ITAT Mumbai Allows Section 11 Exemption Post Condonation of Delayed Form 10B

Background and Context

The dispute in Cosmopolitan Education Society Vs ACIT (ITAT Mumbai) centres on denial of exemption under Section 11 of the Income Tax Act 1961 for Assessment Year 2019–20, solely because the audit report in Form 10B was filed after the statutory due date.

The assessee, a charitable institution, had:

  • Filed its return of income on 26.10.2019
  • Declared nil income after claiming exemption of ₹19,19,54,063 under Section 11
  • Not e-filed Form 10B by the due date applicable for filing the return

While processing the return under Section 143(1)(a), the Centralised Processing Centre (CPC) disallowed the claim of exemption under Section 11 on the ground that timely e-filing of Form 10B was treated as mandatory, and this requirement had not been complied with.

Sequence of Proceedings

Processing under Section 143(1)(a)

The Assistant Director of Income Tax, CPC, Bengaluru issued an intimation dated 24.07.2020 under Section 143(1)(a) by:

  • Treating the assessee’s claim of exemption under Section 11 as inadmissible
  • Making an adjustment of ₹19,19,54,063 to the returned income
  • Citing non-filing of Form 10B by the return due date as the reason for denial

The assessee contested this adjustment, maintaining that:

  • The requirement of filing Form 10B is directory, not strictly mandatory
  • So long as Form 10B is available with the Assessing Officer (AO) before assessment is completed, exemption under Section 11 should not be refused merely for a procedural lapse

Appeal Before CIT(A), NFAC

Aggrieved by the adjustment in the Section 143(1)(a) intimation, the assessee filed an appeal before the CIT(A), National Faceless Appeal Centre (NFAC), Delhi under Section 250.

Simultaneously, recognising that the delay in e-filing Form 10B was the root cause of the issue, the assessee also moved a separate application for:

  • Condonation of delay of 133 days in filing Form 10B
  • Relief under Section 119(2)(b) before the Commissioner of Income Tax (Exemptions) [CIT(E)], Mumbai

Rejection of Condonation Application by CIT(E)

The CIT(E), by order dated 26.03.2025, rejected the assessee’s condonation petition filed under Section 119(2)(b) for the 133-day delay in filing Form 10B.

Relying on this rejection:

  • The CIT(A), NFAC treated the absence of condonation as fatal to the assessee’s claim
  • The appeal was dismissed and the disallowance of exemption under Section 11 was upheld

The CIT(A) essentially proceeded on the footing that since the delay had not been condoned by the CIT(E), the exemption under Section 11 was not available.

Writ Petition Before High Court

The assessee did not accept the rejection of its condonation application and therefore:

  • Filed a writ petition before the Hon’ble High Court challenging the order dated 26.03.2025 passed by the CIT(E) under Section 119(2)(b)
  • Sought quashing of the said order and condonation of the delay in filing Form 10B

Significantly:

  • While the writ petition was still pending, the CIT(A) proceeded to decide the appeal arising out of the Section 143(1)(a) intimation
  • The CIT(A) dismissed the appeal, taking into account the then subsisting rejection of condonation by the CIT(E)

High Court’s Intervention

Subsequently, the Hon’ble High Court, by order dated 13.10.2025, intervened in favour of the assessee. The High Court: