2025 (6) TMI 2018 - HC - Income Tax

Denial of exemption u/s 11 - Petitioner had not e-filed the audit report in Form 10B within the prescribed time i.e. one month prior to the due date of furnishing of return of income - power to condone the delay in filing Form Nos. 9A/10/10B/10BB - condonation of delay in e-verifying / accepting the audit report in Form 10B was rejected by the 1st Respondent inter alia on the ground that no sufficient cause was shown for the aforesaid delay - HELD THAT - CBDT vide its Circular No. 16/2022 dated 19th July 2022 authorized the Commissioner of Income Tax for considering and deciding the applications for condonation of delay in filing Form 10B for the Assessment Year 2018-19 or for any subsequent Assessment Years where there is delay of up t0 365 days. In the facts of the present case if one not to apply the decision of the Hon ble Supreme Court in Cognizance for Extensions of Limitation In re 2022 (1) TMI 385 - SC ORDER whereby time was extended due to the Covid-19 pandemic then the delay would be 254 days. If we are to apply the extension granted by the Hon ble Supreme Court then admittedly the delay is of 101 days. When one takes these facts into consideration coupled with the fact that serious prejudice and hardship would be caused to the Petitioner if the delay is not condoned and which was purely out of an inadvertence we are of the view that the 1st Respondent was wholly unjustified in not condoning the delay. In fact the 1st Respondent in the impugned order refers to CBDT Circular No. 16/2024 dated 18th November 2024 under which the CIT has been granted the power to condone the delay in filing Form Nos. 9A/10/10B/10BB for Assessment Year 2018-19 or any subsequent assessment years in cases where the delay is upto 365 days and decide on its merits. The CBDT Circular has further stipulated that the Commissioner of Income Tax while considering such condonation shall satisfy himself that the Applicant was prevented by reasonable cause from filing such Form within the stipulated time and that the case is of genuine hardship on merits. In the facts of the present case if the delay is not condoned genuine hardship would be faced by the Petitioner inasmuch as the exemption claimed by the Petitioner and to which it would otherwise be entitled to because it s a charitable trust would be denied on this technical ground. In these circumstances we are of the view that the 1st Respondent ought to have taken a justice oriented approach rather than a pedantic one and condoned the delay. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

- Whether the delay in e-verifying/accepting the audit report in Form 10B by the Petitioner, a charitable trust, could be condoned despite being beyond the prescribed time limit.

- Whether the impugned order rejecting the condonation of delay, on the ground of no sufficient cause shown, was legally sustainable.

- The applicability and scope of CBDT Circulars authorizing condonation of delay in filing Form 10B for assessment years including 2021-22, especially in light of the Covid-19 pandemic and the Supreme Court's extension of limitation principles.

- Whether the denial of exemption under Sections 11 read with Sections 12/12A of the Income Tax Act, 1961, on the technical ground of delayed e-verification of the audit report, was justified.

- The procedural propriety of Respondent No. 2 passing a suo moto order under Section 154 without hearing the Petitioner.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of Delay in E-verification of Audit Report in Form 10B

Relevant legal framework and precedents: The Income Tax Act, 1961 mandates that charitable trusts file audited accounts and Form 10B within prescribed timelines to claim exemption under Sections 11 and 12A. The CBDT Circular No. 16/2022 dated 19th July 2022 and Circular No. 16/2024 dated 18th November 2024 empower the Commissioner of Income Tax to condone delay up to 365 days in filing Form 10B for assessment years including 2021-22, subject to satisfaction that the delay was due to reasonable cause and genuine hardship would be caused otherwise. The Supreme Court's decision in In re Cognizance for Extensions of Limitation ([2022] 134 taxmann.com 307 (SC)) extended limitation periods due to the Covid-19 pandemic.

Court's interpretation and reasoning: The Court noted that the Petitioner had uploaded the audit report in Form 10B timely but failed to e-verify/accept it within the stipulated time due to inadvertence and the challenges of working from home during the pandemic. Applying the Supreme Court's extension of limitation principles, the Court found the delay to be 101 days, which falls within the 365-day condonation window authorized by the CBDT Circulars. The Court emphasized that the delay was not deliberate or mala fide but caused by inadvertence in exceptional circumstances.

Key evidence and findings: The Petitioner filed the return and audit report within prescribed dates, but the e-verification step was missed. The Petitioner promptly accepted the audit report upon receiving intimation of denial of exemption. The Respondent's refusal to condone delay was based solely on the absence of sufficient cause without considering the pandemic context and inadvertence. The Court also relied on a precedent from the same High Court in a similar case involving the same assessment year, where delay was condoned under comparable facts.

Application of law to facts: The Court applied the CBDT Circulars and the Supreme Court's extension of limitation principles to the facts, concluding that the Petitioner's delay was reasonable and the hardship caused by denying exemption was substantial. The Court held that the Commissioner of Income Tax should have adopted a justice-oriented approach rather than a pedantic one.

Treatment of competing arguments: The Respondents argued that no sufficient cause was shown and the delay was inordinate, thus justifying rejection. The Court rejected this, highlighting the pandemic context, inadvertence, and absence of mala fide intent. The Court also criticized the Respondent's failure to consider the genuine hardship faced by the Petitioner.

Conclusions: The Court concluded that the delay in e-verification of Form 10B should be condoned and the impugned order rejecting the condonation was unsustainable.

Issue 2: Denial of Exemption on Technical Ground of Delay in Filing Audit Report

Relevant legal framework and precedents: Sections 11 and 12A of the Income Tax Act provide exemption to charitable trusts subject to compliance with prescribed conditions including timely filing of audit reports in Form 10B. However, procedural lapses can be excused if reasonable cause is shown and hardship is established, especially under the CBDT Circulars and judicial precedents.

Court's interpretation and reasoning: The Court observed that the denial of exemption solely on the technical ground of delay in e-verification was harsh and would cause serious prejudice to the Petitioner. The Court noted that Respondent No. 2 had initially accepted the 'Nil' income declared by the Petitioner after the audit report was eventually e-verified, but later passed a suo moto order denying exemption without hearing the Petitioner, which was procedurally improper.

Key evidence and findings: The intimation dated 8th September 2022 denied exemption due to delay, but a fresh intimation dated 26th September 2022 accepted the Petitioner's income declaration post e-verification. The subsequent Section 154 order dated 7th March 2023 denying exemption was passed without giving the Petitioner an opportunity to be heard.

Application of law to facts: The Court found the denial of exemption on the technical ground, compounded by the lack of opportunity to be heard, to be unjust. The Court emphasized the need to balance procedural compliance with substantive justice, especially for charitable trusts.

Treatment of competing arguments: The Respondents maintained that strict compliance with timelines is mandatory and no exemption could be granted without timely filing. The Court rejected this rigid approach, particularly in the context of pandemic-related difficulties and inadvertence.

Conclusions: The Court held that the exemption should not be denied on the technical ground of delay, especially when the delay is condoned and the audit report is eventually accepted. The suo moto order passed without hearing was also set aside.

Issue 3: Procedural Legitimacy of Suo Moto Order under Section 154

Relevant legal framework: Section 154 of the Income Tax Act permits rectification of mistakes apparent from the record but requires adherence to principles of natural justice, including giving the affected party an opportunity to be heard.

Court's interpretation and reasoning: The Court found that Respondent No. 2 passed the order under Section 154 denying exemption without granting any hearing to the Petitioner, which was contrary to principles of natural justice and procedural fairness.

Key evidence and findings: The order dated 7th March 2023 was issued suo moto without any prior notice or hearing.

Application of law to facts: The Court held that such procedural lapses vitiate the order and the Petitioner must be given an opportunity to present its case before adverse orders are passed.

Conclusions: The suo moto order under Section 154 was quashed for non-compliance with procedural fairness.

3. SIGNIFICANT HOLDINGS

- "When one takes these facts into consideration, coupled with the fact that serious prejudice and hardship would be caused to the Petitioner if the delay is not condoned, and which was purely out of an inadvertence, we are of the view that the 1st Respondent was wholly unjustified in not condoning the delay."

- "The Commissioner of Income Tax ought to have taken a justice oriented approach rather than a pedantic one and condoned the delay."

- "If the delay is not condoned, genuine hardship would be faced by the Petitioner inasmuch as the exemption claimed by the Petitioner, and to which it would otherwise be entitled to because it's a charitable trust, would be denied on this technical ground."

- The impugned order rejecting condonation of delay is quashed and the delay in filing Form 10B is condoned.

- The suo moto order under Section 154 denying exemption without hearing is set aside.

- The Court emphasized that procedural compliance must be balanced with substantive justice, especially in cases involving charitable trusts and pandemic-related difficulties.