Income Tax Exemption : Income Tax Commissioner's Order Set Aside and Appeal of Assessee was Allowed

Income Tax Exemption: Income Tax Commissioner's Order Set Aside and Appeal of Assessee was Allowed

In this case, the AO processed assessee’s return vide intimation dated 25.12.2021 u/s 143(1) at a total income of Rs. 27,42,960/- after denying the exemption claimed by assessee. The assessee filed an application dated 27.03.2023 u/s 154 of Income-tax Act, 1961 to AO seeking rectification of intimation and allowing exemption. The AO, however, rejected assessee’s application vide rectification-order dated 11.05.2023

Setting aside the Order of CIT(A) and allowing appeal, it was noted that the explanation of the assessee that the rectification-order passed by the AO u/s 154 of Income-tax Act, 1961 did not bear a valid Document Identification Number (DIN) and, therefore, the assessee was under a bona fide belief that such order was invalid and non-est in the eyes of law, appears to be reasonable and plausible. It is further observed that immediately upon noticing the outstanding demand, the assessee took corrective steps and filed the appeal alongwith condonation application. It was held that the delay has occurred due to a bona fide misunderstanding and not on account of any deliberate or mala fide conduct. It is a settled principle that substantial justice should prevail over technical considerations. 

So far as the allowability of exemption u/s 11/12 in case of delayed filing or defective filing of audit report in Form No. 10B is concerned, it was noted that the issue is no longer res integra and stands settled in favour of the assessee by various judicial pronouncements as relied upon by the Ld. AR. It is observed that in the present case, the assessee had admittedly filed Form No. 10B before filing of return of income, though without enclosing audited financial statements, which is a procedural lapse. The assessee has subsequently furnished the audited accounts during rectification proceedings and is still willing to furnish the same before the JAO. The consistent view taken by various Hon’ble High Courts and ITAT Benches is that the requirement of filing audit report is directory in nature and the exemption u/s 11/12 cannot be denied merely on account of technical or procedural defects, especially when substantive conditions are fulfilled. Therefore, in the facts of present case, denial of exemption merely for such technical lapse is not justified.

Reference : Savitri Bai Jhawar Seva Nyas v ITO [2026] GCtR 333 (ITAT, Indore)