Tax exemption was denied due to clerical error in ITR filing; ITAT Bangalore gives relief, says tax dept can’t take advantage of this error
Dec 03, 2025
Synopsis
The Income Tax Appellate Tribunal in Bangalore has thoughtfully ruled that clerical oversights in income tax filings won't forfeit tax exemptions. In one case, a charitable trust's Section 11 exemption remained intact despite a missing registration detail. The tribunal emphasized that the tax department cannot use taxpayer errors against them.
On November 3, 2025, the Income Tax Appellate Tribunal (ITAT) Bangalore ruled that a taxpayer’s tax deduction cannot be denied under Section 11 just because of a clerical mistake made while filing the income tax return (ITR). The ITAT said that the income tax department cannot take advantage of a taxpayers’ mistake to deny him a tax exemption which has already been granted under Section 11.
For those who might not know, Section 11 provides a structured tax exemption framework for Charitable and Religious Trusts registered under Section 12AB, allowing income to remain tax-exempt as long as it is used for approved charitable purposes.
Summary of the judgement
Chartered Accountant (Dr.) Suresh Surana says in this case (ITA No.1485/Bang/2025), the assessee is a charitable trust duly registered under Section 12AB, which qualifies it for exemption under Section 11.
For the Assessment Year 2021-22, while filing its income-tax return (ITR), the assessee inadvertently left out the information regarding its Section 12AB registration.
Because of this mistake, the Centralized Processing Centre (CPC) processed the return without applying Section 11 exemption, treating all gross receipts as taxable income.
The assessee later clarified before the CIT(A) that the omission was purely inadvertent and that valid registration existed on record with the department. However, the CIT(A) upheld the CPC’s denial on the ground that it was the assessee’s responsibility to correctly enter the requisite details in the return.
According to Surana, when the matter reached the ITAT, Bangalore, the Tribunal carefully reviewed thefacts and observed that the assessee had indeed held valid registration under Section 12AB, and the income was fully used for charitable activities.
According to Surana, the Tribunal accepted that CPC could initially act only on the information contained in the return; however, it held that once the assessee produced evidence before the CIT(A), the appellate authority was duty-bound to consider the correct legal position and not deny substantive relief merely because of a procedural lapse.
Surana says:“The ITAT emphasised that the Revenue cannot take advantage of a taxpayer’s clerical mistake, particularly when all statutory conditions for exemption under Section 11 stood satisfied. It also held that taxing gross receipts without allowing application of income was fundamentally contrary to the statutory scheme.”
According to Surana, based on this rationale, the Tribunal concluded that the assessee was substantively entitled to Section 11 exemption, and the omission in the return was a curable technical defect. Accordingly, it set aside the order of the CIT(A) and directed deletion of the addition, thereby allowing the assessee’s appeal
ITAT Bangalore analysis and findings
ITAT Bangalore said that the limited issue before them is whether the Commissioner of Appeals – CIT(A) is correct in denying the benefit of exemption under section 11 on the reasoning that the assessee failed to furnish the necessary details in the income tax return with respect to the registration under section 12AB.
ITAT Bangalore said that undeniably, once the assessee is claiming the benefit of exemption under section 11, then the assessee has to furnish the necessary details in the income tax return.
ITAT Bangalore said that Income tax return is the 1st stage which speaks about the financial transactions (along with other details) carried out by the assessee. If the necessary details are missing from the income tax return, then the CPC shall process the return of income based on the information available in the income tax return.
So, in their considered opinion, there was nothing wrong in CPC processing the return without granting exemption under section 11 of the Act.
However, ITAT Bangalore said that the mistake observed by the CPC was brought to the notice by the assessee before the learned CIT(A) which in their considered opinion should have been rectified as per the provisions of law.
ITAT Bangalore said: “The revenue cannot take the advantage of the mistakes committed by the assessee. In other words, the deduction claimed by the assessee cannot be denied on account of some clerical errors on the part of the assessee. The income has to be assessed within the 4 corners of law. Indeed, the assessee did not file the revised return of income in the given facts and circumstances by rectifying the mistake committed by it.”
But that does not mean the ld. CIT-A is now deprived of taking the cognizance of the errors committed by the assessee which were duly brought to the notice by the assessee. Accordingly, ITAT Bangalore was not convinced with the finding of the CIT(A).
In addition to the above ITAT Bangalore said that they also notice a fundamental mistake committed by the tax department.
The income tax department in the present case in the absence of registration details under section 12 AB, has treated the gross receipts of the assessee as income which is contrary to the settled provisions of law. The assessee has shown application as expenses against such gross receipts, which covers the entire amount of receipt.
Therefore, ITAT Bangalore said that they are of the view that the revenue erred in treating the amount of gross receipt as income of the assessee.
Judgement:
Nevertheless, in view of the facts that the assessee is entitled for the benefit of exemption under section 11 of the Act, in the given facts and circumstances, the assessee’s grievance goes in its favour.
Hence, I set aside the finding of the learned CIT(A) and direct the AO to delete the addition made by him. Thus, the ground of appeal of the assessee is hereby allowed.
In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in court on 3rd day of November, 2025
What is Section 11 exemption?
According to Surana, Section 11 of the Income Tax Act, 1961 provides a structured tax exemption framework for Charitable and Religious Trusts registered under Section 12AB, allowing income to remain tax-exempt when applied for approved charitable purposes.
The exemption applies provided the Trust must apply/ utilise at least 85% of its income towards its charitable or religious objectives, with automatic accumulation of up to 15% permitted. Additional accumulation for specific purposes is allowed under Section 11(2), subject to prescribed conditions including filing Form 10.
Surana says that the income must be applied in India and invested only in permissible modes under Section 11(5). It is pertinent to note that such exemption may be denied if there is any violation of Section 13, such as benefit to specified persons or investment in prohibited assets. Thus, Section 11 ensures that Trust income used for genuine charitable objects is protected from taxation, subject to compliance with statutory conditions, registration, and documentation requirements.
Surana says: "In this judgment, the Bangalore ITAT reaffirmed that Section 11 exemption is a statutory benefit available to charitable or religious institutions registered under Section 12AB, whereby their income is not taxable to the extent it is applied or accumulated for their approved charitable purposes. The Tribunal held that this exemption is a substantive legal entitlement, and it cannot be denied merely due to a clerical or technical error in the income-tax return, such as failure to enter the registration details."
[The Economic Times]
