Charitable Exemption Under Income Tax  Denied for Missing Audit Attachments: ITAT Remands Section 11 Claim for Fresh Review [Read Order]

The Income Tax AppellateTribunal (ITAT), Indore Bench, has held that the denial of a charitable exemption under Section 11 of the Income Tax Act, 1961, merely for missing audit attachments was unjustified, and the bench remanded the matter to the Assessing Officer for a fresh review of the exemption claim in accordance with law.

The assessee had filed its return for Assessment Year 2020‑21, declaring an income of ₹20,080 after claiming exemption under Sections 11 and 12. However, the Central ProcessingCentre (CPC) processed the return at ₹27.42 lakh, disallowing the exemption on the ground that the audit report in Form 10B was filed without attaching audited accounts, such as the income‑and‑expenditure statement and balance sheet.

When the trust sought rectification under Section 154, the Income Tax Officer (Exemption), Indore, rejected the plea, stating that the omission of audited accounts invalidated the exemption claim. The first appeal before the Commissioner of Income Tax (Appeals), Pune, was dismissed as time‑barred by 505 days.

The assessee, Savitri Bai Jhawar Sewa Nyas, explained that the rectification order lacked a Document Identification Number (DIN), leading it to believe the order was void and no appeal was required.

On the other hand, the Revenue, represented by the Departmental Representative, relied on the findings of the lower authorities

The bench, comprising Accountant Member B.M. Biyani and Judicial Member Paresh M. Joshi, after hearing both sides, accepted this explanation and condoned the delay, observing that “substantial justice should prevail over technical considerations.”

The Tribunal noted that the trust had filed Form 10B before the return and later submitted audited accounts during rectification proceedings. Citing several precedents, including Sarvodaya Charitable Trust v. ITO (Gujarat HC) and Indore Contract Bridge Association v. CPC (ITAT Indore), the bench held that filing of the audit report is a directory requirement, not a rigid condition, and exemption cannot be denied for minor procedural defects when substantive compliance exists.

The tribunal observed that “ Further, in the interest of justice, we restore the matter to the file of the JAO with a direction to verify the audit report in Form No. 10B along with audited financial statements and allow exemption u/s 11/12 in accordance with law after providing adequate opportunity of being heard to assessee”

Accordingly, the appeal was allowed for statistical purposes

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