Section 143(1) Adjustment for Late Form 10B Filing Set Aside: ITAT Patna Treats Delay as Procedural

The Patna DB Bench of the Income Tax Appellate Tribunal (functioning through the Kolkata virtual court) has clarified an important compliance issue for charitable and religious institutions. In Shashi Krishna Educational vs ITO Exemption, the Tribunal held that belated filing of Form 10B is a procedural irregularity and directory in nature, not a substantive condition that can be used to straightaway deny Section 11 exemption at the time of processing a return under Section 143(1).

The assessee, a charitable society registered under Section 12A, had filed its return declaring NIL income after claiming exemption under Section 11. Its audit report in Form 10B was e-filed after the due date prescribed for filing the return. Relying on this delay, the Centralized Processing Centre (CPC) refused to grant Section 11 relief while processing the return u/s 143(1), taxed the entire gross receipts at the maximum marginal rate, and rejected the assessee’s rectification request u/s 154. The Addl. JCIT(A) sustained this approach.

The Tribunal disagreed with both CPC and the first appellate authority. Noting that Form 10B had already been uploaded and was on record at the time of processing/rectification, the Tribunal held that the issue of delay in filing Form 10B could not be treated as a ground for prima facie adjustment under Section 143(1). Such a claim, it held, must be examined in regular assessment proceedings and in the light of binding judicial precedents which have consistently treated the audit-report filing requirement as procedural.

Accordingly, the ITAT quashed the intimation under Section 143(1) and the order of the Addl. JCIT(A), and remanded the matter back to the Assessing Officer (AO) with directions to reconsider the claim for exemption u/s Section 11 in accordance with law, after giving due opportunity of hearing to the assessee.

Background and Procedural History

Nature of assessee and return filing

  • The assessee is an Association of Persons (AOP) running a charitable educational institution, duly registered under Section 12A of the Income Tax Act, 1961.
  • For Assessment Year (AY) 2018-19, the assessee filed its return of income on 11.09.2018, declaring NIL income after claiming exemption under Section 11.
  • The return disclosed gross receipts of Rs. 1,27,76,341/- and claimed application of income towards revenue and capital expenditure.

Processing u/s 143(1) and rectification u/s 154

  1. The return was processed by CPC under Section 143(1).
  2. While processing, CPC:
    • Denied exemption u/s Section 11 on the ground that Form 10B was not filed within the due date for furnishing the return (which was 30.09.2018 for the relevant year), and
    • Taxed the entire gross receipts of Rs. 1,27,76,341/- at the maximum marginal rate without allowing any deduction for expenditure.
  3. The assessee subsequently filed a rectification application u/s 154, pointing out that:
    • Audit report in Form 10B had been e-filed on 04.03.2019 (Acknowledgment No. 428954601040319), and
    • The report was available on the Department’s system at the time of processing.
  4. CPC rejected the rectification request vide order dated 02.01.2020 u/s Section 154.

First appeal before Addl. JCIT(A)

The assessee challenged the Section 143(1) intimation and rejection of rectification before the Addl. JCIT(A)-6, Kolkata. The core grounds included:

  • The assessee is properly registered u/s Section 12A and had filed Form 10B before completion of assessment, hence denial of Section 11 exemption was unjustified.
  • Delay in filing Form 10B is merely a technical/procedural defect, condonable in view of CBDT circulars and judicial rulings such as:
    • CIT v. Xavier’s Kelavam Mandal Pvt. Ltd. [Taxmann]
    • **Trustees of Tulsidas Gopalji Charitable Trust v.