ITAT Pune Allows Accumulation Exemption Despite Delay in Form 10 / Form 10B Filing

Background of the Dispute

The Pune Bench of the Income Tax Appellate Tribunal delivered a consolidated order in the case of Prof. J.P. Trivedi Memorial Trust Vs ITO, addressing two appeals for AY 2017-18 and AY 2018-19. The assessee, a charitable trust, challenged the denial of exemption under Section 11(2) on the ground of delayed filing of Form 10 / Form 10B and alleged non-fulfilment of certain procedural conditions.

As both appeals involved the same legal controversy—whether delay or technical irregularities in Form 10 / Form 10B can justify rejection of accumulation under Section 11(2)—the Tribunal decided them through a common order.

Facts for AY 2017-18

Registration and Activities of the Trust

  • The assessee is a charitable trust registered under the Bombay Public Trust Act, 1950.
  • It is engaged in charitable activities such as:
    • Providing hostel accommodation and medical facilities to financially weak students, and
    • Granting scholarships to such students.
  • The trust holds:
    • Registration under Section 12A(a) of the Income Tax Act 1961 vide certificate dated 24.10.1974, and
    • Approval under Section 80G(5)(vi) effective from 28.11.2009.

Return of Income and Claim of Exemption

For AY 2017-18, the assessee filed its return on 25.07.2017, declaring Nil income. As per the return:

  • Gross receipts amounted to Rs. 1,89,43,855
  • Expenditure claimed: Rs. 47,55,973
  • Accumulation claimed under Section 11(2): Rs. 1,11,00,000

The case was picked up under CASS scrutiny for the specific reasons:

“Form 10 filed after due date and Large amount accumulated or set apart u/s 11(2)”

Statutory notices under Section 143(2) and Section 142(1) along with a questionnaire were duly issued. The assessee responded through the e-assessment portal.

Assessment Proceedings and AO’s Findings

The Assessing Officer (AO) rejected the assessee’s claim of accumulation of Rs. 1,11,00,000 under Section 11(2) and added this sum to the total income in the assessment framed under Section 143(3) dated **14.11.2019`.

The AO’s main grounds were:

  1. Non-satisfaction of conditions under Section 11(2)(a), (b) and (c)

    • According to the AO, the assessee did not establish compliance with the statutory requirements for valid accumulation under Section 11(2).

  2. Failure to file Form 10 electronically within the prescribed time

    • The AO held that Form 10 was not filed electronically as per Rule 17(2) of the Income Tax Rules 1962 within the due date.

On this basis, the AO treated the accumulation as taxable income of the assessee.

First Appeal Before CIT(A)/NFAC

The assessee carried the matter before the CIT(A)/NFAC, who upheld the AO’s conclusions and dismissed the appeal.

Key Observations of CIT(A)/NFAC

The CIT(A)/NFAC analysed Section 11(2)(a) and made the following points:

  • Under Section 11(2)(a), the assessee must furnish a statement in the prescribed form and manner, specifying:

    • The purpose for which the income is accumulated or set apart; and
    • The period (not exceeding five years) for such accumulation.

  • The authority held that:

    Accumulation of income is permissible only for a specific purpose, and treating “accumulation of funds as one of the general objects of the trust” does not satisfy the requirement of a specific purpose in terms of Section 11(2)(a).

  • Consequently, the CIT(A)/NFAC concluded that:

    • The claim of exemption under Section 11(2)(a) was not admissible;
    • Since the conditions of Section 11(2)(a) were not met, Grounds 1 to 3 in the appeal were liable to be rejected.

Further, on the issue of Form 10B, the CIT(A)/NFAC noted:

  • Filing of Form 10B was treated as mandatory for claiming exemption under Section 11 from AY 2017-18 onwards.
  • Delay in filing Form 10B within the stipulated time was considered a valid reason for denying exemption.
  • At the same time, the order mentioned that such delay could potentially have been condoned by the competent authority (CIT/Exemption) in terms of relevant CBDT circulars, though no such condonation was obtained in this case.