ITO Vs Chinchwad Shikshan Prasarak Mandal (ITAT Pune)
Once Form 10B Delay Is Condoned, Exemption u/s 11 Cannot Remain Confiscated: ₹5.30 Crore CPC Adjustment Deleted
Background
The assessee was a charitable trust which electronically filed its return of income for AY 2018-19 declaring nil income after claiming exemption u/s 11.
The return was processed by the Centralised Processing Centre. Since the Trust had not filed its audit report in Form No. 10B within the prescribed time, the CPC issued an intimation u/s 143(1)(a) proposing an adjustment of ₹5,30,10,522. The adjustment principally arose from the denial of exemption u/s 11 due to the delayed filing of the audit report.
The case was subsequently selected for limited scrutiny through CASS. The specific scrutiny issue was described as “Transaction of Trust with Specified Persons”, particularly large payments by way of salary, rent, interest or similar amounts to persons covered by the specified-person provisions.
Statutory notices were validly served upon the Trust. However, it failed to participate in the assessment proceedings or furnish the information called for by the AO.
AO Accepts CPC Computation
The AO observed that the CPC had already denied the exemption claimed u/s 11 because of the delayed filing of Form 10B. According to him, the resulting adjustment also subsumed the issue for which the case had been selected for limited scrutiny.
On that basis, the AO did not separately examine the transactions between the Trust & its specified persons. He merely accepted the income computed by the CPC & completed the assessment u/s 143(3) r.w.s. 144B on 21.08.2021.
Thus, while the assessment formally originated from the limited-scrutiny selection, the central CASS issue was never examined on merits.
Delay in Form 10B Subsequently Condoned
The Trust approached the CIT (Exemption) with an application seeking condonation of the delay in filing Form 10B.
Exercising the powers available u/s 119(2)(b) read with CBDT Circular No. 2/2020 dated 03.01.2020, the CIT (Exemption), Pune condoned the delay for AY 2018-19.
Armed with the condonation order, the Trust challenged the assessment before the CIT(A). It contended that once the competent authority had condoned the delay, exemption u/s 11 could no longer be denied merely because Form 10B had originally been filed beyond time.
CIT(A) Deletes Adjustment but Restores CASS Issue
The CIT(A) accepted the Trust’s contention. Once the delayed audit report had been regularised through an order u/s 119(2)(b), the technical foundation for denying exemption u/s 11 ceased to exist. The claim for exemption was therefore required to be considered on merits.
At the same time, the CIT(A) noticed that the AO had never examined the actual CASS reason concerning payments to specified persons. The AO had assumed that denial of the entire exemption through the CPC adjustment made a separate examination unnecessary.
Since the very foundation of that assumption had disappeared after condonation of the Form 10B delay, the CIT(A) restored the limited-scrutiny issue to the jurisdictional AO for examination.
Revenue Challenges the Appellate Directions
The Revenue approached the Tribunal with two principal objections.
First, it contended that the CIT(A) had exceeded his jurisdiction by setting aside the issue to the AO. According to the Revenue, such power was available only in the statutorily recognised category of assessments completed u/s 144, whereas the impugned assessment had been completed u/s 143(3) r.w.s. 144B.
Second, the Revenue argued that the CIT(A) had considered additional evidence—particularly the subsequent condonation order—without granting the AO an opportunity to examine or respond to it.
The Trust supported the CIT(A)’s order.
Condonation Removes the Technical Obstacle
The ITAT observed that the CPC adjustment of ₹5.30 crore was principally attributable to the delayed filing of Form 10B. The competent authority had subsequently condoned that delay.
Once the delay stood condoned, the procedural lapse could not continue to operate against the Trust. The very purpose of condonation is to regularise delayed compliance. It would therefore be contradictory to recognise the condonation order but still sustain the tax consequence arising exclusively from that delay.
Accordingly, the Tribunal held that the CIT(A) had rightly deleted the CPC adjustment arising from the delayed audit report.
Limited-Scrutiny Issue Still Requires Examination
The ITAT then considered the CIT(A)’s direction concerning transactions with specified persons.
The Trust had not participated in the assessment proceedings. Consequently, the AO did not have the necessary particulars to examine the issue. Further, the AO himself had not investigated the specified-person transactions because he believed that denial of the entire s.11 exemption had already absorbed the CASS issue.
After the delay in Form 10B was condoned & the exemption claim revived, it became necessary to examine the original limited-scrutiny issue independently.
The Tribunal therefore found no reason to interfere with the direction requiring the AO to examine the specified-person transactions. The Revenue’s grounds were dismissed, & its appeal was dismissed in full.
Author’s Comments
The ruling rests on a simple proposition: condonation must carry consequences. Once the competent authority condones the delay in filing Form 10B, the audit report must be treated as regularised. A denial of exemption based solely on the original delay cannot thereafter survive.
However, restoration of the exemption claim does not grant the Trust an unquestioned exemption. Payments to specified persons may still attract scrutiny under provisions such as ss.13(1)(c) & 13(3). The Trust must establish that payments of salary, rent, interest or other benefits were genuine, reasonable & not excessive.
The order also presents an interesting procedural aspect. The Revenue specifically questioned the CIT(A)’s power to set aside an assessment completed u/s 143(3). The Tribunal upheld the direction primarily because the CASS issue had never been examined, though it did not undertake an elaborate analysis of the precise scope of the CIT(A)’s powers u/s 251.
Substantively, the outcome balances both sides: the Trust is protected from a technical denial already cured through condonation, while the Revenue retains the right to examine the genuine limited-scrutiny issue. Form 10B reopened the door to exemption—but transactions with specified persons must still pass through it.
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, PUNE BENCH
The captioned appeal at the instance of Revenue pertaining to A.Y.2018-19 is against the order dated 07.11.2025 framed by National Faceless Appeal Centre, Delhi passed u/s.250 of the Income Tax Act, 1961 (in short ‘the Act) arising out of Assessment order dated 21.08.2021 passed u/s.143(3) r.w.s.144B of the Act.
2. The grievance of the Revenue is two fold, firstly that ld.CIT(A) has acted beyond jurisdiction by setting aside the issues to the file of ld. Jurisdictional Assessing Officer ignoring the fact that such powers are available only in case of the assessment orders passed u/s.144 of the Act and not u/s.143(3) of the Act and secondly ld.CIT(A) erred in considering the additional evidences without giving any opportunity to the Assessing Officer to examine these evidences.
3. We have heard the rival submissions and perused the record placed before us. We observe that the assessee is a trust and e-filed its return of income for A.Y. 2018-19 declaring Nil income. After the case selected for Limited Scrutiny through CASS followed by validly serving statutory notices, ld. Assessing Officer carried out assessment proceedings u/s.143(3) r.w.s.144B of the Act for examining the issue of “Transaction of Trust with Specified Persons”. Ld. Assessing Officer observed that the CPC issued intimation u/s.143(1)(a) of the Act proposing adjustment of Rs.5,30,10,522/- mainly for delay in filing of Audit Report on Form No.10B. Ld. Assessing Officer during the course of assessment proceedings asked the assessee to file submissions to which assessee failed to make any compliance and thus ld. Assessing Officer completed the assessment accepting the income computed by CPC. Thereafter, the assessee preferred appeal before ld.CIT(A) and ld.CIT(A) set aside the issues to the file of ld. Jurisdictional Assessing Officer to examined the CASS reasons observing as follows :
“6.0 I have carefully considered the assessment order, the grounds of appeal and the appellant’s statement of facts along with the written submission filed. The appellant submitted condonation order u/s 119(2)(b) wherein, in exercise of powers vested u/s119(2) (b) of the IT Act and Circular No. 2/2020 dated 03/01/2020, the CIT Exemption, Pune has condoned the delay in filing of Form 10B for AY 2018-19. In light of the same, I see no reason to uphold assessing officer’s denial of exemption claimed u/s 11 on technical grounds. The appellant’s claim for exemption u/s 11 may be decided on merits.
6.1 However, the CASS reason for which the case was selected for scrutiny was not examined/discussed on merits in the assessment order on the ground that the same is subsumed in denial of exemption u/s 11. The relevant portion of the order is reproduced below:
11. Since, the disallowance of exemption claimed u/s 11 of the Income-tax Act claimed by the assessee has already been considered u/s 143(1) of the Act, which inter-alia includes the issue on which the case was selected for Limited Scrutiny, по further disallowance is made as per this order passed u/s 143 (3) read with section. 144B of the Income Tax Act, 1961.
12. Accordingly, the taxable total income of the assessee is assessed u/s 143(3) read with section 144B of the Income Tax Act, 1961. The assessed total income is computed as per the following table:
6.2 In view of the above, the case is set aside to the file of the assessing officer to examine the issue of “Large payment of salary, rent, interest, etc. made to specified persons” as per CASS reasons.
Conclusion:
As a result, the appellant’s appeal is set aside to the file of AO to examine the CASS reasons.”
4. From the perusal of the above finding of ld.CIT(A), we notice that ld. Assessing Officer was required to carry out scrutiny for the limited purpose of examining the issue of “Transaction of Trust with Specified Persons”. Ld.CIT(A) has also observed that the asessee’s application for condonation of delay in filing of Audit Report on Form 10B for A.Y. 2018-19 was accepted by ld.CIT(Exemption), Pune condoning the delay. Under these given facts and circumstances, since the addition made by CPC was mainly on account of delay in filing of the Audit Report and the said delay already stands condoned, therefore, the adjustment proposed by the CPC has rightly been deleted by ld.CIT(A).
5. So far as direction of the ld.CIT(A) for examining the issue for selection of Limited Scrutiny through CASS, we fail to find any reason to interfere as the assessee did not participate in the assessment proceedings and that ld.Assessing Officer has not examined the issue of Transaction of Trust with Specified Persons in the course of assessment proceedings. Grounds of appeal raised by the Revenue are accordingly dismissed.
6. In the result, the appeal of the Revenue is dismissed.
Order pronounced on this 02nd day of September, 2026.
