2025 (9) TMI 660 - HC - Income Tax

29-day delay in filing Form No.10B condoned under s.119(2)(b); s.11 exemption should not be denied

St. Thomas High School Versus Commissioner of Income tax (Exemption) and Ors.

Bombay HC quashed the order passed under s.119(2)(b) and held that a 29-day delay in filing Form No.10B should have been condoned. The court found the ... Rejection of exemption u/s 11 - only a 29 day delay in filing Form No. 10B - Condonation of delay u/s 119 - HELD THAT:- In the present case, when one considers that Respondent No. 1 never doubted the factual situation put forth by the Petitioner to explain the delay, Respondent No. 1 ought to have condoned the delay. We find that if this delay is not condoned, there will be genuine hardship to the Petitioner, inasmuch as, the Petitioner would be denied the exemption otherwise claimed under the provisions of Section 11 of the Act and which is a substantial amount. We are of the view that Respondent No. 1 ought to have taken a justice oriented approach rather than a pedantic one, and condoned the delay. We also find that in similar facts, this Court in the case of Mirae Asset Foundation [2025 (7) TMI 682 - BOMBAY HIGH COURT], Sau. Dwarkabai tai Karwa Charitable Trust [2025 (3) TMI 1385 - BOMBAY HIGH COURT] and Kotak Family Foundation [2025 (6) TMI 2018 - BOMBAY HIGH COURT] has taken a similar view and condoned the delay. Even the Hon'ble Gujarat High Court in the case of Sarvodaya Charitable Trust [2021 (1) TMI 214 - GUJARAT HIGH COURT] took the view that in cases like the present one (delay in filing Form No. 10B), the approach of the authorities ought to be equitious, balancing and judicious and availing of exemption should not be denied merely on the bar of limitation. We hereby quash and set aside the impugned order passed by Respondent No. 1 u/s 119(2)(b). ISSUES PRESENTED AND CONSIDERED 1. Whether the authority under Section 119(2)(b) of the Income Tax Act may condone a 29-day delay in filing the audit report in Form No. 10B required under Section 12A(1)(b) where the delay was explained on account of the serious health condition of the accountant responsible for accounts and substantiated by medical evidence. 2. Whether the requirement to furnish the audit report in Form No. 10B by the prescribed date is directory or mandatory for purposes of claiming exemption under Section 11, and whether substantial compliance (i.e., the audit report being available at the time of assessment/processing) suffices. 3. What standard or approach the authority should adopt in exercising discretion to condone delay in filing statutory/ procedural requirements essential to claim tax exemption - a pedantic/technical approach or an equitous, justice-oriented balancing approach - particularly where there is no suggestion of wilful default, tax evasion, or prejudice to revenue. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Power to condone 29-day delay under Section 119(2)(b) where delay attributed to accountant's serious health condition Legal framework: Section 119(2)(b) confers power on the authority to condone delay in procedural compliance; Section 12A(1)(b) / Form No. 10B prescribes furnishing an audit report as a condition to claim exemption under Section 11; timelines under Section 139(1) and processing under Section 143(1) are relevant to assessment. Precedent treatment: The Court relied on recent decisions of this Court (Mirae Asset Foundation; Sau. Dwarkabai tai Karwa Charitable Trust; Kotak Family Foundation) and the Gujarat High Court (Sarvodaya Charitable Trust), which favored condonation in comparable factual matrices where delay arose from bona fide reasons and the audit report was available at assessment/processing. Interpretation and reasoning: The Court accepted that the factual explanation (accountant's miscarriage and medical leave) was not disputed by the revenue and was substantiated by medical evidence. There was no finding of wilful or intentional default, no evidence of tax evasion, and no prejudice to revenue because the Form No. 10B was on record by the time the return was processed. Given these facts, the authority exercising discretion ought to have condoned the 29-day delay. The Court emphasized that where the authority does not dispute the cause, denial of condonation amounts to undue hardship and a failure to exercise discretion in a justice-oriented manner. Ratio vs. Obiter: Ratio - where delay is brief, bona fide, supported by evidence, and there is no taint of wilfulness or prejudice to revenue, discretion under Section 119(2)(b) should be exercised to condone delay. Obiter - the broader policy preference for a non-pedantic approach in all such cases (see Issue 3 discussion). Conclusion: The Court quashed the order refusing condonation and expressly condoned the 29-day delay in filing Form No. 10B. Issue 2 - Directory v. mandatory nature of furnishing Form No. 10B and sufficiency of substantial compliance Legal framework: Statutory requirement to file Form No. 10B under Section 12A(1)(b) as part of claiming exemption under Section 11; the assessment was processed under Section 143(1) after the return and Form No. 10B were filed (albeit late). Precedent treatment: The Court relied on authoritative precedent (including the cited decision holding that furnishing of the audit report with the return is a procedural proviso and directory in nature) to treat the requirement as directory, permitting substantial compliance where the audit report is produced before completion of assessment and no prejudice arises. Interpretation and reasoning: The Court noted that when the audit report was available at the time of processing/assessment, denying exemption solely on ground of delay in filing a procedural document would be disproportionate. The statutory scheme, read with precedents, supports treating the deadline as a procedural requirement whose substantial compliance can be accepted where the underlying objective (verification of accounts to justify exemption) is satisfied and there is no mala fide conduct. Ratio vs. Obiter: Ratio - deadlines for filing Form No. 10B can be treated as directory for purposes of entitlement to exemption, provided the report is produced at the relevant stage and there is reasonable cause for delay with no prejudice to revenue. Obiter - caution that each case depends on facts and longer/ unexplained delays or deliberate defaults may attract a different outcome. Conclusion: Substantial compliance sufficed; the procedural non-compliance did not automatically disentitle the trust to exemption where the report was on record and the delay was reasonably explained. Issue 3 - Standard of discretion: equitable, balancing and judicious approach versus strict/pedantic approach when condoning delays in Form No. 10B filings Legal framework: The authority's discretionary power under Section 119(2)(b) must be exercised judicially; principles of administrative fairness and absence of prejudice to revenue inform that exercise. Precedent treatment: The Court cited earlier decisions that adopted an 'equitious, balancing and judicious' approach rather than a strictly technical one when denying exemption would cause disproportionate hardship to longstanding charitable entities and the legislature has vested broad discretion in authorities to condone delays. Interpretation and reasoning: The Court held that where legislative discretion exists, authorities should avoid a mechanical denial of relief on technical grounds where the substantive entitlement is otherwise satisfied, especially for public charitable trusts with bona fide explanations and documentary proof. The Court expressly criticized a pedantic approach in the instant facts and directed that discretion be exercised to prevent genuine hardship and to uphold the purpose of exemption provisions. Ratio vs. Obiter: Ratio - discretionary power to condone should be exercised with an eye to justice and proportionality, balancing procedural compliance against substantive rights and absence of prejudice. Obiter - general policy exhortation that authorities adopt such an approach in similar future cases. Conclusion: The Court directed an equitable exercise of discretion, set aside the impugned refusal, and remitted relief by condoning the delay; it affirmed that denial on mere technical non-compliance is inappropriate where the authority has not disputed the bona fides and there is no prejudice to revenue. Overall Disposition and Operative Outcome (ratio distilled) Where a charitable trust filed Form No. 10B with a 29-day delay due to a substantiated medical incapacity of the person responsible for accounts, and where the audit report was available at the time of return processing with no allegation of wilfulness, tax evasion, or prejudice to revenue, the authority's refusal to condone delay was quashed and the delay was condoned. The Court endorsed the view that filing of Form No. 10B is a procedural/directory requirement permitting acceptance of substantial compliance, and that discretion under Section 119(2)(b) must be exercised equitably rather than pedantically.