2025 (11) TMI 101 - HC - Income Tax

Exemption under s.11 upheld; 133-day delay in e-filing Form No.10B condoned for charitable trust due to inadvertent auditor lapse

The HC quashed the respondent's order refusing exemption under s.11 and condoned a 133-day delay in electronically filing Form No.10B for AY 2019-20. The ... Denial of exemption u/s 11 on account of non-filing of the audit report in Form No.10B electronically - Rejecting the Petitioner’s application u/s 119(2)(b) - condonation of delay of 133 days in filing Form No.10B for the Assessment Year 2019-20 - HELD THAT:- We find that the delay in filing Form No.10B was neither deliberate nor mala fide but was on account of inadvertence on the part of the Petitioner’s auditor who has admitted the same in his Affidavit dated 3rd March 2025. The Petitioner, a Charitable Trust running educational institutions, had otherwise complied with the statutory requirements, obtained the audit report in time, and filed it immediately upon noticing the lapse. We, therefore, agree with the counsel for the Petitioner that refusal to condone this delay will result in grave injustice and financial hardship to the Petitioner, which runs various educational institutions, especially when the demand has arisen solely on account of a technical lapse. As relying on St. Thomas High School [2025 (9) TMI 660 - BOMBAY HIGH COURT] we accordingly quash and set aside the impugned order dated 26th March 2025 passed by Respondent No.1 under Section 119(2) (b) of the Act. Now that the impugned order is quashed, we also hereby condone the delay of 133 days in filing Form No.10B. ISSUES PRESENTED AND CONSIDERED 1. Whether an authority under Section 119(2)(b) of the Income-tax Act can condone delay in filing the audit report in Form No.10B where the delay of 133 days was caused by inadvertence of the auditor and not by mala fides or deliberate non-compliance. 2. Whether the statutory requirement to furnish the audit report in Form No.10B electronically with the return (and the related provisos to Section 143(1)) is to be treated as a strictly mandatory bar to exemption under Section 11, or whether it admits of a justice-oriented, directory/substantial-compliance approach permitting condonation in appropriate cases. 3. Whether refusal to condone such delay, when the substantive statutory conditions for exemption are otherwise satisfied and the audit report was prepared in time, results in disproportionate injustice and financial hardship warranting interference by the Court under writ jurisdiction. ISSUE-WISE DETAILED ANALYSIS Issue 1: Power under Section 119(2)(b) to condone delay caused by inadvertence of auditor Legal framework: Section 119(2)(b) confers administrative power to the Board/authority to condone delay in compliance with statutory requirements; Form No.10B is statutorily mandated for claiming exemption under Section 11 and, as per the provisos to Section 143(1), is required to be furnished electronically within stipulated timeframes. Precedent treatment: The Court relied on a line of authority wherein similar delays in filing Form No.10B were condoned; those authorities adopted an equitable approach and construed the requirement as amenable to condonation where the delay was not deliberate or mala fide. Interpretation and reasoning: The Court examined the contemporaneous facts - audit report prepared and signed on time, auditor's affidavit admitting inadvertent failure to upload, prompt uploading upon detection and compliance with CPC communication within the second proviso time-limit - and treated the lapse as inadvertent, not deliberate. The Court emphasised the discretion conferred upon the authority to condone delay under Section 119(2)(b) and held that that discretion should be exercised in a justice-oriented manner where delay is bona fide and the substantive conditions for exemption are satisfied. Ratio vs. Obiter: Ratio - administrative power under Section 119(2)(b) includes condonation of delays caused by bona fide inadvertence of auditors where substantive compliance exists; refusal to condone in such circumstances is amenable to judicial review. The Court's reliance on comparable decisions is ratio in the context of like facts. Any broader remarks on policy or legislative wisdom are obiter. Conclusion: The Court concluded that condonation ought to have been granted: the delay was neither deliberate nor mala fide, and the authority's rejection for lack of 'reasonable cause' was unsustainable. The impugned order rejecting condonation was quashed and the delay of 133 days was condoned. Issue 2: Character of the requirement to furnish Form No.10B (directory vs mandatory/substantive) and applicability of substantial compliance Legal framework: Statutory scheme requires furnishing of audit report in Form No.10B; provisos to Section 143(1) prescribe electronic filing timelines. The question is whether non-filing strictly bars exemption or whether substantial compliance and justice-oriented discretion can preserve exemption. Precedent treatment: The Court referred to decisions treating the furnishing requirement as procedural/directory in nature where the substantive audit was completed and later produced (including decisions of the same Court and another High Court that favored an equitable approach); specific earlier authorities were followed for the proposition that substantial compliance suffices in such contexts. Interpretation and reasoning: The Court adopted the view that the provision for furnishing the audit report is procedural and that the discretion to condone delay should be exercised equitably where the assessee had obtained the audit report in time and the lapse was technical. The Court contrasted a pedantic denial of exemption on the ground of timing alone with a balancing approach that prevents grave injustice to charitable entities complying substantively with the statutory regime. Ratio vs. Obiter: Ratio - the requirement to furnish Form No.10B, in circumstances where the audit report was made timely and the failure to upload was inadvertent, may be treated as procedural/directive permitting condonation; consequently, denial of exemption solely on timing where discretionary condonation is available is not justified. Observations about broader policy and legislative choices are obiter. Conclusion: The Court held that the furnishing requirement admits of substantial-compliance analysis and equitable exercise of discretion; therefore, a technical delay in electronic filing does not automatically defeat the claim to exemption where condonation is appropriate. Issue 3: Judicial reviewability of refusal to condone and the relief appropriate by writ Legal framework: Writ jurisdiction permits interference where administrative action is arbitrary, unreasonable or causes injustice; Section 119(2)(b) is a provision under which administrative discretion is exercised and can be reviewed for arbitrary denial. Precedent treatment: The Court followed prior judgments which interfered where authorities adopted a pedantic approach and denied exemption despite substantive compliance and bona fide delay. Interpretation and reasoning: Considering that the delay arose from admitted inadvertence, that the petitioner had otherwise complied with statutory requirements, and that the denial produced substantial financial hardship and undermined the substantive right to exemption, the Court found the impugned order unreasonable. The Court emphasised proportionality and justice-oriented exercise of discretion and exercised supervisory jurisdiction to quash the order and grant condonation itself. Ratio vs. Obiter: Ratio - courts may set aside administrative refusals to condone genuine, non-mala fide delay where such refusal produces disproportionate hardship and when the authority's exercise of discretion is not in accordance with principles of reasonableness and justice. Ancillary remarks on administrative mindset are obiter. Conclusion: Judicial interference was warranted; the Court quashed the impugned order and condoned the delay of 133 days in filing Form No.10B, disposing of the petition without costs. Cross-references and Consolidated Outcome All issues converge on the central proposition: where an audit report was prepared and signed within time, but electronic filing was inadvertently omitted by a senior citizen auditor and uploaded promptly upon discovery, the authority under Section 119(2)(b) should adopt an equitable, justice-oriented approach and condone bona fide delay rather than deny exemption on a purely technical ground. The Court followed like precedents and held that the impugned denial lacked reasonable basis, quashing the order and condoning the delay.