2025 (9) TMI 1507 - HC - Income Tax

Refusal of charitable-trust exemption overturned; delay in filing Form No.10B condoned to prevent genuine hardship and allow related reliefs

HC quashed the respondent's order refusing exemption and condoned the delay in filing Form No. 10B. The court observed the belated audit report had been ... Denial of exemption u/s 11 - delay in filing Form No. 10B - HELD THAT:- It is pertinent to note that considering the above audit report, the revised return filed by the Petitioners was processed and vide intimation dated 2nd January 2020, a refund amount was determined as payable to the Petitioner. Thus, the audit report filed by the Petitioner belatedly was accepted and acted upon by the Respondents. We find that in 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 is a Charitable Trust, would be denied on this technical ground. In these circumstances, we are of the view that Respondent No. 2 ought to have taken a justice-oriented approach rather than a pedantic one and condoned the delay. We quash and set aside the order dated 9th November 2023 passed by Respondent No.2 and condone the delay in filing Form No. 10B by the Petitioner and direct the Respondents to accept the same. ISSUES PRESENTED AND CONSIDERED 1. Whether the Commissioner of Income Tax (Exemptions) has discretion to condone delay in e-verification/acceptance of the audit report in Form No. 10B for assessment years prior to A.Y. 2018-19. 2. Whether inadvertence or oversight by the trust's accountant, leading to failure to accept/e-verify Form No. 10B within the prescribed time, constitutes 'sufficient cause' or 'reasonable cause' warranting condonation of delay. 3. The relevance of subsequent actions (late acceptance of Form No. 10B, filing of revised return, processing of the revised return and issuance of refund/intimation) to the exercise of discretion to condone delay. 4. The proper approach for the Revenue authority in exercising the condonation power - whether a strict/pedantic approach or a justice-oriented/merits-focused approach is appropriate, particularly where denial would cause genuine hardship to a charitable trust entitled to exemption. 5. The authoritative effect of administrative instructions (CBDT Circular authorising Commissioners to decide such applications) and the precedential value of prior judicial decisions addressing condonation of delay in Form No. 10B. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Discretion to condone delay in filing/acceptance of Form No. 10B for assessment years prior to A.Y. 2018-19 Legal framework: Section 12A(b) read with filing obligations under Section 139 and statutory requirements for audit report in Form No. 10B; administrative authority conferred by CBDT Circular No. 10/2019 (22-05-2019) authorising Commissioners of Income Tax to consider condonation applications for AYs prior to A.Y. 2018-19. Precedent Treatment: The Court relied on and followed earlier decisions of the same Court where condonation was allowed on analogous facts; one such decision was upheld against Revenue challenge (Special Leave Petition dismissed by the Supreme Court). Interpretation and reasoning: The CBDT circular legitimately empowers the Commissioners to consider condonation for the specified period; thus the Commissioner possessed jurisdiction and discretion to entertain and allow the condonation application. The existence of such delegated administrative power imports a duty to exercise discretion judicially and reasonably. Ratio vs. Obiter: Ratio - Commissioner has jurisdiction and discretion to condone delay for AYs prior to A.Y. 2018-19 under the CBDT circular and relevant statutory scheme; failure to exercise that discretion where facts justify relief is reviewable. Conclusion: The Commissioner's refusal to condone delay on jurisdictional or power-related grounds was unsustainable where discretion exists under the circular and statutory framework. Issue 2 - Whether inadvertence/oversight of the accountant amounts to sufficient/reasonable cause Legal framework: Concept of 'sufficient cause' or 'reasonable cause' for condonation of delay (administrative/tribunal discretion informed by principles of fairness, bona fides, and absence of mala fides), and the statutory requirement to file/verify Form No. 10B by the due date. Precedent Treatment: Court relied on prior decisions allowing condonation for human error or inadvertence where trust had a record of compliance; those precedents were applied rather than distinguished. Interpretation and reasoning: The Court found the delay arose from human error - the accountants uploaded the audit report but owing to a technical error and subsequent oversight the petitioner did not accept/e-verify it before filing the return. The abrupt departure of the responsible accountant prevented timely detection. The trust had a long history (over 25 years) of timely compliance, bolstering the conclusion that this was an inadvertent, one-off oversight rather than deliberate non-compliance. The Court emphasized that oversight of the accountant can constitute reasonable cause when accompanied by prompt corrective steps upon discovery. Ratio vs. Obiter: Ratio - Inadvertence and oversight by the responsible accountant, in combination with demonstrable bona fide conduct and past compliant record, can constitute sufficient cause to condone delay in acceptance/e-verification of Form No. 10B. Conclusion: The oversight of the accountant amounted to sufficient cause for condonation in the circumstances; the Commissioner's categorical rejection of such explanation was unsustainable. Issue 3 - Relevance of subsequent filing, acceptance of Form No. 10B, and processing of revised return Legal framework: Administrative fairness principle and equity - subsequent steps curing procedural defects and the Revenue's own processing of the revised return are relevant to the exercise of condonation power because they demonstrate bona fide claim and absence of prejudice to Revenue. Precedent Treatment: Prior decisions allowing condonation where late-filed documents were accepted and acted upon by Revenue were applied. Interpretation and reasoning: The late acceptance of Form No. 10B (28-01-2019), filing of the revised return (28-03-2019), and the Revenue's subsequent processing which resulted in an intimation of refund (02-01-2020) showed that the audit report was in substance acceptable and was relied upon by the Revenue. This established that the delayed filing caused no prejudice and that the trust's entitlement to exemption was genuine. The Court held that such factual developments are germane to the Commissioner's discretion and weigh strongly in favour of condonation. Ratio vs. Obiter: Ratio - Subsequent acceptance and processing by Revenue are material and favour condonation where they demonstrate absence of prejudice and bona fides. Conclusion: The subsequent actions by the petitioner and the Revenue supported condonation; the Commissioner should have considered and given weight to these facts. Issue 4 - Proper standard of discretion: justice-oriented vs pedantic approach Legal framework: Administrative discretion must be exercised judicially, bearing in mind principles of reasonableness, equity, and avoidance of technical forfeitures that cause genuine hardship; the Court's supervisory jurisdiction to correct arbitrary or pedantic exercises of discretion. Precedent Treatment: The Court followed earlier authorities adopting a justice-oriented approach in similar facts and rejected overly technical refusals. Interpretation and reasoning: The Court criticized the impugned order's characterisation of the trust as a 'regular defaulter' and its reliance on the accountant's oversight as an insufficient ground without examining bona fides, history of compliance, and consequences of denial. Where a charitable trust would be deprived of its substantive exemption on a technicality despite prompt remedial steps, the Court held that a justice-oriented approach should prevail. The Court observed that the Commissioner ought not to adopt a pedantic stance when the facts show inadvertence, prompt rectification, and no prejudice to Revenue. Ratio vs. Obiter: Ratio - Authorities exercising discretion under the condonation scheme must adopt a justice-oriented, fact-sensitive approach; refusals on pedantic grounds where injustice results are liable to be quashed. Conclusion: The Commissioner's pedantic approach was erroneous; a justice-oriented exercise of discretion required condonation in the present circumstances. Issue 5 - Effect of CBDT Circular and precedential decisions Legal framework: Administrative instructions (CBDT circular) confer authority to Commissioners; judicial precedents interpreting exercise of condonation power are persuasive and, where confirmed by higher court action (dismissal of Revenue's SLP), carry strong precedential weight. Precedent Treatment: The Court followed earlier decisions allowing condonation on similar facts and noted that a challenge to one such decision was dismissed by the Supreme Court, reinforcing the lower-court view. Interpretation and reasoning: The CBDT circular supplied the jurisdictional basis for Commissioners to decide condonation applications. The Court treated prior decisions as directly on point and binding in practice for guidance, particularly when the Supreme Court declined to entertain an appeal against such a decision, indicating limited scope for contrary administrative practice. Ratio vs. Obiter: Ratio - CBDT Circular authorises Commissioner-level consideration of condonation for specified AYs; consistent judicial decisions approving condonation on comparable facts are highly persuasive and reinforce the correct approach to discretion. Conclusion: The Commissioner should have acted in conformity with the administrative circular and the line of judicial authority favouring condonation in comparable circumstances. Final Disposition (legal conclusion derived from reasoning) On the facts - long prior compliance, inadvertent oversight by the accountant, prompt corrective steps, acceptance and processing by Revenue, absence of prejudice, and applicable CBDT delegation and precedents - the Commissioner's refusal to condone a 447-day delay in acceptance/e-verification of Form No. 10B was quashed; the delay was condoned and the Form directed to be accepted. This holding constitutes the operative ratio of the decision.