CPC Sent Bulk Communications to Trusts u/s 12A Regarding Exemption Denial AY 2024-25

I. Executive Summary: Crisis Diagnosis and Immediate Protocol

The Income Tax Department’s Centralised Processing Centre (CPC) has started making bulk adjustments for Assessment Year (AY) 2024-25. These adjustments are affecting many charitable as well as religious trusts. The CPC is denying exemptions that are usually allowed under Section 11 and Section 12 of the Income Tax Act, 1961.

The CPC is sending pre-intimation notices under Section 143(1)(a)(ii). In these notices, it is saying that the trusts made an “incorrect claim” because they do not have valid registration. However currently, many such trusts do hold valid registration under the new Section 12AB system. This shows that there may be a problem in how the CPC’s database matches the details given in the ITR-7 form.

The main issue comes from the change in registration rules. Earlier, trusts were registered under Section 12A or 12AA. Now, they must be registered under Section 12AB. Each trust is given a 16-digit Unique Registration Number (URN) in Form 10AC. While filing ITR-7, this number must be entered correctly. In case the number is missing, entered inaccurately, or mismatched with the system, the CPC automatically rejects the exemption and assumes the trust is not registered.

This creates serious financial problems. If exemptions are denied, the trust’s income can be taxed at the Maximum Marginal Rate (MMR). To avoid this, trusts need instant professional help. Tax experts should check if the trust’s registration is valid and must find out what mistake happened in the ITR-7 filing and respond to the notice online within the 30-day time limit. Doing this helps avoid huge tax bills and safeguards the trust’s funds.

II. Diagnosis: Deconstructing the Section 143(1)(a)(ii) Adjustment

A. The Mechanism of Preliminary Assessment

The CPC (Centralized Processing Center) does an initial computer–based check of all Income Tax Returns (ITRs) filed online under Section 143(1) of the Income Tax Act. This check is automatic and only looks for basic mistakes, such as calculation errors or mismatches. It compares the details given in the ITR with the department’s records, like Form 26AS, AIS (Annual Information Statement), and official registration data.

The intimation received by the trusts specifies that the adjustment comes under Section 143 (1)(a). This section permits the automatic computation of total income after making adjustments for an incorrect claim that is apparent from any information in the return.

B. Analyzing the Specific Denial in ITR-7

The intimation sheet highlights an error in Schedule Part A – General, at Sl. No. A(17)(ii). At this point, the assessee must mention the section under which exemption is claimed (for example, Section 11).

The automated system works like this:

The trust claimed exemption under Section 11, showing it is a charitable organization eligible for income application benefits. The CPC (Centralized Processing Center) then checks this claim. It cross-verifies the information with the registration details given in Part A – General, especially the fields related to Section 12AB registration.

III. Root Cause Analysis: The 12AB Compliance Chasm

A. Mandatory Migration and the URN

The Finance Act, 2020, necessitated a compulsory re-registration process for all existing trusts that held prior approval under Section 12A or 12AA. This new rule was introduced to shift all charitable institutions to the Section 12AB system. To complete this process, trusts had to apply for re-registration. Once the process is successfully done, the Income Tax Department issues an order in Form 10AC. This order gives the trust a new 16-digit registration number.

B. Common Filing Errors in ITR-7 (AY 2024-25)

The CPC found that many mistakes happen when filing ITR-7 online. For this assessment year, the ITR-7 form requires a few fields about the trust’s registration to be filled correctly.

Some major mistakes that lead to adjustments under Section 143(1)(a)(ii) include:

1. Error or elimination in URN entry

2. Incorrect Section Selection

3. Master Data Synchronization Issues

IV. Legal and Financial Implications: The Maximum Marginal Rate Threat

If the exemption under Sections 11 and 12 is denied, the trust faces very serious consequences. It will lose its tax-exempt status and will have to pay full taxes like any other taxable entity.

A. Erosion of Exempt Status

For a charitable trust, claiming exemption under Sections 11 and 12 depends on having a valid Section 12AB registration. If the CPC finds that this condition is not met, the trust loses the following benefits:

• The advantages of using its income for charitable purposes.
• The right to accumulate funds under Section 11(2).

B. Exposure to Maximum Marginal Rate (MMR)

The major financial risk from a Section 143(1)(a)(ii) adjustment is that the trust’s entire income can be taxed at the highest rate (currently 30% plus surcharge and cess). If the trust loses its Section 11/12 exemption, it may be treated like a regular Association of Persons (AOP). When the beneficiaries are not clearly defined, even donations and income already used for charity can be taxed at this high rate. This can create a huge, unexpected tax liability, hitting funds that were meant for charitable purposes.

V. The Comprehensive Resolution Roadmap: Response and Rectification

Resolution demands a precise and immediate legal-technical response tailored to address the discrepancy identified by the automated processing system.

A. Stage 1: Immediate Response to Pre-Intimation under Section 143 (1)(a)

After receiving the Section 143(1)(a) intimation, the professional must file an online response within the statutory 30-day period.

1. Response Mechanism and Selection

2. Justification

3. Documentary Evidence Submission

B. Stage 2: Post-Finalization Remedies

If the trust misses the initial 30-day response window, or if the CPC goes ahead and finalizes the assessment anyway, the trust must use legal remedies to challenge the final order.

1. Rectification under Section 154

2. Appeal to Commissioner (Appeals)

(Table 1-Legal Remedies for 12AB Denial Intimation)

VI. Prevention Protocol: Ensuring ITR-7 Compliance for AY 2024-25 and Beyond

To avoid automatic disallowance in the future, charitable trusts must check that their digital filings are correct and submitted on time.

A. Strict Enforcement of URN Entry

The key takeaway from the bulk intimation issue is the importance of the Unique Registration Number (URN). Professionals should make sure the 16-digit URN from Form 10AC is entered correctly in Part A – General of ITR-7. Using old 12A/12AA numbers or manual checks is no longer enough. The ITR-7 form now requires that the claimed registration section (12AB) exactly match the registration details on record.

B. Mandatory Compliance Checklist and Timeliness

Apart from registration details, claiming Section 11/12 exemptions also depends on filing the required forms and audit reports on time. The CPC verifies these carefully, and any delay or missing document may attract automatic disallowance.

1.Timely Audit Report Submission

2. Accumulation Forms (Form 9A and 10)

(Table 2- Key Pre-Filing ITR-7 Compliance Checkpoints)

C. The Paradigm Shift in Compliance

The widespread denial of exemptions shows that rules for charitable trusts have changed. Now, it’s not enough to just have a registration certificate. The URN (Unique Registration Number) must be entered correctly in the online return. This digital link is what confirms the trust’s exemptions. Professionals helping trusts need to make sure all data is correct and all forms are filed on time. This protects the trust from strict automatic penalties by the CPC.