Bombay High Court Affirms Auditor's Error As Reasonable Cause For Delay Condonation

Bombay High Court Affirms Auditor's Error As Reasonable Cause For Delay Condonation

The Bombay High Court has determined that the auditor's error should not be dismissed but acknowledged as a reasonable explanation provided by the trust management.

Justices K. R. Shriram and Neela Gokhale noted that a public charitable trust, established for over thirty years and meeting the eligibility criteria for exemption, should not be deprived of it solely due to a limitation, particularly when the legislature has granted authorities broad discretionary powers to overlook such delays.

The petitioner, a charitable trust registered under the Bombay Public Trusts Act, 1950, submitted its income tax return, declaring 'Nil' income and seeking a refund of Rs. 70,710. The petitioner's accounts underwent auditing, and the audit report for the assessment year 2016–17 was duly submitted. However, the petitioner failed to file Form No. 10B along with the return of income, resulting in a delay of approximately 1257 days before it was eventually filed.

The assessee submitted an application under Section 119(2)(b) of the Income Tax Act, 1961, seeking condonation for the delay in filing Form 10B. In the application, the petitioner detailed the reason for the delay to the chartered accountant or auditor. According to the petitioner, when it attempted to submit Form No. 10B to the department manually after filing the return, the departmental staff declined to acknowledge the manual submission, instructing the petitioner to file it online instead.

The request for condonation of the delay was declined. The explanation provided was dismissed on the grounds that the petitioner ought to have promptly uploaded Form 10B but delayed it until February 15, 2020. Additionally, due to the non-filing of Form 10B, the petitioner's returns were processed on March 17, 2018, under Section 143(1). Subsequently, the petitioner submitted a rectification application only on January 24, 2020, which was addressed on June 18, 2020. Notably, Form 10B was filed only on February 15, 2020, subsequent to the rectification application.

The respondent or department did not find the petitioner's explanation of 'oversight' and 'inadvertent error' to be adequate justification for condoning the delay. Given that the petitioner has a history of filing returns and Form 10B for numerous years, it is presumed to be well-versed in the rules and regulations. Consequently, the delay cannot be excused.

The court said that the petitioner did not seem to demonstrate lethargy or lack of good faith in asserting the claim beyond the limitation period. This factor should be considered regarding the appropriateness and expediency of exercising such discretionary power.

The court observed that “we are conscious that such routine exercise of powers would neither be expedient nor desirable, since the entire machinery of tax calculation, processing of assessments, and further recoveries or refunds would get thrown out of gear if such powers were routinely exercised without considering their desirability and expedience to do so to avoid genuine hardship.”

The court held that the delay was not intentional or deliberate. The petitioner should not suffer due to ignorance or errors made by a professional hired by them. The department should have utilized the powers granted to them.