate Authority Proceedings

Aggrieved by the intimation and the consequent tax demand, the assessee escalated the matter by filing an appeal before the Additional/Joint Commissioner of Income Tax (Appeals)-2, Chandigarh.