Gujarat HC Allows Delay Condonation for Form 10B Filing

Shree Maharaja Agrasen Seva Sansthan Vs CIT (Exem) (Gujarat High Court)

The Gujarat High Court ruled in favor of Maharaja Agrasen Seva Sansthan in its writ petition challenging the rejection of its delay condonation request for filing Form 10B for the Assessment Year 2014-15. The Commissioner of Income Tax (Exemptions) had denied the application under Section 119(2)(b) of the Income Tax Act, citing an excessive delay of six years and a lack of valid justification. The petitioner argued that technical issues and software-related challenges caused the delay, but the revenue authorities dismissed these reasons as insufficient. The department contended that the petitioner displayed negligence by not utilizing available legal remedies in a timely manner.

The High Court reviewed relevant case laws and observed that genuine hardship must be considered in delay condonation matters. The court emphasized that procedural delays should not unfairly deprive an entity of its rightful tax exemptions. Concluding that the CIT (Exemption) had taken an excessively rigid approach, the court quashed the impugned order and allowed the delay condonation application, enabling the petitioner to claim exemptions under Sections 11 and 12 of the Income Tax Act.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1. By this writ-application under Article 226 of the Constitution of India, the writ-applicant has prayed for the following reliefs:-

10(a) To issue a writ of certiorari or in the nature of certiorari or any other appropriate writ, orders or directions quashing and setting aside the impugned order dt.17-6-2021 passed u/s.119(2) of the Act [Annexure A] rejecting the application for condonation of delay in filing of Form No.10B for A.Y.2014-15 as well as the orders passed in consequence to the impugned order.

(b) To issue a writ of mandamus or in the nature of mandamus or any other appropriate writ, orders or directions to the Respondent condoning the delay in filing the Form No.10B for A.Y.2014-15 and allow all consequential reliefs, allowances, deductions & exemptions as permissible under the

(d)  To call for the records of the proceedings, look into them and be pleased to issue a writ of certiorari or any other appropriate writ, order or directions quashing the impugned notice and order.

(e) Pending the hearing and final disposal of this petition ask the respondent and its subordinates not to take any action or to do anything in furtherance and pursuance of this impugned

(f) To allow this petition with cost.

(g) To pass any further or other orders as the Hon’ble Court may deem proper in the interest of justice and in the circumstances of the case.

2. The impugned order passed by the respondent under Section- 119(2)(b) of the Income-tax Act, 1961 [for short ‘the Act, 1961’] dated 17.06.2021 declining to condone the delay reads thus:-

ORDER U/S/119(2)(b) OF THE INCOME-TAX ACT, 1961

 The assessee vide letter dated 22.03.2021 has sought Condonation for delay in filing Form 10B for A.Y.2014-15. As per the documents on file, the assessee has filed the return of income for A.Y.2014-15 on 22.07.2014, but Form 10B is filed only on 18.03.2021. The reason for the delay is mentioned in application as “due to technical problem and no support from software”. In view of the same, condonation has been sought.

2. As the reason given cannot be taken as reasonable cause, letter was issued to the assess vide this office letter dated 08.04.2021 to show cause why its application should not The assessee was requested to file its reply within 7 days of receipt of the letter. The assessee vide its reply dated 17.04.2021 and 22.04.2021 has reiterated that the delay was only on account of technical issues.

3. The reply of the assessee is not found to be acceptable as it could have filed the Audit report subsequently without considerable delay. In the instant case, the delay is more than 6 years from the date of filing of return. The reason due to technical error Form No.10B could not be filed by more than 6 years is not satisfactory and acceptable reason. Accordingly, taking into account the instructions given in para 4(ii) of Circular No.10/2019 dated 22.05.2019, I hereby reject the Condonation application for delay in filing of Audit report in Form 10B for A.Y.2014-15.

3. The respondent has filed reply stating as under:-

“3. At the outset, I humbly submit that the petitioner has challenged the order dated 17.06.2021 rendered by the respondent – Commissioner of Income Tax (Exemptions), Ahmedabad in exercise of powers conferred under Section 119(2) (b) of the Income Tax Act, 1961 (herein after referred to as ‘the Act’) whereby the petitioner’s application for condoning the delay caused in filing the Form 10B for the Assessment Year 2014-2015 came to be rejected on the ground that the sole reason of technical problem cannot be said to be sufficient ground for condoning huge delay of six (6) years. Furthermore, the reasons of technical problem and no support from software stated by the petitioner are self serving inasmuch as the petitioner did file its audit report within time for the subsequent assessment years. I submit such delay in filing Form 10B was due to inaction and lethargic approach on part of the petitioner. The powers under Section 119(2)(b) of the Act has been exercised diligently and judiciously after providing an opportunity of hearing to the petitioner and considering the material available on record. There being no flaw in the decision making process as well as no violation of the principles of natural justice, the instant petition is misconceived and, therefore, requires to be dismissed.

4. The facts in a nutshell are that the petitioner filed return of income for A.Y. 2014-15 on 22.07.2014. An intimation u/s.143(1) came to be served on 16.03.2016. The petitioner filed Form 10B online on 18.03.2021 after long gap of 6 years without any application for condonation of delay. The petitioner – assessee filed an application under Section 119(2)(b) of the Act before the respondent on 22.03.2021 requesting for condonation of The dates relevant are as under:

The above sequence clearly goes to show the lethargic and casual approach adopted by the petitioner. I submit that no sufficient cause or explanation has been shown for condoning such huge delay of 6 years. In view of the above, the rejection of application is legal and valid.

5(IV) With reference to para 3.4A, it is submitted that if the petitioner came to know from the intimation u/s.143(1) dated 16/03/2016 that exemptions claimed was denied due to non-filing of Form No.10B, then why Form No.10B was not uploaded by 31/03/2016 u/s.139(4) of the Act, which is the main reason for denial of exemptions u/s.11 and 12 of the Act. However, the petitioner uploaded disagreement with demand on the CPC portal on 28/06/2016 without any attachment in support of its reply. Further, on perusal of reply letter dated 05.06.2018, it is observed that copy of rectification application and copy of Form No.10B was not furnished to the Assessing Officer as requested vide letter dated 30/05/2018 to get remedy. Furthermore, the response downloaded from I.T. portal dated 19/12/2018 wherein it was clearly mentioned that rectification rights has been available with the Assessing Officer, then why petitioner has not filed rectification application before the Assessing Officer, in spite of that the petitioner has reiterated the same facts on 10/07/2019. Only registration granted u/s.12AA does not confer any right of entitlement of benefit under sections 11, 12 and 13 of the Act. Form No.10B is also mandatory to claim exemptions u/s.11 and 12 of the Act. Further, audit report u/s.12A(1)(b) has to be filed by a charitable or religious trust or institutions has been granted registration u/s.12A of the Act.”

4. We have heard Mr. S.N. Devetia, the learned counsel appearing for the writ-applicant and Mr. M.R. Bhatt, the learned senior counsel appearing for the revenue.

5. We should look into the position of law as regards the subject matter of this writ-application :

(i) In Artist Tree Ltd. vs. Central Board of Direct Taxes and others, (2014) 369 ITR 691 (Bombay). The relevant paragraphs 11 to 14 and 23 of the said judgment are quoted below for ready reference:

“11. The expression ‘genuine hardship’ came up for consideration of the Supreme Court in the case of B.M.Malani (supra), wherein, by reference to New Collins Concise English Dictionary, the Supreme Court accepted the position that “genuine” means not fake or counterfeit, real, not pretending (not bogus or merely a ruse). Further, a genuine hardship would, inter alia, mean a genuine difficulty. The ingredients of genuine hardship, must be determined keeping in view the dictionary meaning thereof and legal conspectus attending thereto. For the said purpose, another well known principle, namely, that a person cannot take advantage of his own wrong, may also have to be borne in mind. Compulsion to pay any unjust dues per se would cause hardship. But a question as to whether the default in payment of the amount was due to circumstances beyond the control of the assessee, also bears consideration.

12. In the case of Seshammal (supra), the Madras High Court was pleased to observe as under (page 187 of 237 ITR):

“This is hardly the manner in which the State is expected to deal with the citizens, who in their anxiety to comply with all the requirements of the Act pay monies as advance tax to the State, even though the monies were not actually required to be paid by them and there after seek refund of the monies so paid by mistake after the proceedings under the Act are dropped by the authorities concerned. The State is not entitled to plead the hyper technical plea of limitation in such a situation to avoid return of the amounts. Section 119 of the Act vests ample power in the Board to render justice in such a situation. The Board has acted arbitrarily in rejecting the petitioner’s request for refund.”

13. In the case of Sitaldas Motwani (supra), this court has held that the expression “genuine hardship” used in section 119(2)(b) of the said Act should be construed liberally, particularly in matters of entertaining of applications seeking condonation of delay. This court was pleased to observe as under (page 228 of 323 ITR):

 “The phrase ‘genuine hardship’ used in section 119(2) (b) should have been construed liberally even when the petitioner has complied with all the conditions mentioned in Circular dated October 12, 1993. The Legislature has conferred the power to condone delay to enable the authorities to do substantive justice to the parties by disposing of the matters on the merits. The expression ‘genuine’ has received a liberal meaning in view of the law laid down by the apex court referred to hereinabove and while considering this aspect, the authorities are expected to bear in mind that ordinarily the applicant, applying for condonation of delay does not stand to benefit by lodging its claim late. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold an cause of justice being defeated. As against this, when delay is condoned the highest that can happen is that a cause would be decided on the merits after hearing the parties. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred for the other side cannot claim to have a vested right in injustice being done because of a nondeliberate delay. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk. The approach of the authorities should be justice oriented so as to advance the cause of justice. If refund is legitimately due to the applicant, mere delay should not defeat the claim for refund.”

14. In the case of Bombay Mercantile Co-operative Bank (supra), this court again observed that it is well settled that in matters of condonation of delay highly pedantic approach should be eschewed and a justice-oriented should be adopted. It also observed that a party should not be made to suffer on account of technicalities.

23. In the light of the aforesaid discussion, we are of the opinion that an acceptable explanation was offered by the petitioner and a case of genuine hardship was made out. The refusal by the Central Board of Direct Taxes to condone the delay was a result of adoption of an unduly restrictive approach. The Central Board of Direct Taxes appears to have proceeded on the basis that the delay was deliberate, when from the explanation offered by the petitioner, it is clear that the delay was neither deliberate nor on account of culpable negligence or any mala fides. Therefore, the impugned order dated May 16, 2006, made by the Central Board of Direct Taxes refusing to condone the delay in filing the return of income for the assessment year 1997-98 is liable to be set aside.”

(ii) In Jay Vijay Express Carriers Commissioner of Income Tax- III, (2013) 34 taxmann.com.61 (Gujarat), in relevant paragraph 16 of the said judgment, this Court held as under :

“16. In our opinion, in the present case, there would be genuine hardship, if the time limit is not extended as otherwise, the entire claim of Rs.17,84,323/- would be destroyed. The petitioner would neither get deduction in the assessment year 2005-06 nor in the year 2008- 09 as per then prevailing Section 40(a)(ia) of the Act. In our opinion, the petitioner was neither lethargic nor lacking in bona fides in making the claim beyond the period of limitation, which should have a relevance to the desirability and expedience for exercising such power. Before proceeding further we may caution that undoubtedly such powers are not to be exercised in routine manner to extend limitation provided by the Act for various stages. We are conscious that such routine exercise of powers would neither be expedient nor desirable, since the entire machinery of tax calculation, processing of assessment and further recoveries or refunds, would get thrown out of gear, if such powers are routinely exercised without considering its desirability and expedience to do so for avoiding genuine hardship. In the present case, however, considering special facts, we are of the opinion that the Commissioner ought to have exercised such powers. It is true that the Appellate Commissioner recorded that the petitioner did not remain present in the appellate proceedings. However that by itself would not take away the petitioner’s case for genuine hardship nor contrary to what is vehemently contended before us by the counsel for the Revenue, convince us to hold that filing of revised return beyond limitation lacked bona fides.”

(iii) In the case of State of Jharkhand and others vs. Ambay Cements and another, (2005 Sales Tax Cases Vol.129). The relevant extract of the said judgment is quoted from the Head Note below for ready reference:

“An exception or an exempting provision in a taxing statute should be construed strictly. If the condition under which an exemption is granted stands changed on account of any subsequent event the exemption would not operate. (see paras 23 and 24)

Whenever the statute prescribes that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement would be mandatory. If the statute provide that a particular thing should be done, it should be done in the manner prescribed and not in any other way (see para 26).”

(iv) In the case of M.Malani vs. Commissioner of Income Tax and another, (2008) 219 CTR 313), the Court observed :

“8. The term ‘genuine’ as per the New Collins Concise English Dictionary is defined as under:

“’Genuine’ means not fake or  counterfeit, real, not pretending (not bogus or merely a ruse).”

For interpretation of the aforementioned provision, the principle of purposive construction should be resorted to. Levy of interest although is statutory in nature, inter alia for recompensating the Revenue from loss suffered by non-deposit of tax by the assessee within the time specified therefor. The said principle should also be applied for the purpose of determining as to whether any hardship had been caused or not. A genuine hardship would, inter alia, mean a genuine difficulty. That per se would not lead to a conclusion that a person having large assets would never be in difficulty as he can sell those assets and pay the amount of interest levied.

The ingredients of genuine hardship must be determined keeping in view the dictionary meaning thereof and the legal conspectus attending thereto. For the said purpose, another well-known principle, namely, a person cannot take advantage of his own wrong, may also have to be borne in mind. The said principle, it is conceded, has not been applied by the Courts below in this case, but we may take note of a few precedents operating in the field to highlight the aforementioned proposition of law. (See Priyanka Overseas (P) Ltd. & Anr. Vs. Union of India & Ors.1991 Suppl.(1)SCC 102, para 39, Union of India & Ors. Vs. Maj.Gen. (Retd.) Madan Lal Yadav (1996)4 SCC 127 at 142, paras 28 and 29, Ashok Kapil Vs. Sana Ullah (dead) & Ors. (1996) 6 SCC 342 at 345, para 7, Sushil Kumar vs. Rakesh Kumar (2003) 8 SCC 673 at 692, para 65, first sentence, Kusheshwar Prasad Singh vs. State of Bihar & Ors. (2007) 11 SCC 447, paras 13, 14 and 16).”

6. Section-119 of the Act is couched in very wide terms. The same is quoted below for ready reference :

Instructions to subordinate authorities:

“119. (1) the Board may, from time to time, issue such orders, instructions and directions to other income- tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board:

xxx xxx xxx

(2) Without prejudice to the generality of the foregoing power:-

(a)  xxx xxx xxx

(B) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorize any income-tax authority, not being a Commissioner (Appeals) to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law:”

7. We may also refer to a decision of the Karnataka High Court in the case of (Smt.) Sujatha Ramesh vs. Central Board of Direct Taxes, New Delhi, (2017)87 taxmann.com 228 (Karnataka), wherein the Court has observed as under :

“12. It is true that the so called reasons assigned by the respondent Central Board of Direct Taxes (CBDT) in the impugned order, on the face of it, do not appear to be whimsical or arbitrary reasons and it is equally true that such investment could be made by assessee very well before the cut off date also when she was physically present in India or even when she had gone back to USA on 20^th February 2013. Nonetheless, the delay of six months in the circumstances in which it occurred, especially, in view of the fact that the investment condition was undisputably met by the assessee could have been condoned taking a judicious and holistic view of the facts. The wide powers of the Central Board of Direct Taxes or other higher authorities of the Department to whom such powers can be delegated under Section 119 of the Act, need not always take only a pro revenue approach in such matters. Their approach in such cases should be equitious, balancing and judicious which should reflect the application of mind to the facts of the case and before denying the genuine claim of the assessee on the grounds of mere delay in making such claim, something more than the user of innocuous terms as employed in the present case, should be forthcoming. Technically, strictly and literally speaking, the Board might be justified in denying the exemption from capital gains tax by rejecting such condonation application, but an assessee, who substantially satisfies the condition for availing such exemption should not be denied the same, merely on the bar of limitation, especially, when the legislature has conferred wide discretionary powers to condone such delay on the highest executive authority of the Central Board of Direct Taxes under the Act.

13. The general and wide powers given to the Board in this regard, “if it considers it desirable or expedient so to do for avoiding genuine hardship in any case…..”, not only gives wide powers to the Board, but confers upon it a obligation to consider facts relevant for condonation of delay as well as the merit of the claim simultaneously. If the claim of exemption or other claim on merits is eminently a fit case for making such claim, it should not normally be defeated on the bar of limitation, particularly, when the delay or the time period for which condonation is sought is not abnormally large. It will of course depend upon the facts of the each case, where such a time period or the merit of the claim deserves such exercise of discretion in favour of the assessee under Section 119(2)(b) of the Act or not and therefore, no straight jacket formula or guidelines can be laid down in this regard. However, such orders passed by the Central Board of Direct Taxes being a quasi-judicial order is always open to judicial review by the higher constitutional If the good conscience of the Courts is pricked, even though such orders rejecting the claims on the bar of limitation may appear to be prima facie tenable, the Courts may exercise their jurisdiction to set aside such orders and allow the claims on merits, setting aside the bar of limitation.

14. The present case is one of such nature, where the Court finds that the substantial conditions for claiming the exemption from capital gain tax stood satisfied and the prescribed investment was made by the assessee in the Bonds of the National Highways Authority, for the minimum lock-in period of three years also is an undisputed fact, and therefore, the delay in making such investment of six months deserved to be condoned, in view of the fact that, the assessee-petitioner, a Doctor by profession was traveling from India to USA a long distance country where she normally resided and came to India not only to meet her family members, but to sell the immoveable property belonging to her and sought to avail the genuine exemption from such tax liability upon making the investment in the prescribed investment in the form of Bonds of Infrastructure which she did make in the National Highways ”

8. We may also refer to and rely upon a decision of the Delhi High Court in the case of V. Infosutions Pvt. Ltd. vs. Deputy Commissioner of Income Tax, Circle 10(2) and others, reported in (2019) 261 taxmann.com 482 (Delhi). We may quote the relevant observations thus :

“8. The rejection of the petitioner’s application under Section 119(2)(b) is only on the ground that according to the Chief Commissioner’s opinion the plea of omission by the auditor was not substantiated. This court has difficulty to understand what more plea or proof any assessee could have brought on record, to substantiate the inadvertence of its advisor. The net result of the impugned order is in effect that the petitioner’s claim of inadvertent mistake is sought to be characterised as not bonafide. The court is of the opinion that an assessee has to take leave of its senses if it deliberately wishes to forego a substantial amount as the assessee is ascribed to have in the circumstances of this case. “Bonafide” is to be understood in the context of the circumstance of any case. Beyond a plea of the sort the petitioner raises (concededly belatedly), there can not necessarily be independent proof or material to establish that the auditor in fact acted without diligence. The petitioner did not urge any other grounds such as illness of someone etc., which could reasonably have been substantiated by independent material. In the circumstances of the case, the petitioner, in our opinion, was able to show bonafide reasons why the refund claim could not be made in time.

9. The statute or period of limitation prescribed in provisions of law meant to attach finality, and in that sense are statutes of repose; however, wherever the legislature intends relief against hardship in cases where such statutes lead to hardships, the concerned authorities – including Revenue Authorities have to construe them in a reasonable manner. That was the effect and purport of this court’s decision in Indglonal Investment & Finance Ltd. (supra). This court is of the opinion that a similar approach is to be adopted in the circumstances of the ”

9. In view of the aforesaid, this writ-application succeeds and is hereby allowed. The impugned order passed by the respondent dated 17.06.2021 is hereby quashed and set aside. The delay condone application filed by the writ-applicant is hereby allowed.