2025 (11) TMI 169 - HC - Income Tax

384-day delay in filing Form No.9A condoned; exemption under s.11 granted after accountant's inadvertent error; s.119(2)(b) order set aside

Bipinkumar Electric Corporation Charitable Versus Commissioner of Income Tax (Exemption) & Ors.

Bombay HC condoned a 384-day delay in filing Form No.9A and quashed the order denying exemption under s.11, finding the Petitioner-Trust would suffer ... Condonation of delay of 384 days in filing Form No.9A - Denial of exemption u/s 11 - Refusal to condone the delay on the ground that no “reasonable cause” was shown for the aforesaid delay - HELD THAT:- Having carefully perused the affidavit filed by the erstwhile Chartered Accountant of the Petitioner-Trust, we are of the view that the Petitioner-Trust would suffer grave hardship if the delay is not condoned and the exemption is denied to them only on this count. The Petitioner-Trust, which is a non-government charitable Trust, ought not to be foisted with such a liability because of the inadvertent error of its Chartered Accountant. We also find that in similar facts, this Court in the case of Mirae Asset Foundation [2025 (7) TMI 682 - BOMBAY HIGH COURT] and 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. A Division Bench of the Gujarat High Court in Sarvodaya Charitable Trust [2021 (1) TMI 214 - GUJARAT HIGH COURT] took a view that in cases like the present one (delay in filing Form 10), 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. This is more so, when the legislature has conferred wide discretionary powers to condone the delay on the authorities concerned. We are of the view that the delay ought to be condoned. We accordingly quash and set aside the impugned order dated 15th March 2025 passed by Respondent No. 1 under Section 119(2)(b) of the IT Act. ISSUES PRESENTED AND CONSIDERED 1. Whether delay in filing Form No.9A for claiming exemption under Explanation 1 clause (2) of Section 11(1) of the Income Tax Act, 1961 can be condoned under Section 119(2)(b) where the form was not uploaded contemporaneously due to an inadvertent omission by the trust's Chartered Accountant. 2. Whether the explanation of delay based on the Chartered Accountant's inadvertent omission, supported by an affidavit filed during writ proceedings (but not before the authority when the condonation application was originally considered), constitutes 'reasonable cause' justifying exercise of discretion to condone delay. 3. Whether denial of exemption solely on the ground of delay in filing Form No.9A, where the substantive eligibility for exemption otherwise exists, is appropriate or whether a balancing/equitable approach is required in exercising condonation powers. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Power to condone delay in filing Form No.9A under Section 119(2)(b) Legal framework: Section 119(2)(b) confers power on the appropriate authority to condone delay in matters under the Income Tax Act. Explanation 1 to Section 11(1) clause (2) conditions the claim for accumulation/exemption on compliance including filing prescribed forms (Form No.9A). Precedent Treatment: The Court follows recent decisions of the same High Court where delays in filing prescribed forms for charitable trusts were condoned in similar factual matrices; it also relies on a Gujarat High Court decision (Sarvodaya Charitable Trust) that endorsed an equitable/judicious approach and treated such procedural requirements as amenable to discretionary condonation. Earlier authority treating furnishing of audit/report as directory and permitting substantial compliance is cited to support the approach. Interpretation and reasoning: The Court accepted that the legislature has conferred wide discretionary power to condone delay and that technical bars should not automatically defeat substantive exemption when a charitable trust satisfies the conditions otherwise. The Court viewed the filing requirement as procedural in nature where substantive entitlement should not be denied merely on limitation grounds, particularly for non-government charitable trusts. It emphasized the potential grave hardship to the trust if exemption were refused for an inadvertent filing omission by its professional advisor. Ratio vs. Obiter: Ratio - The authority under Section 119(2)(b) may be exercised to condone delay in filing Form No.9A where the requisite factual and equitable considerations justify such exercise; denial solely on procedural delay is not mandatory. Obiter - General comments on the legislative intent favouring equitable exercise and on the wider applicability to similar procedural filings. Conclusion: The Court held that delay in filing Form No.9A for the year in question ought to be condoned under Section 119(2)(b) and quashed the authority's order refusing condonation. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Sufficiency of explanation based on Chartered Accountant's inadvertent omission and affidavit filed in writ Legal framework: The test for 'reasonable cause' for condonation involves an assessment of the explanation for delay and the surrounding circumstances; documentary evidence or affidavits supporting the explanation are relevant to the exercise of discretion. Precedent Treatment: The Court referred to decisions permitting substantial compliance and condonation where audit reports or other documents were filed belatedly but before assessment or appellate stages, treating the requirement as procedural/directory in nature. The Court followed recent High Court precedents condoning delays on similar proofs of inadvertence. Interpretation and reasoning: Although the original condonation application before the authority lacked an affidavit from the Chartered Accountant, the Court accepted the affidavit subsequently filed in the writ petition as material evidence corroborating the Petitioner's explanation that the omission was inadvertent. The Court weighed the affidavit in the overall matrix and held that requiring absolute technical compliance when reasonable cause is shown would be unduly harsh. The Court observed that the trust would suffer grave hardship if denied exemption for an inadvertent omission by its professional advisor. Ratio vs. Obiter: Ratio - An affidavit by the professional responsible for the omission, even if filed in writ proceedings rather than before the original authority, can be considered in determining reasonable cause for condonation when the totality of facts supports inadvertence and hardship. Obiter - The Court's observation that authorities should adopt an 'equitious, balancing and judicious' approach when assessing such explanations. Conclusion: The Court found the Chartered Accountant's affidavit to be a satisfactory explanation of reasonable cause and accepted it as a basis to condone the delay. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Equitable approach to denial of exemption solely on limitation/technical noncompliance Legal framework: Where statutory or procedural requirements are framed, courts have recognized a distinction between mandatory and directory provisions; discretionary powers may be exercised to prevent unjust denial of substantive rights where procedural lapses do not defeat the substantive entitlement. Precedent Treatment: The Court followed and relied upon prior High Court rulings (including the Gujarat decision) that emphasized equitable treatment, substantial compliance, and the permissibility of condonation instead of strict technical disallowance of exemptions to long-standing charitable trusts. Interpretation and reasoning: The Court reasoned that denying exemption purely on account of delay, without appreciating the circumstances and the trust's substantive compliance, would be inequitable. It invoked the object of the discretionary power under Section 119(2)(b) and aligned with earlier holdings that procedural noncompliance (e.g., delayed audit report or form) can be cured by condonation if sufficient cause is shown and the entity otherwise qualifies. Ratio vs. Obiter: Ratio - Authorities should exercise condonation powers in an equitable, balancing and judicious manner, not mechanically denying exemptions for procedural delays where substantive eligibility exists. Obiter - Broader policy remarks on not foisting liability on non-government charitable trusts for advisor's inadvertence. Conclusion: The Court directed condonation of delay and ordered respondents to give effect to the condonation, holding that an equitable approach required relief rather than technical denial of exemption. CONCLUSIONS AND RELIEF The Court quashed the impugned order refusing condonation, condoned the delay in filing Form No.9A for the relevant assessment year, directed the tax authorities to give effect to this condonation so that the petitioner's claim for accumulation/exemption may be allowed, and dismissed the petition with no order as to costs. The Court's reasoning rests on (a) the discretionary power under Section 119(2)(b), (b) acceptance of the Chartered Accountant's affidavit as adequate explanation of inadvertent omission and reasonable cause, and (c) adherence to an equitable, substantial-compliance approach as endorsed by prior High Court decisions.