Sadhubella Education Society Vs ITO (ITAT Mumbai)
Summary: The appeal was filed by Sadhubella Education Society against the order dated 25.11.2025 passed by the National Faceless Appeal Centre (NFAC)/Commissioner of Income Tax (Appeals) under section 250 of the Income-tax Act, 1961 for Assessment Year 2020-21. The Assessee had claimed exemption under sections 11 and 12 by filing its original return on 15.02.2021 declaring nil income and a revised return on 31.05.2021, also declaring nil income. The return was processed under section 143(1) on 24.12.2021, determining total income at Rs. 6,11,36,748/- and taxing it in the status of an Association of Persons. The principal reason stated for denial of exemption was that Form No. 10B, the audit report prescribed under section 12A(1)(b), was allegedly not furnished within the prescribed time.
The Assessee filed its first appeal before the Commissioner on 29.04.2025 with a delay of 1,184 days and also filed an application for condonation supported by an affidavit. The reasons stated included resignation of the old auditors and appointment of a new auditor, difficulties faced by senior citizen trustees in dealing with faceless proceedings and electronic compliance requirements, disruptions caused by the COVID-19 pandemic and lockdowns from March 2020 to March 2022, and bona fide pursuit of alternate remedies, including an application under section 154 which was ultimately rejected. The Commissioner rejected the condonation application, holding that the explanation for the delay was neither continuous nor convincing enough to constitute sufficient cause under section 249(3).
The ITAT, however, noted that although the Commissioner rejected the application for condonation and treated the appeal as barred by limitation, the Commissioner nevertheless proceeded to examine and adjudicate the Assessee’s grounds on merits, including the issue concerning Form No. 10B and denial of exemption under sections 11 and 12. The Tribunal held that once an appellate authority proceeds to examine and adjudicate the issues on merits notwithstanding rejection of the condonation petition, such adjudication amounts to implied condonation of delay. According to the Tribunal, an appellate authority cannot simultaneously dismiss an appeal as barred by limitation and entertain it on merits.
For this proposition, the Tribunal considered Williamson Financial Services Ltd. vs. CIT (2004) 140 taxman.com 246 (Gauhati), where the Gauhati High Court held that once an appeal is found to be barred by limitation, the Tribunal has no jurisdiction to entertain the appeal on merits. The Tribunal also considered Centre for Individual & Corporate Action (CICA) vs. Assistant Commissioner of Income Tax, Business Circle XII, Chennai (2016) 66 taxmann.com 346 (Madras), in which the Madras High Court held that once an appeal is not entertained on the question of delay, there is no question of deciding the issues raised in the appeal on merits. The Tribunal further referred to All Angels Educational Society vs. Chief Commissioner of Income Tax, Chennai-III (2016) 72 taxmann.com 251 (Madras), which was stated to have taken the same view.
The Tribunal consequently held that the delay in filing the appeal before the Commissioner stood impliedly condoned because the appeal had been entertained and adjudicated on merits. It nevertheless proceeded to examine the substantive issue for a just and proper decision and substantial justice.
On merits, the issue was whether the Assessee was entitled to exemption under sections 11 and 12 notwithstanding the alleged delay in filing Form No. 10B. The Tribunal found from the record that the Assessee had filed its original return on 15.02.2021 and revised return on 31.05.2021, and that Form No. 10B had been furnished along with both the original and revised returns. The denial of exemption during processing under section 143(1) appeared to have been made on the ground that Form No. 10B was not filed within the prescribed time.
The Tribunal took note of the fact that the relevant compliance period fell during the unprecedented COVID-19 pandemic. It observed that the CBDT had issued various circulars extending due dates for filing returns of income, audit reports and other statutory forms, and that the due date for furnishing audit reports in Form No. 10B was ultimately extended up to 15.02.2022.
The Tribunal recorded that the Assessee had consistently maintained that Form No. 10B was duly furnished and available on record. It characterised any delay as technical and procedural, noting that the audit report had been obtained and furnished and that the substantive conditions under section 12A(1)(b) had been substantially complied with. The Tribunal further observed that the provisions relating to filing of audit reports are directory in nature and deserve liberal interpretation, particularly where the delay occurred during the COVID-19 pandemic and the requisite audit report was ultimately made available before the authorities.
The Tribunal relied upon Sarvodya Charitable Trust vs. Income Tax Officer (Exemption) (2021) 125 taxmann.com 75 (Gujarat), where the Gujarat High Court was stated to have held that the approach in cases involving delay in filing Form No. 10B should be equitable, balancing and judicious, and that exemption should not be denied merely on the bar of limitation, particularly where the authorities have discretionary powers to condone the delay. The Tribunal also referred to CIT Vs. Gujarat Oil and Allied Industries Ltd. (1993) 201 ITR 325 (Guj.), as cited in Sarvodya Charitable Trust, for the proposition that furnishing the audit report with the return is a procedural requirement, directory in nature, and that substantial compliance would suffice.
The Tribunal further considered the decision of the jurisdictional Bombay High Court in Church of Our Lady of Immaculate Conception vs. Commissioner of Income tax (Exemption) and Ors., Writ Petition (L) No.14461 of 2025, decided on 02.09.2025. That case involved a 29-day delay in filing Form No. 10B. The Bombay High Court, after considering Sarvodaya Charitable Trust and referring to Mirae Asset Foundation, Sau Dwarkabai tai Karwa Charitable Trust and Kotak Family Foundation, took a justice-oriented approach and condoned the delay.
Considering the entirety of the circumstances, including the COVID-19 disruptions, repeated CBDT extensions, the fact that Form No. 10B had been furnished and was available on record, and the principle that substantive benefits should not be denied for mere technical or procedural lapses, the Tribunal held that the delay, if any, in furnishing Form No. 10B deserved to be condoned.
Accordingly, the ITAT set aside the impugned order and directed the jurisdictional Assessing Officer to consider Form No. 10B furnished by the Assessee as validly filed, thereafter examine and verify the merits of the case, and grant the exemption claimed under sections 11 and 12 in accordance with law. The appeal was therefore allowed for statistical purposes in the aforesaid terms. The relief was thus subject to examination and verification by the jurisdictional Assessing Officer and was not an unconditional final grant of exemption by the Tribunal itself.
Cases Discussed
- Williamson Financial Services Ltd. vs. CIT, (2004) 140 taxman.com 246 (Gauhati) — considered on the principle that once an appeal is held to be barred by limitation, the appellate forum cannot proceed to adjudicate the appeal on merits.
- Centre for Individual & Corporate Action (CICA) vs. Assistant Commissioner of Income Tax, Business Circle XII, Chennai, (2016) 66 taxmann.com 346 (Madras) — considered on the principle that an appeal cannot be decided on merits after it has not been entertained because of delay.
- All Angels Educational Society vs. Chief Commissioner of Income Tax, Chennai-III, (2016) 72 taxmann.com 251 (Madras) — referred to for the view that after rejection on limitation, examination of the merits would not arise.
- Sarvodya Charitable Trust vs. Income Tax Officer (Exemption), (2021) 125 taxmann.com 75 (Gujarat) — considered on the directory nature of the Form No. 10B requirement and an equitable approach to delay in furnishing the audit report.
- CIT Vs. Gujarat Oil and Allied Industries Ltd., (1993) 201 ITR 325 (Guj.) — referred to for the proposition that furnishing the audit report with the return is procedural and directory and that substantial compliance can suffice.
- Church of Our Lady of Immaculate Conception vs. Commissioner of Income tax (Exemption) and Ors., Writ Petition (L) No.14461 of 2025, decided on 02.09.2025 — considered on condonation of delay in filing Form No. 10B and the justice-oriented approach adopted by the Bombay High Court.
- Mirae Asset Foundation Vs PCIT-6 — referred to in the Bombay High Court decision reproduced in the order as a case where a similar approach was taken regarding delay in filing Form No. 10B.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal has been preferred by the Assessee against the order dated 25.11.2025 passed by the National Faceless Appeal Centre (NFAC)/Learned Commissioner of Income Tax (Appeals) [hereinafter referred to as “the Ld. Commissioner”] under section 250 of the Income-tax Act, 1961 (“the Act”) for Assessment Year 2020-21.
2. The Assessee, being a society registered under the relevant provisions of law, had claimed exemption under sections 11 and 12 of the Act, by filing its original return of income on 15.02.2021 declaring total income at ‘Nil’, which was subsequently, revised on dated 31.05.2021, declaring the total income at ‘Nil’ itself.
3. The return was subsequently processed under section 143(1) of the Act vide intimation dated 24.12.2021, whereby the total income of the Assessee was computed at Rs. 6,11,36,748/- and brought to tax in the status of an Association of Persons (AOP). The primary reason for denial of exemption was that Form No. 10B, being the audit report prescribed under section 12A(1)(b) of the Act, was allegedly not furnished within the prescribed time.
4. Aggrieved by the aforesaid intimation, the Assessee preferred an 1st appeal before the Ld. Commissioner on dated 29.04.2025, however, with a delay of 1,184 days in filing the same.
5. The Assessee before the Ld. Commissioner, filed an application seeking condonation of delay supported by an affidavit. The reasons assigned for the delay were summarized as under:
i. Resignation of the old auditors and appointment of a new auditor;
ii. Difficulties faced by the senior citizen trustees in handling faceless proceedings and electronic compliance requirements;
iii. Severe disruptions caused by the COVID-19 pandemic and the consequential lockdowns prevailing from March 2020 to March 2022;
iv. Bona fide pursuit of alternate remedies, including filing an application under section 154 of the Act, which ultimately came to be rejected.
6. The Ld. Commissioner, though considered such reasoning of delay by the Assessee however, not being satisfied with the explanation furnished, rejected the application for condonation of delay by observing, more or less as under:
“In the present case, the explanation furnished for the massive delay of over 1184 days from the expiry of the limitation period is neither continuous nor convincing enough to be accepted as ‘sufficient cause’ under section 249(3) of the Income-tax Act, 1961. The failure to file the statutory appeal for over three years after the order was received and the limitation period expired is attributable to the appellant’s own lapse. Therefore, the application for condonation of delay is rejected.”
7. We have carefully considered the rival submissions and perused the material available on record. A perusal of the impugned order reveals that although the Ld. Commissioner rejected the application for condonation of delay and held the appeal to be barred by limitation, he nevertheless proceeded to examine the grounds raised by the Assessee on merits and recorded findings thereon. In particular, the issue relating to filing of Form No. 10B and the consequential denial of exemption under sections 11 and 12 of the Act, was specifically adjudicated.
8. In our considered opinion, once the appellate authority proceeds to examine and adjudicate the issues involved on merits, notwithstanding rejection of the condonation petition, such adjudication amounts to an implied condonation of delay. Having dismiss the appeal as being barred by limitation, the appellate authority cannot entertain the appeal on merits, simultaneously. And if the conclusion has arrived that the appeal is barred by limitation, then the Appellate Authority has no jurisdiction to entertain the appeal on the merits.
9. This Court observe that identical issue has also been dealt with by the Hon’ble Gauhati High Court in the case of Williamson Financial Services Ltd. vs. CIT (2004) 140 taxman.com 246 (Gauhati), wherein the Hon’ble High Court has held as under:
“Once the Tribunal has arrived at the conclusion that the appeal is barred by limitation the Tribunal has no jurisdiction to entertain the appeal of the Revenue on the merits and issue any direction in regard thereto. The Tribunal having committed an error of law in remanding the matter, we allow the appeal filed by the Assessee and set aside the order of remand passed by the Tribunal.”
10. This Court further observe that the Hon’ble High Court of Madras in the case of Centre for Individual & Corporate Action (CICA) vs. Assistant Commissioner of Income Tax, Business Circle XII, Chennai (2016) 66 taxmann.com 346 (Madras) has also dealt with the identical issue and held that once the appeal itself is not entertained on the question of delay, then there is no question of deciding the issue raised in the appeal on merits, by observing and holding as under:
“10. Even at the very outset we find that the procedure adopted by the Tribunal is highly prejudicial to the interests of the appellant-Assessee inasmuch as the Tribunal having decided not to proceed with the matter on the ground of condonation of delay, cannot unilaterally decide the appeals on the merits, more so when the appellant-Assessee was not given proper opportunity to contest the matter in the main appeals on the merits. The order of the Tribunal is also not in consonance with section 253(5) of the Income-tax Act. Section 253(5) of the Income-tax Act mandates that an appeal should be admitted before ever an order is passed on the merits. Once the appeal itself is not entertained, the question of going into the merits of the matter does not arise. We, therefore, find that the order of the Tribunal deciding the appeals of the Assessee on the merits, after dismissing the appeal itself on the question of delay, is an error apparent on the face of the record and that the order passed is without jurisdiction since when there is no appeal, there is no question of deciding the issue raised in the appeal on the merits.
11. The above view of ours is fortified by the decision of the Gauhati High Court in the case of Williamson Financial Services Ltd. v CIT [2003] 262 ITR 595/140 Taxman 246.
12. In view of the reasons abovementioned, we set aside the order of the Tribunal and remand the matters back to the Tribunal for reconsideration. Accordingly, the matters are allowed by way of remand to the Tribunal. Consequently, connected miscellaneous petitions are closed. It is needless to add that while dealing with the condonation of delay issue, the Tribunal shall keep in mind the proceedings which the Assessee first went through even before this order, which goes to show that the Assessee has been acting bona fide and diligently pursuing the matter before the appropriate forum.”
11. This Court further observe that Hon’ble High Court of Madras in another case i.e. All Angels Educational Society vs. Chief Commissioner of Income Tax, Chennai-III (2016) 72 taxmann.com 251 (Madras) also dealt with the identical issue by holding that having rejected the application on the ground of limitation, the question of examining the merits of the matter would not arise, as it is a superseded exercise.
12. From the aforesaid judgments, it is clear that once the Court declined to condone the delay and/or dismissed the appeal of the Assessee in limine for want of limitation, then the Court is not supposed to touch upon the merits of the case and/or is not supposed to decide the case on merits.
13. Thus, respectfully following the dictum laid down in the cases supra we are of the considered view that where an appellate authority proceeds to decide the matter on merits despite recording a finding regarding limitation, the delay stands impliedly condoned. Thus, respectfully following the aforesaid principle, we hold that the delay in filing the appeal before the Ld. Commissioner stood impliedly condoned, when the appeal was entertained and adjudicated on merits. And thus, the impugned order is liable to be set aside, however for just and proper decision of the case and substantial justice, we deem it appropriate to examine the issue on merits.
14. Coming to the merits of the case, it is observed that the sole issue involved is, whether the Assessee is entitled to exemption under sections 11 and 12 of the Act, notwithstanding the alleged delay in filing Form No. 10B. From the record, it is evident that the Assessee filed its original return of income on 15.02.2021 and thereafter filed a revised return on 31.05.2021. It is further evident that Form No. 10B was furnished by the Assessee along with both the original return as well as the revised return. The denial of exemption by the CPC, while processing the return under section 143(1) appears to have been made on the ground that Form No. 10B was not filed within the prescribed time.
15. At this juncture, it would be relevant to note that the relevant compliance period fell during the un-precedented COVID-19 pandemic. Owing to the extraordinary difficulties faced by taxpayers across the country, the Central Board of Direct Taxes (CBDT) issued various circulars extending the due dates for filing returns of income, audit reports and other statutory forms from time to time.
16. The due dates applicable to charitable institutions and trusts were repeatedly extended. Ultimately, the due date for furnishing audit reports in Form No. 10B stood extended up to 15.02.2022 by the CBDT. These extensions were intended to mitigate the genuine hardships faced by taxpayers during the pandemic period.
17. In the present case, the Assessee has consistently maintained that Form No. 10B was duly furnished and was available on record. The delay, if any, was purely technical and procedural in nature. The audit report had been obtained and furnished, and the substantive conditions prescribed under section 12A(1)(b) stood substantially complied with.
18. It is now well-settled that exemption available to a charitable institution cannot ordinarily be denied merely on account of procedural lapses, when the substantive requirements stand fulfilled. The provisions relating to filing of audit reports are directory in nature and deserve liberal interpretation, particularly when the delay occurred during the period severely affected by the COVID-19 pandemic and when the requisite audit report was ultimately made available before the authorities.
19. Further, various judicial pronouncements have consistently held that procedural requirements should not defeat substantive claims for exemption, where no prejudice is caused to the Revenue and the necessary audit report is available on record.
20. The Hon’ble Gujarat High Court, in the case of Sarvodya Charitable Trust vs. Income Tax Officer (Exemption) (2021) 125 taxmann.com 75 (Gujarat), has settled the issue that filing of audited report in Form No. 10B is directory in nature and the approach of the authorities ought to be equitous /balancing and judicious and availing of exemption should not be denied merely on the bar of limitation. This is more so, when the legislature has conferred vide discretionary powers to condone the delay on the authorities concerned. For brevity and ready reference, the conclusion drawn by the Hon’ble Gujarat High Court, is reproduced herein below: –
“That in the cases of delay in filing form 10B the approach of the authorities ought to be equitious, balancing and judicious. Further, availing of exemption should not be denied merely on the bar of limitation especially when the legislature has conferred wide discretionary powers to condone such delay on the authorities concerned. This Court in CIT Vs. Gujarat Oil and Allied Industries Ltd. (1993) 201 ITR 325 (Guj) has also held that provision regarding furnishing of audit report with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice Benefit of exemption should not be denied merely on account of delay in furnishing the same and it is permissible for the Assessee to produce the audit report at a later stage either before the Income Tax Officer or before the appellate authority by assigning sufficient cause”
21. We further observe that Hon’ble Jurisdictional High Court in the case of Church of Our Lady of Immaculate Conception vs. Commissioner of Income tax (Exemption) and Ors., in (Writ Petition (L) No.14461 of 2025 ITA 1892/MUM/2026 ST STANISLAUS INSTITUTION 3 decided on 02.09.2025) has also dealt with identical case, wherein there was a delay of 29 days in filing of Form-10B. The Hon’ble Jurisdictional High Court by considering the judgment of the Hon’ble Gujarat High Court i.e., Sarvodaya Charitable Trust case (supra), ultimately condoned the delay in 10B of the Act, by observing and holding as under:
“9. Having heard the learned Counsel for the parties, we agree with the contentions of the Petitioner. We find that admittedly there was only a 29 day delay in filing Form No.10B. In the present case, when one considers that Respondent No. 1 never doubted the factual situation put forth by the Petitioner to explain the delay, Respondent No.1 ought to have condoned the delay. We find that if this delay is not condoned, there will be genuine hardship to the Petitioner, inasmuch as, the Petitioner would be denied the exemption otherwise claimed under the provisions of Section 11 of the Act and which is a substantial amount.
10. We are of the view that Respondent No.1 ought to have taken a justice oriented approach rather than a pedantic one, and condoned the delay. We also find that in similar facts, this Court in the case of Mirae Asset Foundation (supra), Sau Dwarkabai tai Karwa Charitable Trust (supra) and Kotak Family Foundation (supra) has taken a similar view and condoned the delay. Even the Hon’ble Gujarat High Court in the case of Sarvodaya Charitable Trust (supra) took the view that in cases like the present one (delay in filing Form No.10B), the approach of the authorities ought to be equitious, balancing and judicious and availing of exemption should not be denied merely on the bar of limitation. This is more so, when the legislature has conferred wide discretionary powers to condone the delay on the authorities concerned. The relevant portion of this decision reads thus:-
“31. Having given our due consideration to all the relevant aspects of the matter, we are of the view that the approach in the cases of the present type should be equitious, balancing and judicious. Technically, strictly and liberally speaking, the respondent no. 2 might be justified in denying the exemption under section 12 of the Act by rejecting such condonation application, but an assessee, a public charitable trust past 30 years who substantially satisfies the condonation for availing such exemption, should not be denied the same merely on the bar of limitation especially when the legislature has conferred wide discretionary powers to condone such delay on the authorities concerned.
32. We may also refer to the decision of this Court in CIT. v. Gujarat Oil and Allied Industries Ltd. [1993] 201 ITR 325 (Guj.), wherein it is held that the provision regarding furnishing of audit report with the return has to be treated us a procedural proviso. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report along with the return of income but produced the same before the completion of the assessment. This Court took the view that the benefit of exemption should not be denied merely on account of delay in furnishing the same and it is permissible for the assessee to produce the audit report at a later stage either before the Income Tax Officer or before the appellate authority by assigning sufficient cause.”
11. In view of the foregoing discussion, we hereby quash and set aside the impugned order dated 30th January 2025 passed by Respondent No.1 under Section 119(2)(b) of the Act. 12. Now that the impugned order is quashed, we also hereby condone the delay in filing Form No. 10B by the Petitioner.”
22. Thus, considering the entirety of the facts and circumstances of the case, particularly:(a) the unprecedented disruptions caused by the COVID-19 pandemic; (b) the repeated extensions granted by the CBDT for filing statutory forms and returns; (c) the fact that Form No. 10B had been furnished by the Assessee and was made available on record; and (d) the settled principle that substantive benefits should not be denied for mere technical or procedural lapses, we are of the considered view that the delay, if any, in furnishing Form No. 10B deserves to be condoned.
23. Accordingly, the impugned order is set aside and the jurisdictional Assessing Officer (JAO) is directed to consider Form No. 10B furnished by the Assessee as validly filed and thereafter examine and verify the merits of the case and grant the exemption claimed under sections 11 and 12 of the Act, in accordance with law.
24. In the result, the appeal of the Assessee is allowed for statistical purposes, in the aforesaid terms.
Order pronounced in the open court on 18.06.2026.
