Quashed order under s.119(2)(b); 70-day delay in filing Form No.10B condoned, s.11 exemption restored and demand set aside

HC quashed the impugned order under s.119(2)(b) and condoned a 70-day delay in filing the audit report in Form No.10B for AY 2020-21. The court accepted the explanation that the due date change for Form No.10B went unnoticed and that the report was filed along with the return. Given the trust's operational disruptions and resultant hardship, the HC held the delay genuine and directed relief from the denial of exemption under s.11, setting aside the demand arising from the belated filing.

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ISSUES PRESENTED AND CONSIDERED

1. Whether an application for condonation of delay in filing Form No.10B beyond three years from the end of the relevant assessment year is maintainable before the Commissioner of Income Tax (Exemptions) in view of a CBDT Circular prescribing a three-year bar for field authorities and for applications filed on or after the Circular's date.

2. Whether, independently of the Circular's validity, the power under Section 119(2)(b) of the Income Tax Act to condone delay in filing Form No.10B should be exercised in the facts of the present case to permit belated acceptance of the audit report and consequent entitlement to exemption under Section 11.

3. What are the relevant factors (including "genuine hardship") and principles to be applied when exercising discretion under Section 119(2)(b) in cases of delayed filing of Form No.10B?

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Maintainability before Commissioner in view of CBDT Circular

Legal framework: Paragraph 3 of a CBDT Circular dated 18.11.2024 prescribes that applications for condonation of delay in filing Forms 9A/10/10B/10BB shall not be entertained beyond three years from the end of the assessment year for which application is made, and that this time-limit applies to applications filed on or after the Circular's date.

Precedent treatment: The Court referred to existing decisions on condonation of delay and to administrative practice but did not undertake a full adjudication of the Circular's vires.

Interpretation and reasoning: Respondents clarified by affidavit that the three-year restriction in paragraph 3 is intended to bind only field authorities and that applications beyond three years can be entertained by the Central Board of Direct Taxes (CBDT) itself; thus, assessees are not left remediless. Given this clarification and the Court's proposed disposition, the Court refrained from deciding the broader legal question on the Circular's validity.

Ratio vs. Obiter: The Court's refusal to decide the legality of paragraph 3 of the Circular is obiter on that point; the clarification by Respondents (that CBDT retains jurisdiction for applications beyond three years) is treated as operative for the case but the legal validity of the Circular itself is not conclusively determined (obiter on circular vires).

Conclusion: The Court did not adjudicate the validity of paragraph 3 of the CBDT Circular; it accepted the respondents' clarification that CBDT may consider applications beyond three years and avoided deciding the broader legal challenge to the Circular.

Issue 2 - Exercise of discretion under Section 119(2)(b) to condone 70-day delay in filing Form No.10B

Legal framework: Section 119(2)(b) confers power on revenue authorities to condone procedural default and enable disposal on merits; courts and authorities must weigh substantive justice against technical non-compliance.

Precedent treatment: The Court relied on its own prior decisions (including principles in Sitaldas K. Motwani) and other High Court authorities which have construed "genuine hardship" liberally and held that discretionary power to condone delay should be used to advance substantial justice where delay is not deliberate or mala fide. The Court also referred to recent analogous orders where delays in filing Form 10B were condoned.

Interpretation and reasoning: The Court analysed the factual matrix: (a) delay in filing Form 10B was 70 days and the audit report was in fact filed together with the return; (b) A.Y. 2020-21 involved a one-month preponement of the due date for Form 10B which was inadvertently not noticed by the trust and its Chartered Accountant; (c) the trust operated without key trustees and permanent accounting staff during the pandemic period and intimation/rectification notices went unnoticed; (d) new trustees only discovered the denial of exemption in March 2025 and promptly filed an application for condonation on auditor's advice. The Court found these explanations credible and non-culpable. The Court emphasised that one of the recognised considerations under Section 119(2)(b) is avoidance of genuine hardship where refusal to condone would deny substantial entitlement (here, exemption under Section 11) and impose significant demand.

Ratio vs. Obiter: The holding that, on these facts, the delay of 70 days should be condoned is ratio for the case. Observations endorsing a liberal, justice-oriented approach to condonation of delay and relying on cited authorities are ratio as applied to the exercise of discretion under Section 119(2)(b). Statements about the Circular's non-decided status are obiter concerning its legal validity.

Conclusion: The Court exercised its discretion under Section 119(2)(b) to condone the 70-day delay in filing Form 10B for A.Y. 2020-21, quashed the impugned order rejecting the condonation application, and directed respondents to re-process the returns treating Form 10B as filed within time.

Issue 3 - Factors and standard for condonation under Section 119(2)(b) (including "genuine hardship")

Legal framework: Section 119(2)(b) permits condonation of procedural lapses; jurisprudence requires a liberal construction of "genuine hardship" and an objective, justice-oriented assessment rather than a mechanical denial on technical grounds.

Precedent treatment: The Court expressly followed the approach in Sitaldas K. Motwani and analogous decisions which hold that authorities should prefer substantial justice over technical obstacles, there is no presumption of deliberate or mala fide delay, and an assessee ordinarily does not stand to benefit from delay.

Interpretation and reasoning: The Court distilled relevant considerations: length and cause of delay; whether delay was deliberate or culpable; whether substantive compliance was otherwise present (audit report was filed albeit late); pandemic-related disruptions and administrative changes in trusteeship; the potential hardship and financial prejudice of denying exemption and raising a substantial demand; and precedent supporting equitable balancing in such cases. The Court observed that procedural provisos, particularly where the audit report was ultimately produced and assessed, may be treated as directory and substantial compliance can suffice to prevent injustice.

Ratio vs. Obiter: The Court's articulation of factors to be weighed (length/cause of delay, bona fides, substantive compliance, hardship) and its endorsement of a liberal, justice-oriented approach constitute ratio guidance for similar exercises of discretion under Section 119(2)(b). References to other authorities are relied upon as binding reasoning for the approach adopted.

Conclusion: Authorities exercising discretion under Section 119(2)(b) should apply a balancing test favouring substantial justice where delays are short, non-deliberate, substantively compliant, and where refusal would cause genuine hardship; such factors justified condonation in the present case.

Relief and consequential directions

Conclusion: The impugned order refusing condonation was quashed; the delay of 70 days in filing Form 10B for A.Y. 2020-21 was condoned; respondents were directed to reprocess returns in accordance with law treating Form 10B as filed within time; no order as to costs.

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