Summary
Orissa High Court ruled that 12A exemption cannot be denied merely due to delay in filing the audit report, reinforcing the principle that substance must prevail over form in tax matters. This offers crucial relief to charitable trusts and NGOs facing procedural delays.
12A Exemption and Audit Report Delay: What Orissa HC Ruled
The Orissa High Court has provided critical relief to charitable trusts and NGOs by holding that exemption under Section 12A of the Income Tax Act, 1961 cannot be denied merely because of a delay in furnishing the audit report in Form 10B.
This judgment underscores that procedural lapses should not override substantial compliance when a trust is otherwise eligible for exemption.
What is Section 12A Exemption?
Section 12A is the gateway provision for trusts and institutions to claim tax exemption on income used for charitable or religious purposes. Without valid registration under 12A (now 12AB), no exemption under Sections 11 and 12 is allowed.
Conditions for Claiming Exemption:
- Valid registration under Section 12AB
- Income applied for charitable purposes
- Audit report in Form 10B, if total income exceeds basic exemption limit
Key Issue Before the Orissa HC
The assessee, a registered charitable trust, filed its income tax return after the due date and submitted Form 10B audit report belatedly.
The Assessing Officer denied the benefit of Section 11 exemption, arguing that late submission of the audit report violated the condition under Section 12A(1)(b).
Court’s Observations
The Hon’ble High Court referred to the CBDT Circular No. 10/2019 dated 22.05.2019 and observed:
“The requirement of furnishing the audit report is directory, not mandatory. If the return is filed within the due date, the audit report can be furnished later, provided the delay is bonafide.”
Key Takeaways:
- Exemption can’t be denied solely on the ground of delayed audit report
- Substance over form: Compliance intent matters more than procedural perfection
- CBDT has clarified that belated Form 10B filing may be condoned in genuine cases
Legal Reference: CBDT Circular & Case Law
- CBDT Circular No. 10/2019
→ Clarifies that delay in Form 10B submission can be condoned by the Commissioner under Section 119(2)(b) - [Orissa HC – X vs CIT (2025)]
→ Held that benefit of exemption should not be lost due to minor procedural delay when substantive conditions are met - Similar View: Bombay HC in Bhatia Educational Trust v. CIT also held that technical lapses shouldn’t defeat exemption
Expert Insight: What CA Firms & NGOs Should Do
“Ensure timely filing of Form 10B. But if there’s a delay, don’t panic. File a condonation request under Section 119(2)(b) with proper reasons. Courts are consistently upholding bonafide compliance,” says CA Neha Kumar, Tax Advisor.
Step-by-Step: What to Do If You Missed Form 10B Deadline
- Identify the cause of delay – tech issues, illness, compliance burden
- File the Form 10B as soon as possible on the Income Tax Portal
- Submit a condonation request under Section 119(2)(b) to the jurisdictional PCIT
- Attach proof of genuine hardship (affidavit, medical certificate, etc.)
- Follow up regularly with the Department
FAQ: 12A Exemption & Audit Report Delay
Q1. Can exemption under Section 11 be denied for late audit report?
Not always. If delay is bonafide and condonation is granted, exemption should not be denied.
Q2. What is Form 10B?
It is the audit report required for trusts under Section 12A, to be filed if income exceeds the basic exemption limit.
Q3. Is the audit report deadline hardcoded?
Technically yes, but condonation is possible through CBDT powers.
Final Word
The Orissa High Court’s ruling strengthens the view that procedural delays should not override legitimate exemptions for charitable institutions. It’s a major relief for NGOs and trusts who often face tech or filing delays.