2021 (2) TMI 185 - HC - Income Tax

Exemption u/s 11 denied - delay in filing the Form no.10 - Condonation of delay u/s.119(2)(b) - rejecting the application filed by the writ-applicant for condonation of delay in filing the Form no.10 - whether genuine hardship had been shown which prevented it from filing the Form no.10.? - HELD THAT - Approach in the cases of the present type should be equitious, balancing and judicious. Technically, strictly and liberally speaking, the respondent might be justified in denying the exemption under Section 12 of the Act by rejecting such condonation application, but an assessee, a public charitable trust past 30 years 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 authorities concerned. We may also refer to the decision of this Court in CIT v. Gujarat Oil and Allied Industries Limited 1992 (9) TMI 67 - GUJARAT HIGH COURT wherein it is held that the provision regarding furnishing of audit report with the return has to be treated as a procedural proviso. It is directory in nature and its substantial compliance would suffice. In that case, the assessee had not produced the audit report along with the return of income but produced the same before the completion of the assessment. This Court took the view that the benefit of exemption should not be denied merely on account of delay in furnishing the same and it is permissible for the assessee to produce the audit report at a later stage either beore the Income Tax Officer or before the appellate authority by assigning sufficient cause. Writ-application succeeds and is hereby allowed - The delay condonation application filed by the writ-applicant before the respondent is hereby allowed.

Issues Involved:
1. Condonation of delay in filing Form 10 under Section 119(2)(b) of the Income Tax Act, 1961.
2. Rejection of exemption claims under Sections 11(1) and 11(2) of the Income Tax Act, 1961.
3. Genuine hardship and the discretion of tax authorities in condoning delays.
4. Procedural compliance and its impact on exemption claims.

Detailed Analysis:

1. Condonation of Delay in Filing Form 10:
The writ-applicant, a public charitable trust, filed an application under Article 226 of the Constitution of India, seeking the quashing of the order dated 26.08.2019, which rejected their application for condonation of delay in filing Form 10 for the Assessment Year 2014-15. The trust had been registered under Section 12A of the Income Tax Act, 1961, for over 30 years, with its books regularly audited and returns filed without issues. However, due to a failure to confirm the audit report online, Form 10 was not e-filed along with the return of income, leading to a demand notice for ?2,17,210. The trust subsequently filed Form 10 and requested condonation of the delay, which was rejected by the respondent on the grounds of not showing genuine hardship.

2. Rejection of Exemption Claims:
The trust's exemption claims under Sections 11(1) and 11(2) of the Income Tax Act, 1961, were rejected due to the non-filing of Form 10 along with the return of income. The trust claimed that the delay was due to a bona fide mistake and factors beyond their control. The respondent, however, argued that the trust, being well-versed with the legal provisions, failed to provide substantial evidence for the delay and did not comply with the conditions of Circular No.273 dated 3rd June 1980.

3. Genuine Hardship and Discretion of Tax Authorities:
The court emphasized that the discretion under Section 119 of the Income Tax Act should be exercised liberally to avoid genuine hardship. It referred to various precedents, including the Supreme Court's interpretation of "genuine hardship" and the need for a liberal and justice-oriented approach in condoning delays. The court noted that the trust had substantially complied with the conditions for exemption and that the delay was not due to any mala fide intention.

4. Procedural Compliance and Impact on Exemption Claims:
The court highlighted that procedural provisions should be treated as directory rather than mandatory, especially when substantial compliance is achieved. It cited the decision in CIT v. Gujarat Oil and Allied Industries Limited, where the benefit of exemption was not denied despite procedural delays. The court concluded that the trust's failure to file Form 10 on time should not defeat its exemption claims, given the wide discretionary powers conferred by the legislature to condone such delays.

Conclusion:
The court allowed the writ-application, quashing the impugned order and directing the authorities to grant the exemption under Section 12 of the Income Tax Act, subject to Sections 143(2) and 142(1). The court emphasized the need for a balanced and judicious approach in exercising discretion to condone delays, ensuring that genuine hardship is not overlooked due to procedural technicalities.

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