2023 (12) TMI 1186 - HC - Income Tax

Exemption u/s 11 - Application for condonation of delay in filing Form 10B u/s 119(2)(b) rejected - non-filing of the audit report in Form 10B would not be so fatal requiring initiation of proceedings so far as denial of exemption u/s 11 - contention of petitioner all along was that filing of the audit report in Form 10B is only a directory and not mandatory in nature and non-filing of the same cannot be fatal to the exemption which the petitioner is otherwise entitled under Section 11 - HELD THAT - A plain reading of Section 119(2)(b) clearly indicate that the intention of the framers of the law was to provide a liberal approach where there is a delay occurred. What is necessary to be considered at this juncture also is the fact that the petitioner is a registered establishment u/s 12A - Section 12A of the Act provides tax exemption to charitable trust that is registered with the Income Tax Department. So far as registration is concerned, there no quarrel on the same. The dispute in the present case is only in respect of the assessment order for the Assessment Year 2017-18. The admitted factual matrix from the facts of the case is that the return of income was filed by the petitioner for the Assessment Year 2017-18 on 02.11.2017. Before filing of the said return itself, the accounts of the petitioner were got audited and the audit report was prepared well in time on 20.09.2017. The due date for filing of the return was on or before 31.10.2017 and the petitioner herein did file his return on 31.10.2017. However, on account of certain defects detected, the same was returned and revised return was filed on 02.11.2017. Thus, the return stands submitted within the time. However, there was a requirement for uploading of the audit report. The audit report meanwhile was uploaded though at a belated stage on 21.02.2019, nonetheless the uploading of the audit report was much before (before 2.5 years) the assessment order dated 24.09.2021 was passed. It is in this factual backdrop that the application for condonation of delay filed by the petitioner ought to have been decided by the authority concerned. Now if we look into the statutory provisions, what is reflected is that the provisions under Section 119(2)(b) has been enacted with a specific purpose empowering the authorities concerned to condone the delay on the part of the assessee in furnishing or in submitting of the returns or an appropriate application within a reasonable period of time. The said provision of law does not provide for any specific period of time within which the application for condonation of delay needs to be filed. The said provision has also been enacted to ensure that genuine hardship which an assessee may face can be avoided by condoning the delay if any that has occurred and an appropriate application seeking for condonation of delay is filed. We are inclined to allow the writ petition setting aside the impugned order - consequential order passed subsequent to the rejection of the application under Section 119(2)(b) of the Act would also get automatically quashed and the application of the petitioner for condonation of delay stands allowed. Wherefore the respondent No. 3 would be required to pass an appropriate consequential order in accordance with law.

Summary

Issues Involved:

1. Rejection of application for condonation of delay in filing Form 10B.
2. Validity of assessment order under Section 147 read with Section 114 and Section 144B.
3. Service of notices and procedural fairness.
4. Interpretation of Section 119(2)(b) and its application to the case.

Summary:

1. Rejection of Application for Condonation of Delay in Filing Form 10B:
The petitioner challenged the impugned order dated 31.07.2023 by the Commissioner of Income-Tax (Exemptions), which rejected the application for condonation of delay in filing Form 10B for the assessment year 2017-18 under Section 119(2)(b) of the Income Tax Act, 1961. The petitioner argued that the non-filing of the audit report in Form 10B should not be fatal to the exemption under Section 11 of the Act. The audit report was prepared in time but was uploaded belatedly due to technical reasons. The court observed that the impugned order was "cryptic" and a "non-speaking order," failing to provide sufficient reasoning.

2. Validity of Assessment Order Under Section 147 read with Section 114 and Section 144B:
The respondent initiated proceedings under Section 147 of the Act, issuing notices under Sections 148 and 142(1). The assessment order passed on 24.09.2021 added an amount of Rs. 87,13,060/- as unexplained money under Section 69A read with Section 115BBE. The petitioner contended that the notices were not duly served, and the assessment order was challenged on these grounds.

3. Service of Notices and Procedural Fairness:
The petitioner claimed that none of the notices, including show cause notices, were served upon them. The respondent-Department countered that notices were issued and served both electronically and physically. The court found that the petitioner's contention of non-service was not substantiated and rejected this argument.

4. Interpretation of Section 119(2)(b) and Its Application to the Case:
Section 119(2)(b) empowers the Commissioner to condone delays to avoid genuine hardship. The court emphasized a liberal approach in such cases, especially for entities registered under Section 12A, which provides tax exemption to charitable trusts. The court referred to precedents, including the High Court of Gujarat and Punjab and Haryana, which held that procedural provisions regarding audit reports are directory and not mandatory. The court concluded that the authority should have considered the application for condonation of delay more liberally.

Conclusion:
The writ petition was allowed, setting aside the impugned order dated 31.07.2023. The consequential orders were also quashed, and the application for condonation of delay was accepted. The respondent No. 3 was directed to pass an appropriate consequential order in accordance with the law.