Society for Creation of Opportunities Vs ITO (ITAT Ahmedabad)
Substance Over Form- Wrong ITR Form Can’t Deny Substantive Exemption -Educational Society Financed by Govt. Entitled to 10(23C)(iiiab)
Assessee, SCOPE, an educational society substantially financed by the Government of Gujarat, filed its return of income for AY 2012-13 in Form ITR-5 instead of the prescribed Form ITR-7. In the return filed on 31.03.2013, it declared NIL income after claiming exemption of ₹16.30 crore under section 10(23C)(iiiab). Since the wrong form was used, CPC processed the return u/s 143(1) & treated the entire receipts as taxable income, raising a tax demand of ₹6.51 crore. CIT(A) upheld this action, holding that filing the correct form was mandatory & relying on the decision of the Supreme Court in Goetze India Ltd. to state that claims not made in the original return could not be entertained otherwise.
Before Tribunal, Assessee explained that the mistake occurred due to administrative issues, frequent staff changes, & misplacement of records. It contended that it was unaware of the denial until a recovery notice was issued in 2018. The society produced audited accounts, government grant orders, & evidence to show that more than 50% of its funding came from the Government of Gujarat, thus satisfying Rule 2BBB & making it fully eligible for exemption under section 10(23C)(iiiab). It was argued that a bona fide & technical error in form selection cannot deprive Assessee of a substantive exemption otherwise legally available.
Tribunal agreed, holding that Assessee had fulfilled all substantive conditions for exemption & that the sole ground for denial was a technical error in return filing. Relying on judicial precedents including Shahu Shikshan Prasarak Mandal v. ACIT (2025 ITAT Pune), Kathikode Charitable Trust v. ITO (2024 ITAT Cochin), & Desh Bharti Public School Samiti v. DCIT (2022 ITAT Lucknow), Tribunal ruled that procedural lapses should not defeat substantive rights. Accordingly, it set aside the orders of CPC & CIT(A), allowed exemption u/s 10(23C)(iiiab) & deleted the tax demand of ₹6.51 crore.
In conclusion, Tribunal reinforced that educational institutions substantially funded by the Government cannot be denied exemption on account of a mere technical error in filing the wrong ITR form, as substance must prevail over form.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), (in short “Ld. CIT(A)”), ADDL/JCIT (A)-5, Delhi vide order dated 17.01.2025 passed for A.Y. 2012-13.
2. The assessee has raised the following grounds of appeal:
“1. That on facts, in law, and on evidence on record, the learned Addl/JCIT(A)-5, Delhi has grievously erred in confirming the rejection of claim of exemption u/s 10(23C)(iiiab) of the Act.
2. That on facts, in law, and on evidence on record, the learned Addl/JCIT (A)-5, Delhi ought to have considered the fact that the appellant ahs filed the return of income in the correct Form ITR-7 on 31/03/2013, which is a valid return, and the exemption ought to have been granted u/s 10(23C) (iiiab) of the Act as prayed for.
3. That in the alternate, and without prejudice to the above grounds of appeal, the CPC and Addl / JCIT(A)-5, Delhi has grievously erred in confirming the addition of gross receipts of Rs. 16,30,63,750/- without granting deduction of the expenses incurred by the appellant.
4. The appellant craves leave to add, alter, amend any ground of appeal.”
3. The brief facts of the case are that in the case of the assessee, the Assessing Officer CPC, raised a tax demand of ₹6,51,13,960/- by disallowing the exemption claimed under Section 10(23C)(iiiab) of the Income Tax Act, 1961 (Act) for A.Y. 2012–13. The cause for this disallowance was the assessee’s failure to file its return in the correct statutory form. The assessee, though eligible for exemption as it was substantially financed by the Government of Gujarat, erroneously filed its return in Form ITR-5 instead of Form ITR-7, which is the prescribed form for entities claiming exemption under Section 10(23C) of the Act. In the return filed by the assessee on 31.03.2013, he declared total income as NIL after claiming exemption of ₹16,30,63,750/-. However, due to the incorrect form, the AO processed the return under Section 143(1) of the Act and treated the entire receipts as taxable income.
4. Before CIT(Appeals), the assessee contended that the error was inadvertent and caused by internal administrative issues which included frequent changes in staff and misplacement of documents. The assessee submitted that there was a delay in discovering the tax since the assessee did not receive copy of the intimation under Section 143(1) of the Act and the assessee came to know about denial of exemption only when the assessee received recovery letter dated 16.08.2018 towards recovery of outstanding demand. The assessee submitted that that it was substantially financed by the Government of Gujarat and was thus clearly entitled to exemption under Section 10(23C)(iiiab), read with Rule 2BBB of the Income Tax Rules, 1962. The assessee submitted supporting documents viz. Grant Orders, audited financial statements, and evidence of more than 50% of its funding being through Government grants during the relevant assessment year under consideration. The CIT(A), while admitting the appeal and condoning the delay, dismissed the appeal on merits. The CIT(Appeals) held that procedural compliance is mandatory, and filing the return in the prescribed form is not a mere technicality but a legal requirement. Since the return was filed in Form ITR-5 instead of ITR-7, the exemption claim was considered invalid. The CIT(A) relied on judicial precedents, including Goetze India Ltd. vs. CIT, to hold that a claim for exemption or deduction not made in the original return could only be entertained through a revised return filed within the statutory time limit. Since the time for filing a revised return had lapsed, and no rectification was processed, the assessee’s exemption claim could not be allowed. Accordingly, CIT(Appeals) held that the assessee’s failure to comply with the mandatory return-filing format rendered its exemption claim untenable. Consequently, the appeal of the assessee was dismissed, and the tax demand of ₹6,51,13,960/- was upheld.
5. The assessee is in appeal before us against the order passed by CIT(Appeals) dismissing the appeal of the assessee. Before us, the ld. counsel for the assessee reiterated the submissions made before CIT(Appeals). In response, Ld. DR placed reliance on the observations made by the Assessing Officer and CIT(Appeals) in their respective orders.
6. We have heard the rival contentions and perused the material on record. We note that while dealing with identical set of facts, ITAT Pune in the case of Shahu Shikshan Prasarak Mandal vs. ACIT (Exmp.) [2025] 171 com346 (Pune-Trib.)[15-01-2025] held that where assessee, educational trust, filed its return in ITR-5 instead of ITR-7 but had evidently demonstrated that it was eligible for claim of exemption under section 10(23C) and all conditions laid therein had been duly satisfied by assessee trust, matter was to be remanded to Assessing Officer to verify claim of assessee afresh. In the case of Kathikode Charitable Trust vs. Income-tax Officer [2024] 162 taxmann.com 866 (Cochin – Trib.)/[2024] 207 ITD 588 (Cochin – Trib.)[10-05-2024], ITAT held that where assessee-trust filed its return in Form 5 claiming loss, which was meant for business income, however, it was a charitable trust working for promotion of education, culture and philosophy, since returning income in a wrong Form could not result in converting loss into income, Assessing Officer was to be directed to consider assessee’s return as a rectification petition. In the case of Desh Bharti Public School Samiti vs. Assessing Officer/Deputy Commissioner of Income-tax [2022] 139 taxmann.com 231 (Lucknow-Trib.)/[2022] 195 ITD 600 (Lucknow-Trib.)[05-04-2022], ITAT held that where assessee, a trust, in earlier years had been claiming exemption under section 10(23C) and it got registration under section 12A on 02-09-2014 and it in return filed for assessment year 2014-15 claimed exempt income under section 10(23C) instead of claiming same under section 12A, mistake had occurred as a human error and thus Assessing Officer was to be directed to allow exemption under section 12A of the Act.
7. In view of the foregoing, and having regard to the facts and circumstances of the case, it is evident that the assessee was substantially financed by the Government of Gujarat during the relevant assessment year and had duly satisfied the conditions for claiming exemption under Section 10(23C)(iiiab) read with Rule 2BBB of the Income Tax Rules, 1962. The only basis for denial of such exemption was the inadvertent filing of the return in Form ITR-5 instead of the prescribed Form ITR-7. The assessee had placed on record sufficient documentary evidence including audited financials and Government grant orders substantiating its eligibility for the exemption claimed. We find merit in the contention of the assessee that the mistake in form selection was a bona fide and technical error, and the same cannot be a valid ground to deny a substantive exemption otherwise legally available under the Act. Support on this issue is also drawn from various decisions including Shahu Shikshan Prasarak Mandal vs. ACIT (Exmp.) [2025] 171 taxmann.com 346 (Pune-Trib.), Kathikode Charitable Trust vs. ITO [2024] 162 taxmann.com 866 (Cochin-Trib.), and Desh Bharti Public School Samiti vs. DCIT [2022] 139 taxmann.com 231 (Lucknow-Trib.), wherein the Hon’ble Tribunals have consistently held that technical errors in filing of returns should not override the legitimate entitlement of exemption under the Act, particularly when all conditions for such exemption stand duly satisfied. Accordingly, we are of the considered view that the exemption under Section 10(23C)(iiiab) ought to have been allowed to the assessee. The disallowance made by the Assessing Officer and upheld by the CIT(Appeals) is, therefore, not sustainable in law. The demand raised on the assessee on account of denial of exemption is hereby directed to be deleted.
8. In the result, the appeal of the assessee is allowed.
This Order pronounced in Open Court on 16/09/2025
