Benefit of Exemption Claim u/s 12A of Income Tax Act should not have Denied merely on account of delay in furnishing audit report: Orissa HC [Read Order]

The Orissa High Court has held that benefit of exemption claim under section 12A of Income Tax Act, 1961 should not have been denied merely on account of delay in furnishing audit report.

Society For Training Action Research, the petitioner challenged the order rejecting the petition for condonation of delay filed under Section 119(2)(b) of the Income Tax Act, 1961 for filing the audit report in Form 10B prescribed under Rule 17B of the Income Tax Rules, 1962 ( “IT Rules”) for claiming exemption from payment of income tax under Section 12A of the Income Tax Act, 1961 ( “IT Act”) for the Assessment Year 2017-18 by the Commissioner of Income Tax (Exemption), Hyderabad (“CIT”), the Petitioner has approached this Court by way of filing this writ petition under Articles 226 & 227 of the Constitution of India.

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The Petitioner submitted that despite sufficient cause being shown, the Opposite Party No.2 has rejected the application for condonation of delay of 353 days in filing the audit report. It is submitted that the delay was caused due to negligence of Auditor, which was not appreciated by the said authority.

It was argued that irrelevant decisions have been referred to and relied on by the CIT to disallow the exemption claimed in the returns. Though the audit report in Form 10B could be filed even before the assessment, the same was filed on 19.03.2021. The audit report was due for submission was 31.03.2020. Thus, there was only 353 days’ delay. The approach of the CIT indicates pedantic; rather utilizing his judicial discretion he should have been pragmatic in his approach.

Further submitted that under Section 119(2)(b) of the Income Tax Act by virtue of Circular No.10 of 2019, dated 22.05.2019, the CIT has been delegated with power to exercise discretion while dealing with the application for condonation of delay in filing the Form 10B for the Assessment Year 2017-18. Despite such discretion is conferred on the CIT, the reason for the delay being not appreciated appropriately, the order is susceptible to be interfered with in the present proceeding, as such the same is liable to be set aside.

Counsel for the Income Tax Department submitted that the CIT exercising his discretion under Section 119(2)(b) of the IT Act rejected the application for condonation of delay having found no sufficient cause shown by the Petitioner. He submitted that genuine hardship being not demonstrated by the Petitioner, the rejection of petition for condonation of delay is not unjustified.

The Court is satisfied that there is no dispute with regard to delay of 353 days in submitting the audit report in Form-10B prescribed under Rule 17B of the IT Rules in order to claim benefit under Section 12A of the IT Act for the Assessment Year 2017-18. It is also not fact on record that the petitioner has been availing the benefit of exemption since Assessment Year 2016-17.

This Court is of the considered view that the benefit of exemption should not have been denied merely on account of delay in furnishing audit report, which could be produced at a later stage either before the Assessing Officer or the Appellate Authority by assigning sufficient cause.

The bench of Chief Justice Harish Tandon and Justice Murahari Sri Raman held that mere technicality should not have been ground for claim of exemption under Section 12A of the IT Act. Thus, the CIT has failed to consider the application for condonation of delay in its right earnest under the provisions of Section 119(2)(b) of the Income Tax Act, 1961 read with power conferred by virtue of Circular No.10/2019, dated 22.05.2019.

Ergo, finding that there was “genuine hardship” faced by the petitioner during the relevant period and refusal to condone the delay invoking power under Section 119(2) of the IT Act being arbitrary exercise of discretion having regard to the fact-situation, Order dated 12.02.2025 passed by the Commissioner of Income Tax (Exemption), Hyderabad-opposite party No.2 (Annexure-1) are hereby set aside.

The matter is remitted to the said authority concerned to consider audit report in Form 10B furnished under Rule 17B of the Income Tax Rules to claim exemption under Section 12A of the Income Tax Act and in consequence thereof, the Commissioner of Income Tax (Exemptions)-opposite party No.2 is directed to grant all consequential relief to the petitioner by taking into account the Audit Report in Form 10B pertaining to the Assessment Year 2017-18 submitted on 19.03.2021, as if the same is filed within period specified invoking Section 119(2)(b) of the Income Tax Act, 1961.

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