2025 (10) TMI 860 - HC - Income Tax

Delay in filing and verifying Form 10B condoned due to auditor oversight; s.11 exemption preserved to avoid hardship

HC condoned the delay in filing and verifying Form 10B, holding the lapse was due to the auditor's oversight and abrupt departure and was bona fide and ... Denial of exemption u/s 11 - Delay in filing Form 10B - HELD THAT:- Admittedly, in the present case, the Petitioner obtained the audit report on 31st July 2015 and had also filed the same with the Learned Assistant Charity Commissioner, Mumbai. However, due to the miscommunication and oversight by the chartered accountant of the Petitioner, the audit report remained to be filed/verified prior to filing the return of income dated 16th September 2015. We find that the said non-filing/verification was due to oversight on the part of the chartered accountant responsible for the same. We further find that the said chartered accountant left the employment of the Petitioner abruptly, due to which the non-filing/verification did not come to the notice of the Petitioner till the issuance of the intimation dated 13th March 2019 for the subsequent A.Y.2017-18 and thereafter, on 29th March 2019, the Petitioner filed/verified the audit report in Form 10B. Admittedly, the Petitioner is a charitable trust established more than 25 years ago. Admittedly, the Petitioner has been filing its returns and verifying the Form 10B for all years prior to the subject A.Y. 2015-16 within the due dates. Further, there was a genuine dependence on Chartered Accountant services which has caused the said delay in filing/verification of Form 10B, and which was beyond control the Petitioner. Therefore, in our view, the delay in filing Form 10B is required to be condoned as the failure to file and verify the audit report prior to filing of the return, despite obtaining the same from the auditors within time, could be only due to human error and beyond the control of the Petitioner. Moreover, in our opinion, the Petitioner does not appear to have been lethargic or lacking in bona fides in verifying the audit report beyond the due date which should have a relevance to the desirability and expedience for exercising such power. We find that the observations in the impugned order that the Petitioner’s approach towards income tax compliance is very casual and that the trust is a regular defaulter on the sole ground that the Petitioner has revised its returns in the past, is unsustainable. We find that in the present case, if the delay is not condoned, genuine hardship would be faced by the Petitioner in as much as the exemption claimed by the Petitioner, and to which it would otherwise be entitled to because it is charitable trust, would be denied on this technical ground. We find that the impugned order also refers to a mismatch of figures in the income tax return and the audit report in Form 10B. It is stated in the Petition that the letter dated 27th October 2023, putting forth the allegations of mismatch, was not received by the Petitioner and accordingly, no response could be furnished thereto. Further, it is submitted on behalf of the Petitioner that the said mismatch is based on an incorrect comparison of figures and in any event, would not effect the claim of exemption made by the Petitioner u/s 11 of the Act. Since, there will be no effect of the said mismatch of figures in the income tax return and the audit report in Form 10B on the exemption claimed by the Petitioner u/s 11 of the Act, we refrain from making any observation with regards to the said mis-match of figures and leave it open for the assessing officer to examine the same, if required, at the stage of assessment/rectification. ISSUES PRESENTED AND CONSIDERED 1. Whether the delay of 1,290 days in uploading and verifying the audit report in Form No. 10B can be condoned where the audit report was obtained within time but was not uploaded/verified prior to filing the return due to oversight and departure of the chartered accountant. 2. Whether oversight/miscommunication by a chartered accountant and consequent failure to upload/verify Form No. 10B before filing the return constitutes 'reasonable cause' warranting exercise of discretion to condone delay under the tax regime governing charitable trusts. 3. The relevance and legal effect of a mismatch of figures between the income-tax return and the audit report in Form No. 10B on the question of condonation and on the claim to exemption under Section 11. 4. Whether a justice-oriented, non-mechanical approach is required in exercising discretion to condone delay in filing statutory audit proofs for charitable trusts, having regard to legislative purpose and precedents. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of 1,290 days delay in uploading/verifying Form No. 10B Legal framework: Section 12A(b) and related provisions require trusts/institutions whose income exceeds the non-taxable maximum to obtain an audit and file the audit report in Form No. 10B on or before the due date for filing the return under Section 139. The CBDT authorized Commissioners to consider condonation applications for Assessment Years prior to A.Y. 2018-19 by Circular (May 2019), thereby conferring administrative power to condone past delays. Precedent treatment: The Court referred to recent decisions of the same Court which have condoned delays where bona fide reliance on professional advisers caused non-compliance; one such decision has been further cleared of challenge by the Supreme Court. The Court followed these precedents in preferring a liberal, equitable exercise of discretion. Interpretation and reasoning: The Court accepted the uncontested factual matrix that the audit report was obtained on time, was filed with the Charity Commissioner, but was not uploaded/verified on the income-tax portal due to oversight by the chartered accountant and his abrupt departure. Given the petitioner's long history of compliance and the genuine dependence on professional services, the non-filing was held to be a human error beyond the petitioner's control. The Court emphasized that the discretion to condone delay exists to cater to such human situations and should not be exercised mechanically. Ratio vs. Obiter: Ratio - A delay in uploading/verifying Form No. 10B will be condoned where (a) the audit report was obtained in time, (b) there is genuine and reasonably explained reliance on a professional (chartered accountant) whose oversight caused the failure, (c) the assessee is otherwise compliant and bona fide, and (d) the delay would otherwise cause undue hardship by denying entitlement to statutory exemption. Obiter - General observations on empathy and comparison with condonation in civil procedure provide contextual support but are not necessary to the decision's core holding. Conclusion: The Court quashed the impugned refusal and directed acceptance of Form No. 10B, condoning the 1,290 days delay as a matter of discretion exercised in a justice-oriented manner. Issue 2 - Whether oversight by a chartered accountant constitutes 'reasonable cause' Legal framework: The statutory scheme contemplates a time-bound filing obligation; however, delegated executive instructions (CBDT Circular) and the courts' supervisory jurisdiction permit condonation of delay where reasonable cause is shown. Precedent treatment: The Court relied on and followed earlier rulings of the same Court which held that dependence on professional advisers and human contingencies (illness, sudden departure, other personal difficulties) can constitute reasonable cause for delay; these authorities were treated as directly applicable rather than distinguishable. Interpretation and reasoning: The Court assessed bona fides (longstanding charitable trust, regular past compliance) and causation (oversight by the responsible professional and his abrupt exit, lack of notice to the trust of intimation until a later year) and concluded the cause was beyond the petitioner's control. The Court rejected characterizations of casualness by the taxing authority, noting that past revisions alone do not establish habitual default or mala fides. Ratio vs. Obiter: Ratio - Oversight/miscommunication by an engaged chartered accountant, when honestly explained, can constitute reasonable cause for condoning late filing of Form No. 10B; the assessee's bona fides and history of compliance are material to that assessment. Obiter - Hypothetical scenarios of professional incapacity were used illustratively. Conclusion: The oversight/miscommunication qualified as reasonable cause; condonation was warranted. Issue 3 - Effect of mismatch of figures between the income-tax return and Form No. 10B on condonation and entitlement to exemption Legal framework: Material inconsistencies in statutory filings can be examined at assessment/rectification stages; the power to condone delay is primarily concerned with procedural compliance rather than substantive merits of figures, subject to assessment processes. Precedent treatment: The judgment declined to decide on the correctness of figure comparisons at the condonation stage, aligning with practice in prior decisions to leave substantive disputes to the assessing officer. Interpretation and reasoning: The Court noted the allegation of mismatch, the petitioner's contention that a notice alleging mismatch was not received, and the petitioner's assertion that any mismatch would not affect entitlement under Section 11. Given these contentions and that the relevance to the exemption had not been established, the Court refrained from adjudicating the figure discrepancy at the condonation stage and left the matter open for assessment/rectification by the authority. Ratio vs. Obiter: Ratio - A procedural application for condonation should not be rejected solely on account of an alleged mismatch of figures if such mismatch does not demonstrably affect entitlement to exemption; substantive examination of figures is better reserved for assessment/rectification proceedings. Obiter - Observations indicating no comment will be made on the mismatch represent case-management preference rather than binding law. Conclusion: The mismatch allegation did not preclude condonation; the assessing officer may examine any discrepancies in the course of assessment/rectification. Issue 4 - Requirement of a justice-oriented (non-mechanical) approach in exercising condonation powers Legal framework: Statutory and administrative discretion to condone delays must be exercised reasonably, taking into account legislative purpose (e.g., facilitating legitimate claims of charitable trusts) and the realities of professional dependence. Precedent treatment: The Court expressly followed the jurisprudential approach of prior decisions emphasizing humane, non-pedantic application of condonation powers where bona fide explanations are tendered. Interpretation and reasoning: The Court criticized a mechanical refusal and held that technical rigidity defeats statutory intent by creating undue hardship for bona fide claimants. The Court treated the power to condone as remedial and salutary, to be applied after testing bonafides rather than by default denial. Ratio vs. Obiter: Ratio - Authorities vested with condonation power must adopt a justice-oriented approach and consider bona fide human errors and professional reliance when exercising discretion. Obiter - Broader philosophical statements contrasting technicality and humanity are explanatory rather than dispositive. Conclusion: The Commissioner's mechanical approach was unsustainable; a justice-oriented discretion required condonation in the facts of the case.