2026 (2) TMI 644 - HC - Income Tax

Delay in filing Audit Report in Form No.10B - condonation principles under administrative discretion favour relief for short, bona fide delays.

Short, bona fide delays in filing the Audit Report in Form No.10B may be addressed through delegated administrative discretion to prevent genuine ... Application for condonation of delay in filing Form 10B - denied benefit of exemption u/s 11 - delay of 50 days in filing Form No. 10B - “genuine hardship” - Petitioner is a public religious cum-charitable Trust carrying out various activities, including providing aid and relief to the poor and needy, education, aid in education, and such other various relief activities HELD THAT:- In the present case, considering that the delay was merely fifty days, and further considering that the main ingredient on which Respondent No. 1 based its rejection of the application was a perceived delay in earlier years, we find that there has been a gross violation of the directions u/s 119(2)(b) read with the Circular for the relevant period issued thereunder. Respondent No. 1 was necessarily bound to follow the law both in letter and spirit and not cause its exercise of discretion to be coloured by non-existent conditions. As decided in Sarvodaya Charitable Trust [2021 (1) TMI 214 - GUJARAT HIGH COURT] has observed that the provision regarding furnishing of Audit Report with the Return of Income has to be treated as a procedural provision. It is a directory in nature and its substantial compliance would suffice. Not granting the benefit of Section 11 to the Petitioner would certainly cause genuine hardship to the Petitioner and may adversely affect the functioning of its activities which provide relief to thousands of students who are utilising its educational aid and schools run by it. The purpose of Section 119(2)(b) is to mitigate such genuine hardship faced by the Assessees and hence the phrase “genuine hardship” is to be construed liberally. In contrast, when the delay is condoned, especially a delay of merely 50 days, the highest that can happen is that the case would be decided on merits after hearing the parties. We quash and set aside the impugned order dated 07/10/2025 for A.Y. 2018-19 and condone the delay of 50 days in filing Form No. 10B. Since the delay is now condoned, the Respondents shall treat the Form No. 10B filed by the Petitioner to have been filed within time and process the Return of Income filed by the Petitioner in accordance with law within 3 months from the date of uploading this Order on the High Court’s website. Issues: Whether the delay of 50 days in filing the Audit Report in Form No.10B for A.Y. 2018-19 should be condoned under Section 119(2)(b) of the Income-tax Act, 1961 so as to enable the Petitioner-Trust to avail exemption under Section 11 of the Income-tax Act, 1961, and whether the impugned order dated 07/10/2025 rejecting the application for condonation should be quashed.Analysis: The factual matrix shows filing of the return and Form 10B on 20/12/2018 whereas the due date was 31/10/2018, resulting in a 50-day delay. The statutory framework includes Section 119(2)(b) which empowers the Board to relax requirements to avoid genuine hardship, and the Finance Act, 2017 insertion of clause (ba) in Section 12A(1) which linked the due date of Form 10B to Section 139(4A). CBDT Circular No.16/2022 (19/07/2022) provided that delays not exceeding 365 days may be decided on merits, with delegated authorities required to act within prescribed timelines. Judicial precedents treat the requirement to furnish the audit report with return as procedural or directory where substantial compliance is shown, and emphasise liberal construction of benevolent provisions to prevent genuine hardship. The Court finds that Respondent No.1 failed to apply mind in accordance with the delegated power under Section 119(2)(b) and the relevant circulars, unduly relying on prior-year filing delays while ignoring timely compliance in subsequent years and the shortness of the present delay. Considering the nature and extent of delay (50 days), the purpose of Section 119(2)(b) to mitigate genuine hardship, and binding/ persuasive authorities recognizing substantial compliance and relief in comparable circumstances, the conditions for exercising discretion in favour of the Petitioner are met. The Court further directed that, having condoned the delay, the Form No.10B shall be treated as filed within time and the return processed in accordance with law within three months of uploading the order.Conclusion: The impugned order dated 07/10/2025 is quashed and set aside; the delay of 50 days in filing Form No.10B is condoned; the Form No.10B shall be treated as filed within time and the Respondents shall process the Petitioner's Return of Income in accordance with law within three months from the date of uploading this Order.