CPC Cannot Deny Section 11 Exemption for Delayed Form 10B in Section 143(1) Processing: ITAT Kolkata

Srimanta Sankaradeva Kalakshetra Vs Ward-2(3) (ITAT Kolkata)

The Income Tax Appellate Tribunal (ITAT), Kolkata, partly allowed the assessee’s appeal for statistical purposes and remanded the matter to the first appellate authority after examining the denial of exemption under Sections 11 and 12 of the Income-tax Act for Assessment Year 2020-21.

The assessee had filed its return of income on 19.05.2021. The return was initially processed and later rectified under Section 154. The Assessing Officer denied exemption under Section 11 on the ground that the audit report in Form No. 10B had been filed belatedly on 15.05.2021 instead of the due date of 15.01.2021 and had not been filed along with or before the return of income. Consequently, the total income was assessed at ₹11,65,54,296 and a tax demand was raised. The first appellate authority, while condoning the delay in filing the appeal, upheld the denial of exemption, observing that it had no power under Section 119(2)(b) to condone the delay in filing Form No. 10B, as such power vested with the specified authorities.

Before the Tribunal, the assessee submitted that although Form No. 10B was filed late, it was available when the return was processed. It was further argued that denial of exemption could not be made while processing the return under Section 143(1), as such denial was not covered by the scope of prima facie adjustments. The assessee also pointed out that applications seeking condonation of delay under Section 119(2)(b) had been filed before the Principal CIT (Exemptions) and remained pending. It was contended that the appellate authority failed to consider this material fact despite the applications and supporting documents being placed on record. The assessee also relied on CBDT Circular No. 16/2024, which covers condonation of delays of up to 365 days for Assessment Year 2018-19 and subsequent years.

The Tribunal observed that Form No. 10B had been uploaded with a delay of four months but was available before the Assessing Officer at the time of processing the return. Referring to the Calcutta High Court’s decision in Commissioner of Income Tax (Exemptions), Kolkata vs. Indian Sugar Mills Association, it noted that filing the auditor’s report along with the return is a procedural and directory requirement. The Tribunal was of the view that exemption could not be denied when the audit report was available at the time of processing the return and that such denial was not permissible while processing the return under Section 143(1).

The Tribunal further held that the first appellate authority should have awaited the outcome of the pending condonation application before deciding the appeal. It directed the assessee to pursue the pending application before the competent authority, observing that once the delay is condoned, the exemption would be allowable in accordance with law. Accordingly, the Tribunal set aside the order of the Addl./Joint CIT(A) and remanded the matter for fresh adjudication after considering the final outcome of the condonation application. The assessee was directed to be given a reasonable opportunity of hearing. The appeal was partly allowed for statistical purposes.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This appeal filed by the assessee is against the order of the Addl/JCIT(A)- Addl/JCIT(A)-2, Chandigarh [hereinafter referred to as Ld. Addl/JCIT(A)1 passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2020-21 dated 29.01.2026.

2. The assessee is in appeal before the Tribunal raising the following grounds of appeal:

“1) That the Ld. CIT(A) erred in law and on facts by sustaining the denial of exemptions u/s 11 and 12, despite the fact that the Income Tax Return (ITR) was filed within the time allowed u/s 139(4) and the Audit Report in Form 10B was available on record during the assessment and appellate proceedings.

2) That the Ld. CIT(A) failed to appreciate that the delay in filing the return (93 days) and Form 10B (120 days) was caused solely by unprecedented disruptions due to the COVID-19 pandemic, including lockdowns, containment zones in Assam, and the auditor’s home isolation, which constitute a “reasonable cause” beyond the control of the Appellant.

3) That the Ld. CIT(A) erred in concluding that the Appellate Authority lacks jurisdiction to condone procedural delays u/s 119(2)(b), while ignoring the justice-oriented approach mandated by the ITAT in Bishnupur Public Education Institute (2025) and various High Courts which treat the filing of Form 10B as a directory/ procedural requirement.

4) That the Ld. CIT(A) acted mechanically by failing to mention or consider the vital fact that a condonation application u/s 119(2)(b) is currently pending before the Principal CIT (Exemption), Kolkata, and that the required documents were duly submitted during the course of the hearing.

5) That the Ld. CIT(A) failed to apply the benefit of the Supreme Court’s suo motu extension of limitation (15.03.2020 to 28.02.2022) for pandemic-related disruptions, as affirmed in St. Tomas Education and Welfare Society (2025).

6) The Appellant craves leave to add, amend, or alter these grounds at or before the time of the hearing.”

3. Brief facts of the case are that the assessee had filed its return of income for AY 2020-21 on 19.05.2021. The return was initially processed and subsequently rectified vide an order u/s 154 of the Act dated 22.11.2022 passed by the Assessing Officer (hereinafter referred to as Ld. ‘AO’) at the Centralized Processing Center. In the said order, the Ld. AO denied the exemption claimed by the assessee u/s 11 of the Act on the grounds that the audit report in Form No. 10B was filed belatedly on 15.05.2021 instead of the due date of 15.01.2021, and was not filed along with or before filing the return of income. Consequently, the Ld. AO assessed the total income at Z11,65,54,296/- and raised net tax demand of 76,34,22,210/-. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. Addl/JCIT(A) which was delayed. Regarding the delay of 608 days in filing of the appeal before the first appellate authority, the Ld. Addl/JCIT(A) noted the petition for condonation of delay filed by the assessee and proceeded to adjudicate the case on merits. On the core issue of the denial of exemption u/s 11 of the Act due to the belated filing of Form No. 10B, the Ld. Addl/JCIT(A) observed that the appellate authority does not have the power to condone such delay u/s 119(2)(b) of the Act. Relying on judicial precedents, the Ld. Addl/JCIT(A) held that the jurisdiction to condone the delay in filing Form No. 10B vested with the specified authorities such as the Pr. CCIT, CCIT, or CIT (Exemptions), and therefore, the first appellate authority cannot decide on the admittance of the belated form. Accordingly, the appellate authority confirmed the action of the Ld. AO and dismissed the appeal of the assessee.

4. Aggrieved with the order of the Ld. Addl./Joint CIT(A), the assessee has filed the appeal before the Tribunal.

5. Rival contentions were heard and the submissions made have been examined. The Ld. AR submitted before us that Form No. 10B was filed belatedly but was available at the time of processing of the return of income and, therefore, the claim of exemption should not have been denied. It was also submitted that the denial of exemption cannot be made while processing the return under section 143(1) as the same is not part of the prima facie adjustment but the same can only be denied in the course of the assessment u/s 143(3) of the Act. The Ld. DR relied upon the order of the Ld. Addl./Joint CIT(A) and requested that the same may be upheld. The Ld. Addl./Joint CIT(A) denied the claim of exemption and the relevant extracts from the order of the Ld. Addl/JCIT(A) are as under:

“4.2 The CPC in its rectification order u/s 154 of the Act has not allowed the deduction u/s 11 of the Act and raised a demand of Rs. 6,42,15,141/ – owing to the following reasons: –

a) The appellant has belatedly e-filed the audit report in Form No.10B on 15­05-2021 which was to be filed on or before 15-01-2021. The appellant has not e-filed the Audit Report in Form No 10B along with its enclosures, along with or before filing the 17’R.

c) the audit report has to be e-filed along with or before filing the return of income and appellant failed to do so.”

6. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. Addl/JCIT(A). The Ld. Addl/JCIT(A) dismissed the appeal by holding that in view of the decision of the Hon’ble SMC, ITAT Ahmedabad Bench in the case of Association of Indian Panelboard Manufacturer vs. Deputy Commissioner of Income tax [2022] 143 com 418 (Ahmedabad – ITAT)[22-07-2022] that where there was delay in filing Form No.10B, the assessee was required to approach jurisdictional Commissioner/Director of Income-tax to condone delay in filing Form 10B and the Commissioner (Appeals) had no power to condone such delay as per section 119(2)(b), the delay in filing the form could not be condoned.

7. Further, a perusal of the record shows that Form No.10B was uploaded on 15.05.2021 with a delay of four months, which is claimed to be unintentional on the part of the assessee but accepted by the assessee. However, it is noted that the same was available before the Ld. Assessing Officer at the time of processing of the return of income and was uploaded by the Chartered Accountant. The filing of Form No. 10B has been held to be a procedural requirement and directive in nature and not mandatory as has been held by the Hon’ble Calcutta High Court in the case of Commissioner of Income Tax Exemptions Kolkata vs. M/s. Indian Sugar Mills Association in ITAT/270/2023 IA No: GS/1/2023, GA/2/2023 vide order dated 10.01.2024 wherein it has been held that the filing of the auditor’s report along with the return of income has to be treated as a procedural provision and therefore, directory in nature.

8. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. Addl./Joint CIT(A). The Bench was of the view that filing of Form No. 10B is procedural in nature and the claim of exemption could not be denied as the report was available at the time of processing of the return of income. What can be adjusted in the intimation under section 143(1) is prima facie adjustments specified therein the Ld. AR submitted that at page 1 of the paper book an affidavit of the Chartered Accountant is available and our attention was also drawn to paragraph 4.2 of the order of the Ld. Addl./Joint CIT(A). The appellant had filed an application for condonation of delay u/s 119(2)(b) before the competent authority (Pr. CIT(E)) on 06.11.2024, 20.01.2025 & 09.02.2026. These applications were duly submitted to the appellate authority during the course of the appeal proceeding. The assessee has made written submission along the appeal memo stating that the Circular dated 18.11.2024 specifically covers AY 2018-19 and subsequent years, and applies to all pending applications as on the date of the Circular. The appellant’s condonation application (filed on 20.01.2025) falls squarely within the scope of this Circular. It is submitted that the Pr. CIT(E) has authority to condone the delay (being 120 days, which is well within 365 days, falling within the jurisdiction of the Pr. CIT(E) himself). This is a strong mitigating factor that the appellate authority failed entirely to consider. The Circular directs disposal of applications within six months from the date it is received, however till date the condonation application is still pending for disposal with the Ld. Pr. CIT(E). It is also submitted that the Ld. Addl./Joint CIT(A) acted mechanically by failing to mention or consider the vital fact that a condonation application u/s 119(2)(b) was pending before the Principal CIT (Exemption), Kolkata, and that the required documents were duly submitted during the course of the hearing. Despite this, the Ld. CIT(A)’s order dated 29.01.2026 made no mention of this application, did not discuss its legal implications, and proceeded as though no such application existed. This, according to the assessee, constitutes a fundamental failure to apply mind to a material fact that was placed before the CIT(A). It is stated that in administrative and quasi-judicial proceedings, an authority is under a duty to consider and deal with all relevant material placed before it and failure to do so renders the order vulnerable to being set as held in the case of Union of India vs. Mohan Lal Capoor [AIR 1974 SC 87]. It is stated that the CBDT Circular No. 16/2024 (dated 18.11.2024) expressly authorises the Pr. CsIT/CsIT to condone delays of up to 365 days in filing Form 9A/10/ 10B/ 10BB for AY 2018-19 and subsequent years and the delay in the present case is 120 days. The Circular also covers all pending applications as on the date of issue of the Circular (18.11.2024). The appellant’s application (filed on 06.11.2024, 20.01.2025 & 09.02.2026) thus fell within the framework and he was of entitled to a fair disposal by the Pr. CIT(E). Once the condonation is granted by the Pr. CIT(E), the bar to exemption falls away and the appellant would be entitled to full exemption. The appellate authority should have, at the very minimum, stayed the demand or kept the appeal pending the disposal of the application for condonation of delay, it was submitted.

9. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). As the audit report on Form No. 10B filed on 15.05.2021, was available at the time of processing of the return of income on 24.12.2021, therefore, the claim of exemption u/s 11 of the Act had to be allowed and the same cannot be denied while processing the return under section 143(1) of the Act. As the assessee had filed an application for condonation of delay, the Ld. Addl./Joint CIT(A) should have awaited the final outcome of the same before deciding the appeal. Further, the assessee is also directed to pursue the application pending before the appropriate authority as once the delay is condoned, the exemption would be allowable as per law. After examining the facts of the case, we deem it appropriate to set aside the order of the Ld. Addl/JCIT(A) and remand the appeal before him to decide the same in accordance with law after considering the final outcome of the pending application before the competent authority for condonation of delay. Needless to say, the assessee shall be given a reasonable opportunity of being heard to make any further submission it wants to make in support of its grounds of appeal and shall not seek unnecessary adjournments. Accordingly, all the grounds taken by the assessee in the appeal are partly allowed for statistical purposes.

10. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Order pronounced in the open Court on 5th June, 2026.