Youthreach Vs ITO (ITAT Delhi)
Delhi ITAT: Genuine Reporting Error in Form 10B Should Not Defeat Section 11 Exemption; AO Directed to Consider Revised Form
The Delhi ITAT held that a genuine reporting error in Form 10B should not deprive a charitable trust of exemption under section 11. Setting aside the orders passed under sections 143(3) and 154, the Tribunal directed the Assessing Officer to consider the revised Form 10B and determine the correct taxable income instead of denying relief on a technical mistake.
The assessee, a charitable organisation, had filed its return in ITR-7, along with Form 10B and Form 10. While processing the return under section 143(1), the CPC made an adjustment of ₹47 lakh without issuing the mandatory show-cause notice contemplated by the first proviso to section 143(1A). The assessee subsequently sought rectification under section 154, explaining that due to an inadvertent error the amount accumulated under section 11(2) had been disclosed in the wrong column of the return, despite Form 10 having been duly filed. The rectification request was rejected on the ground that the issue required a long-drawn process of reasoning.
Before the Tribunal, the assessee submitted that the mistake was purely clerical and had also filed a revised Form 10B correcting the reporting error. It further contended that the adjustment under section 143(1) was itself invalid for want of the mandatory opportunity prescribed under the first proviso to section 143(1A).
The Tribunal observed that the proceedings under section 143(1) were vitiated because the mandatory procedure under the first proviso to section 143(1A) had not been followed. It further held that, where the assessee had claimed that the error was due to an oversight and had even furnished an indemnity bond, the Assessing Officer ought to have appropriately considered the rectification request instead of adopting a purely technical approach.
Accordingly, the ITAT set aside both the orders and restored the matter to the Assessing Officer with directions to consider the revised Form 10B dated 21.05.2026, carry out the rectification if warranted, and recompute the correct income so that the assessee is not unduly penalised for an inadvertent reporting error. The appeals were partly allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This is a batch of two appeals for AY 2020-21 of the same Assessee. For the sake of convenience, both these appeals are being disposed of through a single order.
2. ITA No.8725/Del/2025 arises from order dated 30.10.2025, passed u/s 250 of the Income Tax Act, 1961 (hereinafter as “the Act”), by NFAC. ITA No.8726/Del/2025 arises from order dated 390.10.2025, passed u/s 250 of the Act. While ITA No.8725 is against an order u/s 143(3) passed by Ld. AO (dated 27.09.2022), the appeal in ITA No.8726 arises from an order u/s 154 of the Act dated 09.05.2025, which has been passed by the Ld. AO after rejecting the claim of the assessee.
2.1 The facts of the case need to be briefly captured. The assessee is a charitable organization working for educating young people in India. The assessee filed its return of income in ITR-7 on 31.12.2020. Form 10B was filed on 18.12.2020 and Form 10 was filed on 31.12.2020. The assessee’s case was processed u/s 143(1) of the Act on 30.11.2021 and an adjustment of Rs.47,00,000/- was made apparently without giving a show-cause notice to the assessee as was required under the first proviso to Section 143(1A) of the Act. The assessee’s case was selected for scrutiny and a notice u/s 143(2) of the Act was issued on 30.06.2021. Thereafter, the assessment was completed without any enhancement to income at the stage of assessment proceedings. At assessment stage, following the principle of merger, the upward adjustment made u/s 143(1A) of the Act of Rs.47,00,000/- was retained. Thereafter, the assessee approached the Ld.AO with a rectification application dated 04.11.2026 and again on 16.04.2025. The reasons for rectification as extracted in the Ld. AO’s order dated 09.05.2025 (u/s 154 of the Act) deserve to be mentioned as under: –
1. “That the claim of the amount of Rs.47,00,000/- deemed to be applied as per clause (2) of Explanation to Section 11(1) was wrongly claimed. The amount was shown in column 4(iv) of Schedule T1 Part B instead of column 4(vi) of the Income Tax return filed.
2. That the claim was to be shown under the head “Amount in addition to amount referred to in (iv) above, accumulated or set apart for specified purpose if all the conditions in section 11(2) and 11(5) or third proviso to section 10(23C) are fulfilled.
3. That the assessee had filed a Form-10 as application to Section 11(1) on 31.12.2020 vide receipt no.973330020311220 and a copy of the same has already been filed.
4. That an indemnity bond is enclosed wherein the assessee undertakes to indemnify the Govt. of India for any liability arising out of this claim being allowed.”
This application for rectification was rejected on the ground that the matter involved a long drawn process of reasoning and was therefore beyond the scope of rectification. The assessee approached the CIT(A) where also he could not succeed regarding this rectification matter. Secondly, regarding the 143(3) matter, where effectively no addition was made but the addition made u/s 143(1) of the Act was duly taken into consideration while computing the taxable income of the assessee, here also the assessee could not succeed before the CIT(A) on the ground that the cause of grievance was the 143(1) order and not the 143(3) order which was impugned.
2.2 The aggrieved assessee has approached the ITAT against the order u/s 154 as also the order u/s 143(3) of the Act.
3. The Ld. AR argued with the help of a paper book and written submissions and stated that firstly the very basis for initiating scrutiny was factually wrong as the registration and approval of the assessee was never cancelled or withdrawn, even though this is the reason cited for scrutiny. It was the submission that the assessee has filed a revised Form 10B dated 21.05.2026 through which the amount of Rs.47,00,000/- has been correctly set apart as per Section 11(2) of the Act. It was the submission that the processing u/s 143(1) was legally untenable simply because no opportunity was given to the assessee considering the express directive contained in Section 143(1A), first proviso thereon. It was also the submission that due to an oversight the wrong column was filled up and the correct column was left blank and it was due to this oversight that the assessee is suffering on account of an overly technical approach being adopted by the authorities below. It was the submission that the application u/s 154 itself deserves to be allowed as it was a factual error and did not require any long drawn process of reasoning. It was the submission that in case the rectification application was accepted on the ground or on the basis of the revised Form 10B filed on 21.05.2026, then the grievance of the assessee would be settled.
3.1 The Ld. DR relied on the orders of the authorities below and stated that the assessee was required to adhere to a certain mandated procedure and since the same was not done, hence, he was rightly denied relief. It was also pointed out that the revised Form 10B dated 21.05.2026 has been filed much after any of the orders of authorities below and, therefore, this fact amounts to new evidence which was not before either of the authorities below.
4. We have gone through the records before us and have heard the Ld. AR/DR. Right at the outset, it deserves to be mentioned that the proceedings u/s 143(1) are vitiated due to the non-adherence to the first proviso to Section 143(1A) of the Act. Be that as it may, it would meet the ends of justice, if specifically for ITA 8726 it is directed that the Ld. AO must consider the revised Form 10B dated 21.05.2026 and grant the benefit as would be due to the assessee within law. We may hasten to add that in the face of a claim of oversight for which the assessee has even filed an indemnity bond before the Ld. AO, there should have been an appropriate consideration by the Ld. AO for rectifying the order u/s 143(1) of the Act. Considering the totality of facts and circumstances of the case, the following decision is rendered in these two matters:
a) The impugned orders in both the appeals are set aside;
b) In ITA 8726 the matter is remitted back to the file of Ld. AO for considering the revised Form 10B which has been filed by the assessee on 21.05.2026. The rectification has to be carried out considering this factor; and
c) The matter in ITA 8725 is also remanded back to the file of Ld. AO for considering, along with the rectification application, so that the correct income of the assessee is worked out and the assessee is not unduly penalized for any inadvertent oversight in filing the requisite forms, along with the return of income.
5. In the result, appeals are partly allowed for statistical purposes.
Order pronounced in the open court on 05.08.2026
