Case Law Details
ITO Vs Manav Sanskar Shiksha Sanstha (ITAT Delhi)
Form 10B Non-Filing Denies Exemption but Does Not Justify Taxing Gross Receipts; ITAT Denies Section 11 Exemption Because Form 10B Was Not Filed, Allows Expense Deduction
Summary: The Income Tax Appellate Tribunal (ITAT), Delhi, partly allowed the Revenue’s appeal against the order of the Commissioner of Income Tax (Appeals) concerning a charitable society registered under Section 12AA. The Central Processing Centre (CPC) had denied exemption under Sections 11 and 12 because the assessee failed to file the mandatory audit report in Form 10B, resulting in taxation of the entire gross receipts. The CIT(A) deleted the addition, observing that the assessee had reported a deficit and had not claimed exemption under Section 11. The Tribunal held that non-filing of Form 10B disentitled the assessee from claiming exemption under Sections 11 and 12. However, it also held that the entire gross receipts could not be subjected to tax where there was no dispute that the expenditure had been incurred for achieving the charitable objects of the society. Relying on the jurisdictional High Court’s decision, the Tribunal upheld deduction of expenditure against gross receipts while denying the exemption, thereby partly allowing the Revenue’s appeal.
Core Issue: Whether, in the absence of Audit Report in Form 10B, a charitable institution registered under section 12A can be taxed on its gross receipts, or whether expenditure incurred for charitable objects must still be allowed while computing taxable income.
Facts: The assessee, a society engaged in educational activities and registered under section 12AA, filed its return in Form ITR-7 declaring a deficit of ₹13.76 lakh. CPC, while processing the return under section 143(1), denied exemption under sections 11/12 on the ground that Form 10B was not filed and raised demand by taxing the gross receipts. A rectification application under section 154 was also rejected. The CIT(A) deleted the addition, holding that since the assessee had incurred a deficit, there was no justification for taxing the entire gross receipts. The Revenue challenged the relief before the Tribunal.
Revenue’s Contention: Since the assessee failed to furnish the mandatory Audit Report in Form 10B, it was not entitled to exemption under sections 11 and 12, and therefore the gross receipts were liable to tax.
Assessee’s Contention: The society was duly registered under section 12A and had filed its return within time. As there was a deficit and no surplus, exemption under sections 11/12 was not claimed. Mere non-filing of Form 10B could not justify taxation of gross receipts without allowing expenditure incurred for charitable purposes. Reliance was placed on Petroleum Sports Promotion Board v. CIT (362 ITR 235, Delhi HC) and Sanatan Dharam Mandir Sabha v. ITO (ITAT Delhi).
ITAT Findings: The Tribunal held that non-filing of Form 10B disentitled the assessee from claiming exemption under sections 11/12. However, it emphasized that even where exemption is unavailable, gross receipts cannot automatically be subjected to tax when the expenditure incurred for achieving the charitable objects is undisputed. Following the Delhi High Court decision in Petroleum Sports Promotion Board, the Tribunal held that deduction of expenditure against receipts must be allowed and only the resultant income, if any, could be taxed. Since the assessee had incurred a deficit, the CIT(A) was justified in deleting the addition made on gross receipts.
Held: Exemption under sections 11/12 denied due to non-filing of Form 10B, but expenditure incurred for charitable purposes allowed against receipts. Gross receipts cannot be taxed merely because Form 10B was not furnished. Revenue’s appeal partly allowed.
Ratio Decidendi: Failure to file Form 10B may result in denial of exemption under sections 11 and 12, but it does not authorize taxation of the entire gross receipts of a charitable institution. While computing taxable income, expenditure incurred wholly for charitable objects must be deducted, and only the net income can be brought to tax.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal is filed by the Revenue against the order dated 21.03.2025 by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2019-20/10434387 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the intimation order dated 24.12.2021 passed u/s 143(1) of the Act pertaining to Assessment Year 2020-21.
2. Brief facts of the case are that the assessee is a registered society, doing charitable activity of imparting education and registered u/s 12AA of the Act in terms of approval granted by Ld. CIT(A), Faridabad dt 15.04.2013 and subsequently, renewed by PCIT vide order dated 08.07.2024. The return of income for the year under appeal was filed in Form ITR 7 on 27.12.2020 loss of 13,76,228/-being excess of expenditure over income and has not exemption u/s 12 of the Act. The CPC in terms of the order u/s 143(1) of the Act denied the exemption as the assessee has not filed Form 10B alongwith the return of income filed and create a demand on gross receipts. Thereafter, the assessee a rectification application however, as the assessee has not filed Form 10B before the filing of return of income and power of condonation of delay in From 10B as per section 119(2)(b) of the Act is with the concerned PCIT/CIT/DIT therefore, the CPC has rejected the application of the assessee filed u/s 154 of the Act.
3. Against the said order, assessee preferred an appeal before ld. CIT(A) who vide order dated 21.03.2025 has held that the assessee has filed the return of income showing excess of expenditure over income of IRN 1376228/- and not claimed any exemption u/s 11 of the Act. Ld. CIT(A) further observed that assessee since registered u/s 12A of the Act therefore, is also eligible for exemption u/s 11 of the Act. However, as the assessee has net deficit therefore, observed that there is no reason to tax the entire gross receipts and accordingly, deleted the addition made and allowed the appeal of the assessee.
4. Against the said order, Revenue is in appeal before the Tribunal wherein the Revenue has challenged the action of Ld. CIT(A) in holding that tax is to be levied on net income and further allowed the exemption though the assessee has not filed Form 10B. The grounds of appeal so raised by the Revenue are as under:
1. “Whether on the facts and circumstances, the ld. CIT(A) is justified in directing the AO to reduce the demand created u/s 143(1) merely observing that the assessee has registration u/s 12A granted by the ClT, Faridabad?
2. Whether on the facts and circumstances, the ld. CIT(A) has erred in ignoring the fact that assessee did not file audit report u/s 12A(1)(b) of the Income Tax Act, 1961, while allowing the appeal of the assessee?
3. It is prayed that the order of the ld. CIT(A) be set aside/ revoked and that of the AO-CPC may be restored.”
5. Before us, Ld. Sr. DR submits that the assessee though granted approval u/s 12A of the Act which fact is not in dispute however, the assessee has never filed Audit Report in Form 10B therefore, the assessee is not entitled for the benefit exemption u/s 11 and 12 of the Act. The Ld. CIT(A) submits that under these circumstances, the gross receipt of the assessee should be brought to tax. He, therefore supported the order of CPC and requested for the restoration of the same.
6. On the other hand, Ld.AR for the assessee submits that assessee is having registration u/s 12A of the Act and filed the return of income within the due date. Ld. AR submits that since the assessee has deficit from the activities and there was no surplus, it has not claimed exemption u/s 11/12 of the Act and therefore, merely non-filing the Audit Report in Form 10B, gross receipt cannot be taxed. For this, reliance is placed on the judgment of Hon’ble Delhi High Court in the case of Petroleum Sports Promotion Board reported in 362 ITR 235 (Delhi) and of the Co-ordinate Bench of the Delhi Tribunal in the case of Sanatan Dharam Mandir Sabha vs ITO in ITA No. 5791/Del/2019 order dated 13.04.2022. He prayed accordingly.
7. Heard the parties and perused the material available on record. In the instant case, admittedly, assessee has never filed Audit Report in Form 10B for claiming exemption u/s 11/12 of the Act. Though it is registered u/s 12A of the Act since 2013 and claiming exemption on regularly u/s 12A of the Act which was allowed to it in preceding Assessment years where in some of the years, orders were passed u/s 143(3) of the Act. As the assessee has not filed the Audit Report mandatory for claiming exemption u/s 12A in Form 10B, the assessee society is not entitled for such exemption. However, it is settled law that in any case, the gross receipts cannot be brought to tax when the expenditure incurred were for the purpose of achievement of objects of the society and this fact was never be in dispute.
8. Since there is no dispute about the application of the receipts for the furtherance of the objects of the society, thus, by following the order of Hon’ble Jurisdictional High Court in the case of Petroleum Sports Promotion Board (supra), we are of the considered view that Ld. CIT(A) has rightly allowed deduction towards the expenditure incurred against the gross receipts. Accordingly, though the assessee is not entitled for exemption u/s 12 of the Act as no Audit Report was filed as prescribed under the Act, however, we find no error in the order of ld. CIT(A) in allowed the deduction of the expenditure incurred and the order of ld. CIT(A) is confirmed to this extent. Accordingly, Ground of appeal 1 of the revenue is dismissed and Ground of appeal No.2 is allowed.
9. In the result, appeal of the Revenue is partly allowed.
Order pronounced in the open Court on 17.06.2026.
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