Case Law Details
Kotak Family Foundation Vs CIT (Exemption) & Others (Bombay High Court)
In a significant ruling for charitable organizations, the Delhi High Court has quashed an order by the Commissioner of Income Tax (Exemption), Mumbai, which had denied the Kotak Family Foundation its tax exemption for the Assessment Year 2021-22 due to a delay in e-verifying an audit report. The court emphasized a “justice-oriented approach,” holding that genuine hardship caused by a technical lapse, especially during the Covid-19 pandemic, warranted condonation of delay.
The case, Kotak Family Foundation Vs. CIT (Exemption) & Others, centered on the petitioner, a Public Charitable Trust established in May 2017, which had duly received approvals under Sections 12A/12AA and 80G of the Income Tax Act, 1961. For the Assessment Year 2021-22, the trust had filed its income tax return on December 30, 2021, well within the extended due date of February 15, 2022, a concession granted by the Central Board of Direct Taxes (CBDT) due to the Covid-19 pandemic.
Further demonstrating its compliance, the trust had electronically filed Form 9A on December 22, 2021, exercising its option under Section 11(1) of the IT Act to accumulate 85% of its income for future charitable purposes. Crucially, its accounts were audited, and the audit report in Form 10B was uploaded online by the auditor on December 29, 2021 – a day before the income tax return was filed.
The crux of the dispute arose from a seemingly minor, yet critical, procedural step: the e-verification or acceptance of the uploaded Form 10B by the assessee itself. Due to the prevailing Covid-19 pandemic, during which the trust’s employees and trustees were working remotely from home, this final e-verification was inadvertently missed within the stipulated timeframe. This oversight, the petitioner argued, was a genuine mistake rather than a deliberate act of non-compliance.
The initial ramifications of this inadvertence became apparent when the Kotak Family Foundation received an intimation under Section 143(1)(a) of the IT Act on September 8, 2022, from the Assessing Officer (Respondent No.2). This intimation denied the trust an exemption of Rs. 58,02,006, specifically citing the non-filing of the audit report in Form 10B within the prescribed period (one month prior to the due date of furnishing the return).
Upon realizing the error, the trust promptly e-verified and accepted the Form 10B on September 9, 2022, just one day after receiving the adverse intimation. This swift action appeared to resolve the issue, as Respondent No.2 subsequently issued a fresh intimation on September 26, 2022, under Section 143(1) of the IT Act, accepting the ‘Nil’ income declared by the trust. This implied an acceptance of the belated e-verification.
However, the relief was short-lived. Without granting any opportunity for a hearing, Respondent No.2, on March 7, 2023, suo moto passed an order under Section 154 of the Act. This order reversed the earlier acceptance and once again denied the exemption to the trust under Sections 11 read with 12/12A of the IT Act, reiterating the non-submission of the audit report in Form 10B within the prescribed time. It was in response to this second denial that the Kotak Family Foundation filed an application before the Commissioner of Income Tax (Exemption) (Respondent No.1) on March 29, 2023, seeking condonation of the delay in accepting/verifying the audit report. This application was ultimately rejected by the impugned order dated February 10, 2025, prompting the trust to approach the Delhi High Court.
During the High Court proceedings, the petitioner’s counsel highlighted the CBDT’s own circulars that empower tax authorities to condone such delays. Specifically, CBDT Circular No. 16/2022, dated July 19, 2022, authorizes the Commissioner of Income Tax to consider and decide applications for condonation of delay in filing Form 10B for Assessment Year 2018-19 or subsequent years, where the delay is up to 365 days. A later circular, CBDT Circular No. 16/2024, dated November 18, 2024, further clarified this power for Form 9A/10/10B/10BB, stipulating that the Commissioner should satisfy themselves that the applicant was prevented by a reasonable cause and that the case involves genuine hardship.
The court noted that the actual delay in e-verification was 254 days. Even considering the Supreme Court’s pronouncement in Cognizance for Extensions of Limitation, In re ([2022] 134 taxmann.com 307 (SC)), which extended limitation periods due to the Covid-19 pandemic, the delay would be a mere 101 days. In either scenario, the delay fell well within the 365-day limit prescribed by the CBDT circulars.
The bench underscored that denying the exemption to a charitable trust, which would otherwise be entitled to it, purely on a technical ground of inadvertent delay would cause “serious prejudice and hardship.” The court found the Commissioner’s rejection of the condonation application to be “wholly unjustified.” It asserted that the Commissioner should have adopted a “justice-oriented approach” rather than a “pedantic one,” especially given the circumstances of the pandemic and the trust’s prompt rectification upon becoming aware of the error.
In support of its decision, the Delhi High Court also drew parallels with a similar case decided by the Bombay High Court. The precedent cited was Sau Dwarkabai Tai Karwa Charitable Public Trust v/s. Commissioner of Income-tax (Exemption), reported in [2025] 174 taxmann.com 245 (Bombay). Notably, this Bombay High Court ruling also pertained to the same Assessment Year (2021-22) and involved similar facts, where the delay in filing Form 10B was condoned. This judicial consistency across High Courts further bolstered the Delhi High Court’s stance.
In light of the detailed discussion and the reasons presented, the Delhi High Court allowed the writ petition. The impugned order dated February 10, 2025, passed by the Commissioner of Income Tax (Exemption), was quashed and set aside. Crucially, the court itself proceeded to condone the delay in the e-verification of Form 10B by the Kotak Family Foundation. This verdict ensures that the charitable trust will not be penalized for a procedural lapse that occurred under exceptional circumstances, reinforcing the principle that substance should prevail over form in tax matters, particularly when genuine hardship is demonstrated. The ruling serves as a reminder to tax authorities to exercise their discretionary powers of condonation with a pragmatic and equitable perspective.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Rule. Respondents waives service. With the consent of the parties, Rule made returnable forthwith and heard finally.
2. The above Petition challenges the impugned order dated 10th February, 2025 passed by Respondent No.1 (Commissioner of Income Tax [Exemption]), Mumbai.
3. By the impugned order, the application filed by the Petitioner seeking a condonation of delay in e-verifying / accepting the audit report in 13-wpl-17883-2025.doc Form 10B, was rejected by the 1st Respondent, inter alia, on the ground that no sufficient cause was shown for the aforesaid delay.
4. The facts of this case would reveal that the Petitioner is a Public Charitable Trust established under a Trust Deed dated 2nd May, 2017. The Petitioner – Trust has also received approval from the 1st Respondent under Sections 12A/ 12AA on 16th January, 2018 and under Section 80G on 13th August, 2018.
5. For the Assessment Year 2021-22, the due date of filing the income tax return was 15th February, 2022 as per Central Board of Direct Taxes (“CBDT”) Press Release dated 11th January, 2022 and which had extended the due date for filing the return of income in view of the Covid-19 pandemic. The Petitioner-Trust filed its return of income on 30th December, 2021 which was within time.
6. As per clause 2 of the Explanation to Section 11(1) of the Income Tax Act, 1961 (“IT Act”), where a charitable institution or trust could not apply 85% of its income for charitable purposes during previous year, the charitable institution or trust could apply in Form 9A electronically to the Assessing Officer before the expiry of the due date for filing of income tax return under Section 139 (1) of the IT Act for accumulation of the said income to be applied in subsequent years.
7. During the year under consideration, the Petitioner exercised this option by filing Form No.9A electronically on 22nd December, 2021 (i.e. before the due date for filing the return under Section 139 of the IT Act).
8. Further, the Petitioner also got its account audited and the audit report in Form 10B was uploaded online by the auditor of the Petitioner on 29th December, 2021 i.e. one day before the filing of return under Section 139 (1) of the IT Act.
9. The problem has arisen because apart from uploading the audit report, the assessee is also required to e-verify/ accept the said audit report. Since all this was done during the Covid-19 pandemic and the trustees/ employees of the Petitioner-Trust were working from home, due to inadvertence, the e-verification/ acceptance of the audit report in Form 10B, and which was already filed by the auditor in time, was not done by the Petitioner-Trust within the stipulated time.
10. It appears that the Petitioner received an intimation under Section 143(1)(a) of the IT Act dated 8th September, 2022 issued by Respondent No.2, denying the exemption of Rs.58,02,006/- which was claimed by the Petitioner. The ground on which the exemption was denied was that the Petitioner had not e-filed the audit report in Form 10B within the prescribed time i.e. one month prior to the due date of furnishing of return of income. As soon as the Petitioner became aware of this inadvertent error of not e-verifying the audit report, the Petitioner verified/ accepted the audit report in Form 10B on 9th September, 2022.
11. Subsequent to the e-verification/ acceptance of the audit report in Form 10B by the Petitioner, Respondent No.2 issued a fresh intimation dated 26th September, 2022 under Section 143 (1) of the IT Act, accepting the ‘Nil’ income declared by the Petitioner in its return of income. In other words, Respondent No.2 thereby accepted the e-verification of the audit report by the Petitioner. However, Respondent No.2, on 7th March, 2023 without granting any opportunity of being heard to the Petitioner, suo moto passed an order under Section 154 of the Act denying the exemption to the Petitioner [under Section 11 read with Section 12/12A of the IT Act], for non-submission of the audit report in Form 10B within the time prescribed. It is in these circumstances that on 29th March, 2023, the Petitioner filed an application before Respondent No.1, seeking a condonation of delay in acceptance/ verification of the audit report in Form 10B and which was rejected by the impugned order. This has given rise to the present Petition.
12. We have heard Mr. Agrawal, the learned Counsel appearing on behalf of the Petitioner as well as the learned Counsel Mr. Bhosale, appearing on behalf of the Respondents. It has been brought to our attention that CBDT vide its Circular No. 16/2022 dated 19th July, 2022 authorized the Commissioner of Income Tax for considering and deciding the applications for condonation of delay in filing Form 10B for the Assessment Year 2018-19 or for any subsequent Assessment Years, where there is delay of up t0 365 days. In the facts of the present case, if one not to apply the decision of the Hon’ble Supreme Court in Cognizance for Extensions of Limitation, In re ([2022] 134 taxmann.com 307 (SC)) whereby time was extended due to the Covid-19 pandemic, then the delay would be 254 days. If we are to apply the extension granted by the Hon’ble Supreme Court, then admittedly, the delay is of 101 days. When one takes these facts into consideration, coupled with the fact that serious prejudice and hardship would be caused to the Petitioner if the delay is not condoned, and which was purely out of an inadvertence, we are of the view that the 1st Respondent was wholly unjustified in not condoning the delay.
13. In fact, the 1st Respondent, in the impugned order, refers to CBDT Circular No. 16/2024 dated 18th November, 2024 under which the Commissioner of Income Tax has been granted the power to condone the delay in filing Form Nos. 9A/10/10B/10BB for Assessment Year 2018-19 or any subsequent assessment years, in cases where the delay is upto 365 days, and decide on its merits. The CBDT Circular has further stipulated that the Commissioner of Income Tax, while considering such condonation, shall satisfy himself that the Applicant was prevented by reasonable cause from filing such Form within the stipulated time and that the case is of genuine hardship on merits. In the facts of the present case, if the delay is not condoned, genuine hardship would be faced by the Petitioner inasmuch as the exemption claimed by the Petitioner, and to which it would otherwise be entitled to because it’s a charitable trust, would be denied on this technical ground. In these circumstances, we are of the view that the 1st Respondent ought to have taken a justice oriented approach rather than a pedantic one and condoned the delay. We also find that in the similar facts, this Court in the case of Sau Dwarkabai Tai Karwa Charitable Public Trust v/s. Commissioner of Income-tax (Exemption) reported in [2025] 174 taxmann. com 245 (Bombay) has taken a similar view and condoned the delay. In fact, in the aforesaid case, it was in relation to the very same Assessment Year as in the present case, namely, Assessment Year 2021-22.
14. In view of the aforesaid discussion and the reasons stated above, we allow the above Writ Petition in terms of prayer clause (a) which reads thus:-
“that this Hon’ble Court be pleased to issue a Writ of Certiorari or any other writ order or direction under Article 226 of the Constitution of India calling for the records of the case leading to the passing of the impugned order dated 10th February 2025 (Exhibit S) and after going though the same and examining the question of legality thereof quash, cancel and set aside the impugned order dated 10th February, 2025 (Exhibit S)”.
15. Now that the impugned order is quashed, we also hereby condone the delay in filing Form 10B by the Petitioner.
16. Rule is made absolute in the above terms and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.
17. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.
Author Bio
