Why is Audit of Charitable & Religious Trusts or institutions Required

The principal aim of this audit is to enable the assessing officer to satisfy himself about the genuineness of the claim for exemption under clauses (iv), (v), (vi) and (via) of section 10(23C) or under section 11/12 and also whether the institution has complied with all the requirements prescribed by the statute. The accountant shall satisfy himself about compliance with the provisions of the Act by the institution in respect of maintenance of proper books of accounts, information and returns from branches and other relevant records. The accountant has to examine the balance sheet, Income & Expenditure Account and the profit and loss and give an opinion whether they exhibit a true and fair view.

Form 10B/10BB is an Audit Report for Charitable Trusts or institution and applicable to following

(i)           A fund or institution or trust or any university or other educational institution or any hospital or other medical institution whose income is exempt under clauses (iv), (v), (vi) and (via) of section 10(23C).

(ii)         A fund or institution or trust whose income is eligible for benefit of section 11/12

(ii)

Form 10B/10BB is required to be filed if the total income of the eligible trusts, before considering benefit of section 10(23C) or section 11/12 exceeds Rs. 250,000

Rationale Behind New revised Forms 10B and 10BB

§   Pre-amended Form 10B was in force with effect from 01.04.1973 & Form 10BB was in force with effect from 25.07.2006.

§   On 21.05.2019, CBDT released a draft notification with modified 8 pages of Form 10B, which was also put in the public domain for public comments but never made effective.

§   Every year, a number of amendments were made for charitable institutions including bringing uniformity in two regimes [Section 12AB and 10(23C)].

§   Present Form 10B/10BB does not include various data being used to fill ITR -7.

§   Hence, there seems to be a rationale for modifying Form 10B/10BB in the present context of charity taxation and the requirement of ITR 7 vis-à-vis the requirement of conditions for renewal of registration.

§   The amended Form 10B is very comprehensive, and the key information is to be filled in (with code number) as mentioned in the notes, therefore, easy to analyse the data and capture the related information by the Income Tax department.

Applicability of the revised Forms 10B and 10BB

The Central Board of Direct Taxes (CBDT) vide Notification No. 7/2023, Dated 21.02.2023 has notified new audit reports in Form 10B and Form 10BB to be furnished by charitable trusts, religious trusts and other institutions.

Shifted the focus of the applicability of forms for furnishing the tax audit report from the basis of registration to the basis of total income [With effect from Assessment year 2023-24]

The amendment made by CBDT vide Notification No. 7/2023 in GSR 118(E) dated 21.02.2023 and through ​Income-tax (3rd Amendment) Rules, 2023 has shifted the focus of the applicability of forms for furnishing the tax audit report from the basis of registration to the basis of total income. Prior to the amendment, Form No. 10B was required to be filed by a trust or institution registered under section 12A of the Act while the institutions or funds approved under section 10(23C) were required to furnish their tax audit reports in Form No. 10BB.

Common Form depending on certain criteria [With effect from Assessment year 2023-24]

Rule 16CC and Rule 17B of the Income-Tax Rules, 1962 have been substituted with effect from 01.04.2023 vide Income-tax amendment (3^rd Amendment) Rules, 2023 and as per the amended Rules, common forms have been prescribed for organisations registered under section 12AB and the organisations registered under section 10(23C) subject to fulfillment of certain criteria.

Applicable up to Assessment year 2022-23

While earlier Form 10B was for organisations registered under section 12AB, and form 10BB was for organisations approved under section 10(23C), from Financial Year 2023-24, Form 10B shall be applicable for both, organisations registered under section 12AB and to organisations registered under section 10(23C) depending on certain factors. In like manner Form 10BB would be applicable for both, organisations registered under section 12AB and organisations registered under section 10(23C) depending on certain factors.

Audit report - Form 10B & 10BB

Contents of Form 10B and Form 10BB

 Comparison of Previous Form 10B and form 10BB and New Form 10B and form 10BB

 When Audit is required

[1]  Trust or institution or university or other educational institution or hospital or other medical institution shall keep and maintain books of account and other documents get its accounts audited [Tenth proviso to clause (23C) of section 10]

The Finance Act, 2022, with effect from 01.04.2023 has substituted tenth proviso so as to provide that such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall keep and maintain books of account and other documents in such form and manner and at such place, as may be prescribed; and get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB (i.e., one month prior to the due date for filing of return under sub-section (1) of section 139) and furnish by that date.

Text of tenth proviso to clause (23C) of Section 10

^[1][PROVIDED ALSO that where the total income of the fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), without giving effect to the provisions of the said sub-clauses, exceeds the maximum amount which is not chargeable to tax in any previous year, such fund or institution or trust or any university or other educational institution or any hospital or other medical institution shall –

(a) keep and maintain books of account and other documents in such form and manner and at such place, as may be prescribed; and

(b) get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and furnish by that date, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:]

KEY NOTE

1. Substituted by the Finance Act, 2022, with effect from 01.04.2023. Prior to its substitution, tenth proviso to clause (23C) of Section 10 read as under :

“PROVIDED ALSO that where the total income, of the fund or trust or institution or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via), without giving effect to the provisions of the said sub-clauses, exceeds the maximum amount which is not chargeable to tax in any previous year, such trust or institution or any university or other educational institution or any hospital or other medical institution shall get its accounts audited in respect of that year by an accountant as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and furnish by that date, the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed:”

Form of report of audit prescribed under tenth proviso to section 10(23C) [Rule 16CC]

Text of Rule 16CC

^[1][16CC. Form of report of audit prescribed under tenth proviso to section 10(23C)

The report of audit of the accounts of a fund or institution or trust or any university or other educational institution or any hospital or other medical institution which is required to be furnished under clause (b) of the tenth proviso to clause (23C) of section 10 shall be in—

(a) Form No. 10B where -

(I)  the total income of such fund or institution or trust or university or other educational institution or hospital or other medical institution, without giving effect to the provisions of the sub-clauses (iv), (v), (vi) and (via) of the said clause, exceeds rupees five crores during the previous year; or

(II) such fund or institution or trust or university or other educational institution or hospital or other medical institution has received any foreign contribution during the previous year; or

(III) such fund or institution or trust or university or other educational institution or hospital or other medical institution has applied any part of its income outside India during the previous year;

(b) Form No. 10BB in other cases

Explanation : For the purposes of sub-clause (II) of clause (a), the expression “foreign contribution” shall have the same meaning assigned to it in clause (h) of sub-section (1) of section 2 of the Foreign Contribution (Regulation) Act, 2010 (42 of 2010).]

KEY NOTE

1. Substituted vide Notification No. 7/2023-Income Tax, dated 21.02.2023 by the Income-tax (3rd Amendment) Rules, 2023, with effect from 01.04.2023. Earlier, it was inserted by the IT (Eighth Amendment) Rules, 2006 vide Notification No. 194 of 2006, with effect from 25.07.2006. Prior to its substitution, Rule 16CC read as under:

“16CC. The report of audit of the accounts of a fund or trust or institution or any university or other educational institution or any hospital or other medical institution which is required to be furnished under the tenth proviso to clause (23C) of section 10 shall be in Form No. 10BB.”

[2]  Where the total income of the Trust or institution computed without giving effect to the provisions of section 11 and section 12 exceeds the maximum chargeable to tax;  Audit Required [Section 12A(1)(b)]

Clause (b) of sub-section (1) of section 12A of the Act requires audit if the “total income” of the trust or institution computed without giving effect to the provisions of section 11 and section 12 exceeds the maximum chargeable to tax (i.e., Rs. 2,50,000/- for assessment year 2024-25) in any previous year, the accounts of the trust for the year shall be audited by Chartered Accountant.

This means if the total income of the institution in any previous year before giving effect to the provisions of the Act is less than the maximum amount which is not chargeable to income tax, then audit under the Act is not required.

Text of Section 12A(1)(b)

^[1][(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of sections 11 and 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, -

(i)    the books of account and other documents have been kept and maintained in such form and manner and at such place, as may be prescribed; and

(ii)   the accounts of the trust or institution for that year have been audited by an accountant defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and the person in receipt of the income furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars, as may be prescribed;]

KEY NOTE

1. Substituted by the Finance Act, 2022, with effect from 01.04.2023. Prior to its substitution, Section 12A(1)(b) read as under :

“(b) Where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 before the specified date referred to in section 44AB and the person in receipt of the income furnishes by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed;”

Text of Rule 17B

^[1][17B. Audit report in the case of charitable or religious trusts, etc. -  

The report of audit of the accounts of a trust or institution which is required to be furnished under sub-clause (ii) of clause (b) of sub-section (1) of section 12A, shall be in -

(a) Form No. 10B where - 

(I)   the total income of such trust or institution, without giving effect to the provisions of sections 11 and 12 of the Act, exceeds rupees five crores during the previous year; or

(II) such trust or institution has received any foreign contribution during the previous year; or

(III) such trust or institution has applied any part of its income outside India during the previous year;

(b) Form No. 10BB in other cases.

Explanation : For the purposes of sub-clause (II) of clause (a), the expression foreign contribution shall have the same meaning assigned to it in clause (h) of sub-section (1) of section 2 of the Foreign Contribution (Regulation) Act, 2010 (42 of 2010).]

KEY NOTE

1. Substituted vide Notification No. 7/2023-Income Tax. dated: 21.02.2023 by the Income-tax Amendment (3rd Amendment) Rules, 2023, with effect from 01.04.2023.

Whether Contributions with specific direction that they shall form part of the corpus included in income mentioned above?  

As per guidance note, for determining the ceiling limit of the maximum amount which is not chargeable to income tax for the purpose of eligibility to audit under section 12A(1)(b), contributions towards the corpus of the institution are to be included.

However, incomes exempt under section 10, e.g. dividends, are not to be included for ascertaining whether the income exceeds the maximum amount which is not chargeable to income tax.

Audit report in form 10B not required in case of unregistered institutions 

For claiming exemption under sections 11 and 12 of Income-tax Act, 1961,  charitable or religious trust or institution shall mandatory have to get their accounts audited if the total income without giving effects to provisions of sections 11 and 12 exceed maximum amount not chargeable to tax and shall obtain audit report in form 10B. Form no. 10B is a statutory format as like forms 3CB – 3CD and hence it is utilized for specified purposes only. Statutory forms are for the purpose designated and should not be used universally.

So, if a charitable and religious trust or institution is not registered under section 12A and hence not eligible to claim exemption under sections 11 and 12 of the Act is not supposed to obtain audit report in form 10B. Even if such institution is getting its account audited from a Chartered Accountant by virtue of requirements contained in its governing statute, the audit report shall not be in form 10B. Instead the audit report issued in such circumstances shall be in format set out in SA-700 issued by ICAI.

 Due date for furnishing form 10B and form 10BB

The trusts are required to furnish audit report in Form 10B/Form 10BB one month before the due date for furnishing return of income.

Implications of not Filing Audit Report

A failure to file the audit report as required by section 12A(1)(b) will result in a Charitable trust losing exemption under section 10(23C) / section 11, making it liable to tax on its income.

IMPLICATION FROM ASSESSMENT YEAR 2023-24

From Assessment year 2023-24, the income in such cases shall be computed as per Sections 13(10) and Section 13(11).

IMPLICATION UPTO ASSESSMENT YEAR 2022-23

If the audit report is not submitted as prescribed, then the benefits of Sections 11 and 12 shall be withdrawn for that year.

Allowing certain expenditure in case of denial of exemption; Computation of income of a trust/NGO in case of certain non-compliances [Section 13(10)]

The Finance Act, 2022 has inserted a new section 13(10), with effect from 01.04.2023 to tax the income of an organisation for violations of section 13(8) and certain provisions section 12A. It may be noted that under this section the normal tax rates shall apply, further this taxation pertains to basically to those institutions where the benefit of section 11 is totally denied but the 12AB registration is not yet cancelled. This newly inserted section shall be applicable for following violations:

§   Having commercial receipts in excess of 20% of the annual receipts in violation of the provisions of proviso to section 2(15).

§   Not maintaining the books of accounts and records as prescribed

§   Not getting the books of account audited.

§   Not filing the return of income .

The income chargeable to tax shall be computed after allowing the deduction for the expenditure (other than capital expenditure) incurred in India for the objects. Subject to fulfilment of the following conditions:

§   Expenditure is not from the corpus

§   Expenditure is not from any loan or borrowing

§   Claim of depreciation is not in respect of an asset which has been claimed as an application of income

§   Expenditure is not in the form of any contribution or donation to any person.

Provisions of sections 40(a)(ia) and 40A(3)/(3A) shall apply [Explanation to Section 13(10)/ Twenty Second proviso to section 10(23C)]

The Finance Act, 2022 has inserted a new section 13(10), with effect from 01.04.2023 which provides that for the purposes of determining the amount of expenditure under sub-section (10) of Section 13, the provisions of sub-clause (ia) of clause (a) of section 40 and sub-sections (3) and (3A) of section 40A, shall, mutatis mutandis, apply as they apply in computing the income chargeable under the head “Profits and gains of business or profession”.

No deduction in respect of any expenditure or allowance or set-off of any loss [Section 13(11)]

No deduction in respect of any expenditure or allowance or set-off of any loss shall be allowed to the assessee under any other provision of Income Tax Act, 1961 [Sub-section (11) to section 13 and Twenty third proviso to section 10(23C)]

CBDT issues clarification on reporting of Substantial Contributors in Form 10B/10BB

The CBDT vide Circular No. 17/2023, Dated 09.10.2023 has clarified that only those substantial contributors whose contributions during the relevant previous year exceed Rs. 50,000 need to be reported in Form 10B/10BB. The details of relatives of such contributors and concerns in which these contributors hold substantial interests should also be reported, if available.

CBDT Circular No. 17/2023 [F. NO. 370142/42/2023-TPL], Dated 09.10.2023

Subject : Section 12A, Read with section 10(23C) of the Income-tax Act, 1961 - Charitable or Religious Trust - Registration of - Clarification on reporting of substantial contributors in Form No. 10B / Form No. 10BB

Audit report in the case of a fund or trust or institution or any university or other educational institution or any hospital or other medical institution, under clause (b) of the tenth proviso to clause (23C) of section 10, or sub-clause (ii) of clause (b) of sub-section (1) of section 12A of the Income-tax Act, 1961 (the Act), as the case may be, is required to be furnished in Form No. 10B / Form No. 10BB.

2. Representations have been received regarding difficulties in filling details of persons who have made a 'substantial contribution to the trust or institution', that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees (as referred to in section 13(3)(b) of the Act).

3. The matter has been examined with reference to the issue raised in paragraph 2 and it is hereby stated that for the purposes of providing details in (i) Form No. 10B in the Annexure, in row 41; and (ii) Form No. 10BB in the Annexure, in row 28, for the assessment year 2023-24:

(a)   the aforesaid details (that is, of persons making substantial contribution) may be given with respect to those persons whose total contribution during the previous year exceeds fifty thousand rupees;

(b)   details of relatives of such person, as referred to in (a) above may be provided, if available.

(c)   details of concerns in which such person, as referred to in (a) above, has substantial interest may be provided, if available.

CBDT Circular No. 16/2023 [F. No. 225/177/2023/ITA-II], Dated 18.09.2023

Subject : Extension of Timelines for Filing of Form 10B/10BB and Form ITR-7 for Assessment year

On consideration of difficulties reported by the taxpayers and other stakeholders, the Central Board of Direct Taxes (CBDT), in exercise of its powers under Section 119 of the Income-tax Act, 1961 (Act), provides relaxation in respect of following compliances:-

1.    The due date of furnishing Audit report under clause (b) of the tenth proviso to clause (23C) of section 10 and sub-clause (ii) of clause (b) of sub-section (1) of section 12A of the Income-tax Act, 1961, in the case of a fund or trust or institution or any university or other educational institution or any hospital or other medical institution in Form IOB/Form10BB for the Previous Year 2022-23, which is 30th September, 2023, is hereby extended to 31st October, 2023.

2.    The due date of furnishing of Return of Income in Form ITR-7 for the Assessment Year 2023-24 in the case of assessees referred to in clause (a) of Explanation 2 to sub-section (1) of section 139 of the Act, which is 31st October, 2023, is hereby extended to 30th November, 2023.

Clarification regarding electronic mode of payments to be furnishing in audit report in Form No. 10B [CBDT Circular No. 6 of 2023, Dated 24.05.2023]

Considering the representation that description of electronic modes provided in notes to revised Form 10B/10BB as referred in Rule 6ABBA does not include account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account, it is clarified that for the purposes of Form No. 10B and Form No. 10BB electronic modes provided in notes to Form 10B/10BB (Credit/ Debit Card, Net Banking, IMPS, UPI, RTGS, NEFT, BHIM and Aadhar Pay) are in addition to the account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account.

16. One of the conditions  required  to be fulfilled by the trusts to be eligible to claim exemption, under the re levant provisions of the Act,  is that where the total income of any trust, as computed under the Act, without  giving effect to the provisions of section 11 and section 12 of the Act or the provisions  of the sub-clauses (iv), (v), (vi)  and (via) of clause (23C) of section 10 of the Act, as the case  may be, exceeds the maximum amount which  is  not chargeable to income-tax in any previous year, it is required to  get its accounts audited.

17. In order to rationalise the provisions related to audit report of trusts  and in view of the significant amendments made  to the  taxation of trusts  over the  past few years, revised  audit report in Form No. 10B and Form No. 10BB have been notified vide Notification No. 7 of 2023 dated 21.02.2023 so as to  provide  that the  report of audit of the accounts of a  trust, shall be furnished in –

       (a) Form No. 10B where,

(i)       the total income of trust, exceeds Rs five crores during the previous year; or

(ii)     such trust has received any foreign contribution during the previous year; or

(iii)   such trust has applied any part of its income outs ide India during the previous year;

(b) Form No. 10BB in other cases.

18. With regard to the above it may be noted that Form No. 10B and Form No. 10BB requires the auditor to bifurcate certain payments or application in electronic modes and non-electronic modes.  The Notes to the said Forms provide that electronic modes shall be the following modes referred in rule 6ABBA of the Income-tax Rules, 1962:

(a)  Credit Card;

(b)  Debit Card;

(c)  Net Banking;

(d)  IMPS (Immediate Payment Service);

(e)  UPI (Unified Payment Interface);

(f)   RTGS (Real Time Gross Settlement);

(g)  NEFT (National Electronic Funds Transfer); and

(h)  BHIM (Bharat Interface for Money) Aadhar Pay.

19. It has been represented that the above description of electronic modes does  not include account payee cheque drawn on  a  bank or  an account payee bank draft or use of electronic clearing system through a bank account.

20. It is hereby clarified that for the purposes of Form No. 10B and Form No. 10BB electronic modes referred to in para 18 are in addition to the account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account.

CBDT Circular No. 15/2022, Dated 19.07.2022

Principal Chief Commissioners of Income-tax/Chief Commissioners of Income-tax to admit belated applications in Form 10BB if delay is upto 3 years

Subject : Condonation of delay under Section 119(2)(b) of the Income-tax Act, 1961 in filing of Form No. 10BB for Assessment year 2018-19 and subsequent years - Regarding

In exercise of the powers conferred under section 119(2) of the Income-tax Act, 1961 (hereinafter referred to as ‘Act’), the Central Board of Direct Taxes (CBDT) by Circular No. 19/2020, dated 3rd November, 2020 issued by F. No. 19711 35/2020-ITA-I has directed that:—

(i)   In all the cases of applications for condonation of delay in filing of Form No. 10BB for years prior to AY 2018-19, the Commissioners of Income-tax are authorized to admit applications for condonation of delay under section 119(2)(b) of the Act. The Commissioner while entertaining such applications regarding filing Form No. 10BB shall satisfy themselves that the applicant was prevented by reasonable cause from filing such Form within the stipulated time.

(ii)   where there is delay of up to 365 days in filing Form No. 10BB for Assessment Year 2018-19 or for any subsequent Assessment Years, the Commissioners of Income-tax are authorized to admit such applications of condonation of delay under section 119(2) of the Act and decide on merits.

2. Further to the powers delegated to the field authorities as discussed above, the CBDT hereby directs that where there is delay of beyond 365 days upto three years in filing Form No. 10BB for Assessment Year 2018-19 or for any subsequent Assessment Years, the Pr. Chief Commissioners of Income-tax/Chief Commissioners of Income-tax are authorized to admit such applications of condonation of delay under section 119(2) of the Act and decide on merits.

3. The Pr. Chief Commissioner/Chief Commissioner or Commissioners of Income-tax, as the case may be, while entertaining such applications for condonation of delay in filing Form No. 10BB, shall satisfy themselves that the applicant was prevented by reasonable cause from filing such Form within the stipulated time.

4. Further, the Pr. Chief Commissioner I Chief Commissioner of Income-tax, as the case may be, shall preferably dispose the application within three months of receipt of the application.

CBDT Circular No. 2/2020 [F. No. 197/55/2018-ITA-I], Dated 03.01.2020

SECTION 119 OF THE INCOME-TAX ACT, 1961 - CENTRAL BOARD OF DIRECT TAXES - INSTRUCTION TO SUBORDINATE AUTHORITIES - CONDONATION OF DELAY IN FILING OF FORM NO. 10B FOR ASSESSMENT YEAR 2018-19 AND SUBSEQUENT YEARS

Under the provision of section 12A of Income-tax Act, 1961 (hereafter 'Act') where the total income of a trust or institution as computed under the Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income tax in any previous year, the accounts of the trust or institution for that year have to be audited by any accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income is required to furnish along with the return of income for the relevant assessment year the report of such audit in the prescribed from duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

2. As per Rule 17B of the Income-tax Rules, 1962 (hereafter 'Rules') the audit report of the accounts of such a trust or institution is to be furnished in Form No. 10B. As per Rule 12(2) of the Rules, such audit report is to be furnished electronically. The failure to furnish such report in the prescribed from along with the return of income results in disentitlement of the trust or institution from claiming exemption under sections 11 and 12 of the Act.

3. Representations have been received by the Board/field authorities stating that Form No. 10B could not be filed along with the return of income for A.Y. 2016-17 and A.Y. 2017-18. It has been requested that the delay in filing of Form No. 10B may be condoned. Previously, vide instruction in F.No. 267/482/77-IT(part) dated 9-2-1978, the CBDT had authorized the ITO to accept a belated audit report after recording reasons in cases where some delay has occurred for reasons beyond the control of the assessee.

4. Accordingly, the CBDT issued Circular No. 10/2019 circulated through F.No. 197/55/2018-ITA-I in supersession of earlier circular/Instruction issued in this regard, and with a view to expedite the disposal of applications filed by such trust or institution for condoning the delay in filing Form No. 10B and in the exercise of the powers conferred under section 119(2) of the Act, the Central Board of Direct Taxes vide Circular No. 10/2019 dated 23rd May, 2019 and Circular No. 28/2019 dated 27th September, 2019 both issued vide F.No. 197/55/2018-ITA-I has directed that :—

(i)    The delay in filing of Form No. 10B for A.Y. 2016-17 and A.Y. 2017-18, in all such cases where the Audit Report for the previous year has been obtained before the filing of return of income and has been furnished subsequent to the filing of the return of income but before the date specified under section 139 of the Act is condoned.

(ii)   In all other cases of belated applications in filing Form No. 10B for years prior to AY. 2018-19, The commissioner of Income-tax are authorized to admit and dispose off by 31-3-2020 such applications for condonation of delay u/s 119(2)(b) of the Act. The Commissioner will while entertaining such belated applications in filing Form No. 10B shall satisfy themselves that the assessee was prevented by reasonable cause from filing such application within the stipulated time.

5. In addition to the above, it has also been decided by the CBDT that where there is delay of upto 365 days in filing Form No. 10B for Assessment Year 2018-19 or for any subsequent Assessment Years, the Commissioners of Income-tax are hereby authorized to admit such belated applications of condonation of delay under section 119(2) of the IT Act and decide on merits.

6. The Commissioners of Income-tax shall, while entertaining such belated applications in filing Form No. 10B, satisfy themselves that the assessee was prevented by reasonable cause from filing such application within the stipulated time.

CBDT Circular No. 10/2019, Dated 22.05.2019

Condonation of delay in filing of Form No. 10B by Trust/Institution [CBDT Circular No. 10/2019, dated 22.05.2019]

Condonation of delay in filing of Form No. 10B (audit report by trust/ institution) for Assessment Years 2016-17 and 2017-18 by CBDT vide Circular No. 10/2019, dated 22.05.2019 subject to fulfilment of conditions prescribed by CBDT.

Subject :  Condonation of delay in filing of Form No. 10B for years prior to Assessment year 2018-19 - Regarding

Under the provisions of section 12A of Income-tax Act, 1961 (hereafter ‘Act’) where the total income of a trust or institution as computed under the Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have to be audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income is required to furnish along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.

2. As per rule 17B of the Income-tax Rules, 1962 (hereafter ‘Rules’) the audit report of the accounts of such a trust or institution is to be furnished in Form No. 10B. As per rule 12(2) of the Rules, such audit report is to be furnished electronically. The failure to furnish such report in the prescribed form along with the return of income results in disentitlement of the trust from claiming exemption under sections 11 and 12 of the Act.

3. Representations have been received by the Board/field authorities stating that Form No. 10B could not be filed along with the return of income for A.Y. 2016-17 and A.Y. 2017-18. It has been requested that the delay in filing of Form No. 10B may be condoned. Previously, vide Instruction in F. No. 267/482/77-IT (Part), dated 09.02.1978, the CBDT had authorised the ITO to accept a belated audit report after recording reasons in cases where some delay has occurred for reasons beyond the control of the assessee.

4. Accordingly, in supersession of earlier Circular/Instruction issued in this regard, and with a view to expedite the disposal of applications filed by such trusts or institutions for condoning the delay in filing Form No. 10B and in exercise of the powers conferred under section 119(2) of the Act, the Central Board of Direct Taxes hereby directs that:

(i)     The delay in filing of Form No. 10B for A.Y. 2016 17 and A.Y. 2017- 18, in all such cases where the Audit Report for the previous year has been obtained before the filing of return of income and has been furnished subsequent to the filing of the return of income but before the date specified under section 139 of the Act is condoned.

(ii)    In all other cases of belated applications in filing Form No. 10B for years prior to A.Y. 2018-19, the Commissioners of Income-tax are authorised to admit such applications for condonation of delay under section 119(2)(b) of the Act. The Commissioners while entertaining such belated applications in filing Form No. 10B shall satisfy themselves that the assessee was prevented by reasonable cause from filing such application within the stipulated time. Further, all such applications shall be disposed off by 30.09.2019.

CBDT F. No. 267/482/77-IT (Part), dated 09.02.1978 - CBDT Bulletin Tech. XXIII/582:

Subject : Charitable trust-Requirement of filing audit report in Form 10B - Section 12A(1)(b) - Instructions regarding

The Board have considered whether the requirement under Section 12A(1)(b) of filing audit report ‘along with the return of income’ is mandatory so as to disentitle the trust from claiming exemption under Sections 11 and 12 in case of omission to furnish such report in the prescribed form along with the return.

Normally, it should be possible for a charitable or religious trust or institution to file the auditor’s report along with the return of total income, where such trust or institution claims exemption under Sections 11 and 12. However, in cases where for reasons beyond the control of the assessee some delay has occurred in filing the said report the exemption as available to such trust under Sections 11 and 12 may not be denied merely on account of delay in furnishing the auditor’s report and the Income-tax Officer should record reasons for accepting a belated audit report.”

Benefit of exemption under sections 11 and 12 could not be denied to assessee-trust merely on account of delay in furnishing audit report in Form 10B and it was permissible for assessee to produce audit report at a later stage, either before Assessing Officer or appellate authority

Assessee, a public charitable trust registered under section 12A, filed its return of income declaring income of certain amount. However, assessee did not furnish audit report in Form No. 10B. Thereafter, assessee filed audit report in Form no. 10B during assessment proceedings and sought to condone such delay. Assessing Officer rejected same and disallowed exemption under sections 11 and 12 to assessee. The Commissioner (Appeals) observed that it was merely a procedural lapse on part of assessee to not file Form 10 along with return of income. The Commissioner (Appeals), thus, observed that the assessee submitted the audit report at a later stage after filing the return of income, and thus, the benefit of exemption under section 11 cannot be denied merely on account of delay in furnishing audit report. Benefit of exemption under sections 11 and 12 could not be denied to assessee-trust merely on account of delay in furnishing audit report and it was permissible for assessee to produce audit report at a later stage, either before Assessing Officer or appellate authority. It is found that the observation of the Commissioner (Appeals) does not suffer from any infirmity and there is no reason to interfere in the order of the Commissioner [In favour of assessee] (Related Assessment year : 2014-15) – [DCIT (Exemption) v. State Institute of Health & Family Welfare (2023) 153 taxmann.com 740 (ITAT Jaipur)]

Assessee-trust had substantially satisfied all conditions for availing benefit of exemption under section 11/12, exemption could not have been denied due to belated filing of audit report in Form No. 10B

Assessee was a public charitable trust engaged in imparting education. Admittedly, assessee was granted exemption certificate under section 12A as well as recognition under section 80G(5). Assessee filed its return of income claiming exemption under section 11/12 which was disallowed by CPC/Assessing Officer only for reason that Form No. 10B was not filed alongwith or before filing return of income. Commissioner (Appeals) confirmed action of CPC/Assessing Officer by holding that assessee had not furnished any application for seeking condonation of delay in filing Form No. 10B from Commissioner (Exemption). Where assessee trust had substantially satisfied all conditions for availing benefit of exemption under section 11/12, exemption could not have been denied for belated filing of audit report in Form No. 10B. Therefore, matter was to be restored back to file of Assessing Officer to verify contents of Form No. 10B for all assessment years and grant necessary exemptions by passing order in accordance with law. [Matter remanded] (Related Assessment years : 2017-18 to 2019-20) – [Navbharat Charitable Trust v. ITO (2023) 200 ITD 812 : 150 taxmann.com 311 (ITAT Surat)]

Delay in furnishing audit report in Form no. 10B by assessee-trust had already been condoned by Commissioner, assessee could not be denied benefit of exemption under sections 11 and 12

Assessee, a public charitable trust, filed its return of income belatedly claiming exemption under section 11. Audit report in Form no. 10B was also filed belatedly. Commissioner (Exemption) had condoned delay in filing of Form no. 10B. However, he denied exemption under section 11 to assessee and taxed trust on gross basis. Once delay in filing Form no. 10B had already been condoned by Commissioner (Exemption), assessee could not be denied benefit of exemption under sections 11 and 12. [In favour of assessee] (Related Assessment year : 2020-21) - [Shri Rajkot Vishashrimali Jain Samaj v. ITO (2023) 150 taxmann.com 361 (ITAT Rajkot)]

Section 11 exemption can not be denied merely on ground of non-filing of Form 10B along with return of income

Assessing Officer denied exemption under section 11 to assessee-trust on ground that Form 10B was not filed along with return of income and raised a demand. Thereafter, assessee filed rectification application under section 154 and contended that though audit report in Form 10B was available at time of filing of return of income, however, due to new procedural and technical requirements of e-filing Form 10B, there was a delay on part of auditor in uploading same. Assessing Officer rejected rectification application filed by assessee.

The Hon’ble jurisdictional High Court in case of CIT v. Xavier Kalavani Mandal (P) Ltd. (2014) 41 taxmann.com 184 (2014) held that in order to claim exemption under section 11, the assessee can filed audit report in Form 10B even at later stage either before the Assessing Officer or before appellate authority by showing a sufficient cause. Further, Hon’ble jurisdictional High Court decision in case of Sarvodaya charitable Trust v. ITO (Exemption) (2021) 278 Taxman 148 (Guj.) also held that where the assessee is a public charitable trust registered under section 12A of the Act and substantially satisfied condition for availing benefit of exemption as a charitable could not be denied exemption, the assessee merely on bar of limitation in furnishing audit report in Form 10B. Considering the aforesaid and legal discussion, we find that though the assessee has not filed any return of income at the time, however, it was available before the Id. CIT(A) as it was uploaded much before filing application under section 154. Therefore, respectfully following the decisions of Hon'ble jurisdictional High Court in case of CIT v. Xavier Kalavani Mandal (P) Ltd. (supra) and in Sarvodaya charitable Trust v. ITO (Exemption) (supra), we find that the assessee has complied the procedural requirement, therefore, the Assessing Officer/CPC is directed to verify the claim of the assessee and grant necessary deduction under section 11 of IT Act. In the result, the appeal of the assessee is allowed for statistical purposes.

As in the present case also the assessee has complied with the procedural requirement of obtaining and filing Form 10B, therefore, respectfully following the aforesaid decision of the Co-ordinate Bench of the Tribunal, the Assessing Officer is directed to decide the claim of the assessee under section 11 on merits, after accepting the Form 10B filed by the assessee. Accordingly, grounds raised by the assessee are allowed for statistical purposes. [In favour of assessee] (Related Assessment year : 2016-17) – [Shree Bhairav Seva Samiti v. ITO (Exemption) [2023] 149 taxmann.com 478 (ITAT Mumbai)]

Upholds denial of exemption under Section 11 exemption for Form 10B delay where no condonation application preferred

Raipur ITAT upholds denial of exemption under Section 11 to Assessee on delayed filing of audit report in Form No.10B along with return of income; However, remits the back to Revenue with a direction to consider Assessee’s claim for deduction of expenses as debited in the income and expenditure account to the extent allowable under the law; Assessee-Trust registered under Section 12AA(1)(b)(i) filed return of income under Section 139(4) for Assessment year 2016-17 on 28.03.2018 and claimed exemption of Rs. 24.83 Lac under Section 11(2) which was denied by CPC in the intimation under Section 143(1) on the ground that audit report in Form 10B along with return of income was not furnished within due date specified under Section 139(1) but subsequently uploaded on June 21, 2019 i.e., during the course of CIT(A) proceedings; ITAT observes that Assessee obtained audit report in Form 10B on 30.09.2016 i.e., prior to filing of return of income on 21.06.2018 but the third condition stipulated in para 4(i) of Circular No. 10 of 2019 dated 22.05.2019 which requires that audit report in Form 10B should be filed before the date specified under Section 139 is not found to be satisfied; Observes that the term ‘specified date’ defined in Explanation 1 to Section 139 for subject Assessment year was 30.06.2016, however, the audit report was uploaded on 21.06.2019 which clearly establishes that it was filed beyond the date specified under Section 139; Accordingly, holds that the case clearly falls beyond scope of Para 4(i) of Circular No. 10/2019 and since the Assessee failed to file any application for condonation of delay under Section 119(2)(b) as mandated in Para 4(ii) of the said circular, the delay cannot be condoned. [In favour of revenue] – [Jain Shwetamber Murtipujak Sangh v. ITO (Exemption) [TS-273-ITAT-2023(RAI)] – Date of Judgement : 22.05.2023 (ITAT Raipur)]

Trust’s Audit Report delay for Assessment year 2017-18 condonable by CBDT Circular, application not required

Bangalore ITAT allows Assessee’s appeal, deletes addition made by CPC towards denial of deduction claimed towards application/accumulation of funds under Section 11(1) due to delay in furnishing audit report in Form 10B for Assessment year 2017-18; Holds that Circular No. 10 of 2019 dated 22.05.2019 condones the delay in case Form 10B is furnished before the due date stipulated in Section 139(1) and no separate condonation petition is required; During Assessment year 2017-18, Assessee-Trust received a sum of Rs. 99.08 Lac towards corpus receipts and filed return of income for Assessment year 2017-18 declaring Nil income by setting apart Rs. 58.02 Lac towards application of income towards object of trust under Section 11 and Rs.39.45 Lac towards capital expenses; However, the audit report in Form 10B was subsequently filed on 28.08.2017; CPC processed the return under Section 143(1) and made an addition of Rs.97.48 Lac claimed towards application of funds and accordingly, denied the deduction towards accumulation under Section 11(1) due to delay in furnishing the Form 10B which ought to have been filed on or before filing of return of income; CIT(A) dismissed Assessee’s appeal and relied on CBDT Circular No. 10 of 2019 dated May 22, 2019 to held that only CIT (Exemption) is authorized to condone delay in filing of Form No. 10B up to 365 days and in the present case, Assessee did not mention anything about condonation petition in the written submission nor did it state whether condonation petition is pending before Commissioner (Exemption) or whether such delay has actually been condoned; Before ITAT, Assessee relied on Circular No 10 of 2019 and contended that the said Circular condones the delay in filing Form 10B for Assessment year 2016-17 and 2017-18 on furnishing it before the due date stipulated under Section 139 and no separate condonation petition is required; Contended that Form 10B was filed on Aug 28, 2017 which is much before the due date stipulated under Section 139(1) i.e., Oct 31, 2017; While Revenue contended that a separate petition seeking condonation of delay is mandatory and in absence of same, CIT(A) rightly denied the deduction; ITAT observes that on perusal of Circular No. 10 of 2019, it is clear that for Assessment year 2016-17 and 2017-18 the delay in filing Form 10B is condoned where the audit report is obtained before filing the return of income and filed before due date specified under Section 139, although, no such default condonation is available for other years and CIT(Exemption) is authorized to admit the application and condone in case of reasonable cause; Accepts Assessee’s argument and observes that there no requirement to file condonation application as the circular itself has condoned the delay for the year under consideration; Accordingly, holds that the Assessee cannot be denied the deduction towards application and accumulation of funds and the addition is liable to be deleted. [In favour of assessee] (Related Assessment year : 2017-18) – [Mulki Sundar Ram Shetty Nagar Ayyappa Swamy Temple Trust v. ITO (Exemption) [TS-65-ITAT-2023(Bang)] – Date of Judgement : 08.02.2023 (ITAT Bangalore)]

Assessee, a public charitable trust registered under section 12A, had substantially satisfied condition for availing benefit of exemption as a trust, it could not be denied exemption merely on bar of limitation in furnishing audit report in Form no. 10B.

Registration Procedure (Condonation of delay in filing Form 10B) - Assessee, a public charitable trust registered under section 12A, filed its return of income declaring income of certain amount. Assessee had not furnished audit report in Form No. 10B. Thus, Assessing Officer denied exemption to assessee-trust. Thereafter, assessee filed audit report in Form No. 10B belatedly and sought to condone such delay. Same was rejected for reason that no ground for condonation of delay was made out by assessee. Since assessee was a public charitable trust for past 30 years who substantially satisfied condition for availing benefit of exemption, assessee could not be denied exemption merely on bar of limitation to submit Form no. 10, especially, when legislature had conferred wide discretionary powers to condone such delay on authorities concerned. [In favour of assessee] (Related Assessment year : 2016-17) - [Sarvodaya Charitable Trust v. ITO (Exemption) (2021) 278 Taxman 148 : 125 taxmann.com 75 (Guj.)]

Directs trust to move CBDT with belated Form 10B; Upholds CIT(E)’s rejection of condonation application

Bombay High Court upholds CIT(E) order rejecting assessee’s application to condone the delay in filing Form 10B for Assessment year 2018-19 beyond 365 days, however directs assessee to approach CBDT under section 119(2)(b) for such condonation of delay beyond 365 days and thereafter to deal with the said claim on merit and in accordance with law;

Assessee, a charitable trust, filed its return of income on 25.07.2018 declaring nil income. Form No. 10B was obtained from auditor, however, instead of uploading Form No. 10B in income tax portal, assessee uploaded Form No. 10BB inadvertently. Accordingly, exemptions under sections 11 and 12 were denied and demand was raised vide order, dated 17.10.2019. Thereafter, assessee uploaded Form No. 10B on income tax portal on 06.11.2019 and also filed an application for condonation of delay - However, Commissioner (Exemptions), following Circular No. 2 of 2020 of CBDT, dated 03.01.2020, rejected application of assessee for condonation of delay. As per Circular, dated 03.01.2020, Commissioners are authorized to condone delay in filing of Form No. 10B up to 365 days in filing of Form No. 10B for assessment year 2018-19 and subsequent assessment years. However, since Form No. 10B was filed by assessee after lapse of more more than 365 days of due date of filing of return of income, case of assessee was not covered under CBDT Circular, dated 03.01.2020, hence, Commissioner expressed inability to condone delay and rejected application for condonation of delay.  Fixing a period of 365 days of delay for condonation of delay in filing Form No. 10B for assessment year 2018-19 and onwards could not be said to be arbitrary or irrational, therefore general order passed by CBDT in this regard under section 119(2)(b) could not be faulted. However, having regard to mandate of section 119(2)(b), even at this stage, assessee may approach CBDT under section 119(2)(b) to authorize Commissioner (Exemptions), to condone delay in filing Form No. 10B for assessment year 2018-19 which was beyond 365 days and thereafter to deal with same on merit in accordance with law.  [Partly in favour of assessee] (Related Assessment year : 2018-19) – [Little Angels Education Society v. Union of India (2021) 127 taxmann.com 473 : [TS-254-HC-2021(BOM)] (Bom.)]

Allows exemption to Trust, delayed submission of Form 10B attributable to delayed registration

Delhi ITAT dismisses Revenue’s appeal, holds audit of Trust’s accounts subsequent to grant of registration under section 12AA did not vitiate the authenticity of the accounts; Assessee-Trust (Hardayal Charitable & Educational Trust) was granted registration under section 12A vide order dated 07.01.2014 w.e.f. 01.04.2010 was denied the benefit of exemption for a corpus donation of Rs. 7.13 Lakhs on failure to get its accounts audited and obtain the audit report within the prescribed time; CIT(A) deleted the addition against which Revenue preferred the instant appeal; Revenue submitted that it was not the case that Assessee failed to submit the audit report in Form 10B along with the return, but in the instant case, the audit report itself was obtained after filing of the income tax return; Assessee submitted that Revenue had not given any finding to the effect that the corpus donation was bogus, and since the Assessee was granted registration w.e.f. April 2010 on 07.01.2014, Assessee could not have submitted the Form 10B report before the grant of registration; On perusal of the CIT(A)’s order, ITAT finds that Revenue did not point out any defects in the Assessee’s accounts; Remarks that merely because the accounts were audited after grant of registration under section 12AA of the Act under the peculiarity of the present case, would not ipso facto vitiate the authenticity of the accounts so furnished before the Revenue; ITAT further observes that Revenue failed to make any enquiry regarding the accounts of the Assessee and affirms the CIT(A)’s order deleting the addition. [In favour of assessee] (Related Assessment year) – [DCIT(Exemption), Ghaziabad v. Hardayal Charitable & Educational Trust [TS-1141-ITAT-2021(DEL)] – Date of Judgement : 24.11.2021 (ITAT Delhi)]

In section 10(23C)(iiiad) cases, there is no need to file Form 10BB

Assessee-society was running a school and its receipts from said activity was below Rs. one crore. Assessee filed its return claiming exemption under section 10(23C)(iiiad). Assessing Officer rejected assessee’s claim on two grounds, firstly, objects of assessee-society were not confined to advancement of education alone and, secondly, assessee did not file audit report in Form 10BB alongwith return of income. Since assessee was carrying on sole activity of education during relevant year, exemption could not be denied to it on basis that it had other objects also in its trust deed. As regards other objection, since tenth proviso was applicable only to clauses (iv), (v), (vi) and (via) of section 10(23C), whereas assessee was claiming exemption under section 10(23C)(iiiad), there was no need to file audit report in Form No. 10BB. In view of aforesaid, assessee’s claim for exemption was to be allowed. [In favour of assessee] (Related Assessment years 2009-10 and 2010-11) – [ITO, Ludhiana v. Shri Balaji Prem Ashram & Nikhil Vidyalaya (2015) 64 taxmann.com 112 (ITAT Chandigarh)]