Introduction
The Income Tax Appellate Tribunal (ITAT), Bangalore Bench, delivered a significant ruling in ITA No. 2617/Bang/2025 for Assessment Year 2018-19, concerning the charitable trust Anasuya Foundation. The core controversy revolved around the belated filing of Form No. 10B—the mandatory audit report required under Section 12A(1)(b) of the Income Tax Act, 1961, read with Rule 12(2) of the Income Tax Rules. This case commentary examines the ITAT’s decision to allow the assessee’s appeal, holding that the time limit for furnishing Form 10B is directory and not mandatory, provided the report is available before the appellate authority. The ruling reinforces the liberal interpretation of procedural compliance for charitable trusts, distinguishing the Supreme Court’s decision in Wipro Ltd. (2022) and aligning with the Gujarat High Court’s precedent in Laxmanarayan Dev Shrishan Seva Khendra (2024). The decision has far-reaching implications for trusts claiming exemption under Section 11, especially where inadvertent delays occur in uploading audit reports.
Facts
The assessee, Anasuya Foundation, a charitable trust registered under Section 12AA, filed its return of income on 31 August 2018 (the due date). Although it obtained Audit Report in Form No. 10B on 23 June 2018, it failed to upload it electronically before the filing deadline due to oversight. The return was processed under Section 143(1) on 4 March 2020, wherein the Assessing Officer (AO) denied the claim of: (a) application of income on revenue account of ₹38,52,101, and (b) accumulation of income of ₹38,37,000. The total income was computed at ₹76,74,000 against the returned income of ₹38,21,898.
The assessee later uploaded Form 10B on 26 March 2025, during the pendency of the appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) dismissed the appeal, citing Circular No. 16/2024 dated 18.11.2024, which required a condonation petition for such delays, and held that the statutory timeline for filing Form 10B is mandatory. Aggrieved, the assessee approached the ITAT.
Reasoning
The ITAT’s reasoning forms the most extensive part of the order and is grounded in a careful analysis of statutory provisions, judicial precedents, and the facts of the case.
1. Nature of the Requirement – Directory vs. Mandatory
The ITAT first examined the argument that Section 12A(1)(b) read with Rule 12(2) mandates the furnishing of Form 10B before the due date of the return of income. The Revenue argued that a statutory timeline cannot be treated as directory; otherwise, other deadlines (e.g., for filing returns, framing assessment orders) would also become non-binding, rendering the Act unworkable. However, the ITAT observed that the Gujarat High Court, in Laxmanarayan Dev Shrishan Seva Khendra (167 taxmann.com 548), directly addressed this issue for the assessment year 2017-18. In that case, Form 10B was uploaded during the pendency of the appeal before the CIT(A). The High Court held that the time limit for filing the audit report is directory, not mandatory, and the benefit of Section 11 cannot be denied if the report is available before the lower authorities before they pass the final order.
2. Distinguishing the Supreme Court’s Decision in Wipro Ltd.
The Revenue heavily relied on the Supreme Court’s judgment in Wipro Ltd. (446 ITR 1 SC), where the requirement under Section 10B(8)—to file an undertaking before the due date of return—was held to be mandatory. The ITAT, following the Gujarat High Court, distinguished this precedent. Section 10B(8) deals with 100% exemption for newly established Export Oriented Undertakings and contains a specific penal consequence for non-compliance (the exemption shall not apply). In contrast, Section 12A(1)(b) read with Section 11 does not impose such a draconian consequence; the failure to file Form 10B within time does not automatically extinguish the exemption. The Supreme Court’s ruling was confined to the unique language of Section 10B(8) and has no bearing on the charitable trust regime.
3. Applicability of Coordinate Bench Decisions
The assessee cited the ITAT Bangalore’s decision in Arham Mitra Mandalin (ITA No. 1110/Bang/2023, dated 27.06.2024), which held that filing Form 10B along with the return is directory. However, the ITAT noted a factual distinction: in Arham Mitra Mandalin, the audit report was available before the AO when the intimation under Section 143(1) was passed. In the present case, the report was not available at that stage. Nevertheless, the ITAT found that the Gujarat High Court’s decision—where the report was filed during appellate proceedings—squarely covers the present situation.
4. Role of the CIT(A) and Circular No. 16/2024
The CIT(A) had dismissed the appeal on the ground that condonation of delay lies only with the Central Board of Direct Taxes (CBDT) under Circular No. 16/2024, and the CIT(A) lacked power. The ITAT, however, held that the CIT(A) is a quasi-judicial authority and can consider the audit report as valid if it is placed on record before passing the appellate order, especially when the assessee had already filed a condonation petition. The Gujarat High Court in Laxmanarayan Dev Shrishan Seva Khendra upheld the CIT(A)’s power to accept belatedly filed Form 10B during appeal. The ITAT therefore directed that the CIT(A) should have entertained the audit report and allowed the claim.
5. Practical Implications for Charitable Trusts
The decision reinforces that the primary purpose of Form 10B is to ensure the genuineness of the trust’s accounts, not to create a procedural trap. The ITAT observed that the assessee had obtained the audit report before the due date of the return, and only the electronic upload was delayed. The report was eventually uploaded before the CIT(A) could pass the final order. In such cases, the object of the provision—to verify the application of income—is fully satisfied. Denying the exemption would cause substantial hardship without serving any revenue purpose.
Conclusion
The ITAT allowed the appeal of Anasuya Foundation and directed the Assessing Officer to grant the benefit of deduction on application of income (₹38,52,101) and accumulation of income (₹38,37,000) under Section 11. The Tribunal held that the time limit for filing Form 10B under Section 12A(1)(b) is directory, and the belated filing during the pendency of appellate proceedings was sufficient to claim the exemption. The decision is a landmark for charitable trusts, as it clarifies that inadvertent delays in uploading audit reports will not defeat substantive relief if the report is available before the final adjudication. The ITAT’s reliance on the Gujarat High Court’s reasoning—distinguishing Wipro Ltd.—provides a robust safeguard against procedural rigidity. Tax practitioners and trusts must, however, note that the decision does not permit unlimited delays; the audit report should be filed at the earliest opportunity, and condonation may still be required under Circular 16/2024.