CBDT’s Authority to Condon Delays in Filing Form No.10B: A Case of Special Orders

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Case Name:

Little Angels Education Society & Anr. Vs. Rev. C. F. Andrews Education Society (Regd.) & Anr. (High Court of Bombay)

Writ Petition No. 1061 of 2020

Date: 25th March 2021

Key Takeaways:

• The CBDT has the power to condone delays in filing Form No.10B beyond 365 days through a special order, despite a general order limiting it to 365 days.
• The court emphasized the importance of avoiding genuine hardship and suggested a liberal interpretation of “genuine hardship” under section 119(2)(b) (of Income Tax Act, 1961).
• The case highlights the procedural flexibility within the Income Tax Act to address specific hardships faced by taxpayers.

Issue

Can the CBDT condone a delay of more than 365 days in filing Form No.10B for the assessment year 2018-19?

Facts

• The petitioners, two charitable trusts, filed their income tax returns for the assessment year 2018-19 but delayed filing Form No.10B due to an oversight by their chartered accountant.
• The delay exceeded 365 days, and the Commissioner of Income Tax (Exemptions) rejected their application for condonation based on a CBDT circular limiting condonation to 365 days.
• The petitioners challenged this decision, seeking a special order from the CBDT to condone the delay.

Arguments

• Petitioners: Argued that the delay was due to a genuine mistake and that the CBDT should consider their case under section 119(2)(b) (of Income Tax Act, 1961) to avoid genuine hardship.
• Respondents: Maintained that the CBDT’s circular clearly limits condonation to 365 days, and the Commissioner’s decision was in line with this directive.

Key Legal Precedents

• Section 119(2)(b) (of Income Tax Act, 1961): Allows the CBDT to issue orders to avoid genuine hardship by authorizing income tax authorities to admit applications for exemptions or deductions after the specified period.
• Sitaldas K. Motwani Vs. Director General of Income Tax, 323 ITR 223: The court in this case emphasized a liberal interpretation of “genuine hardship.”

Judgement

The court found no fault with the CBDT’s general order limiting condonation to 365 days but noted that section 119(2)(b) (of Income Tax Act, 1961) allows for special orders in exceptional cases. The court directed the petitioners to approach the CBDT for a special order to condone the delay beyond 365 days.

FAQs

1. What is Form No.10B?

• Form No.10B is an audit report required for charitable trusts to claim tax exemptions under sections 11 (of Income Tax Act, 1961) and 12 of the Income Tax Act.

2. Why was the delay in filing Form No.10B an issue?

• Filing Form No.10B is necessary for claiming tax exemptions. A delay can result in the denial of these exemptions, leading to a tax demand.

3. Can the CBDT always condone delays beyond 365 days?

• Not automatically. While the general order limits condonation to 365 days, the CBDT can issue a special order in cases of genuine hardship.

4. What should the petitioners do next?

• The court advised the petitioners to file an application with the CBDT for a special order to condone the delay.

This order will dispose off both writ petition Nos.1061 and 1288 of 2020.

2. We have heard Dr. K. Shivaram, learned senior counsel for the two petitioners and Mr. Sham Walve, learned standing counsel revenue for the respondents.

3. In Writ Petition No.1061 of 2020, Little Angels Education Society, Santacruz (West), Mumbai is the petitioner whereas in Writ Petition No.1288 of 2020, Rev. C. F. Andrews Education Society, Santacruz (East), Mumbai is the petitioner. Both the petitioners are charitable trusts providing education to students belonging to middle class families through various schools situated in Mumbai. Both the petitioners are assessed to income tax under the Income Tax Act, 1961 (briefly 'the Act' hereinafter).

4. Challenge made in both the writ petitions is to the orders dated 19.02.2020 passed by the Commissioner of Income Tax (Exemptions), Mumbai declining to condone the delay in filing Form No.10B of the Act for the assessment year 2018-2019.

5. Since facts are identical in both the petitions, for the sake of convenience we may refer to the facts pleaded in Writ Petition No.1061

of 2020.

6. It is stated that for the assessment year 2018-19, petitioner filed

return of income on 25.07.2018 declaring nil income. Form No.10B was

obtained on 15.08.2018 from the auditor. It is stated instead of uploading

Form No.10B in the income tax portal, petitioner uploaded Form

No.10BB because of mistake of the chartered accountant and

accountant.

7. Centralized Processing Centre (CPC) of the Income Tax

Department informed the petitioner vide letter dated 26.07.2019 about

proposed adjustment in the income tax return for the assessment year

2018-19. Subsequently, petitioner received an intimation / order dated

17.10.2019 from the CPC under section 143(1) (of Income Tax Act, 1961) raising a

demand of Rs.1,46,01,489.00 as payable by the petitioner for the

assessment year 2018-19 by denying exemptions under sections 11 (of Income Tax Act, 1961) and

12 of the Act. This has been challenged by the petitioner in appeal before

the Commissioner of Income Tax (Appeals).

8. Petitioner uploaded Form No.10B on the income tax portal on

06.11.2019 and also filed an application for condonation of delay. As a

matter of fact, petitioner filed Form No.10B for assessment years 2017-

18 and 2018-19.

9. Respondent No.2 i.e., Central Board of Direct Taxes issued

Circular No.2 of 2020 dated 03.01.2020 empowering the Commissioner

of Income Tax (Exemptions) to condone the delay in filing Form

No.10B for a period upto 365 days from the assessment year 2018-19

onwards.

10. Commissioner of Income Tax (Exemptions), Mumbai requested

the petitioner vide letter dated 04.02.2020 to furnish documents in

connection with the application for condonation of delay for the

assessment year 2018-19 which was complied with by the petitioner.

11. However, vide the impugned order dated 19.02.2020,

Commissioner of Income Tax (Exemptions), Mumbai rejected the

application of the petitioner for condonation of delay for the assessment

year 2018-19. The said order was passed following Circular No.2 / 2020

of the Central Board of Direct Taxes (for short 'CBDT').

12. Petitioner has stated that it had filed an application for

condonation of delay in filing Form No.10B for the assessment year

2017-18 which was allowed by the Commissioner of Income Tax

(Exemptions) by condoning the delay.

13. Aggrieved, the related writ petition has been filed for quashing of

order dated 19.02.2020 and for a direction to the Commissioner of

Income Tax (Exemptions) to condone the delay in filing Form No.10B

for the assessment year 2018-19.

14. Respondents have filed reply affidavit. It is stated that petitioner

had filed return of income under section 139(1) (of Income Tax Act, 1961) on 15.08.2018

and revised return of income on 30.03.2019. Form No.10B was filed on

06.11.2019 which was after lapse of more than 365 days from the due

date of filing of return of income. Reference has been made to the

Circular No.2 of 2020 dated 03.01.2020 to contend that Commissioners

of Income Tax are authorized to condone the delay in filing of Form

No.10B upto 365 days for the assessment year 2018-19 and subsequent

years. In the case of the petitioner, the delay was more than 365 days.

Therefore, no fault can be found in the action of the Commissioner in

rejecting the application of the petitioner for condonation of delay in

filing Form No.10B. Circular of the CBDT is binding on all lower

authorities. There is thus no infirmity in the impugned order. Writ

petition should be dismissed.

15. While Dr. Shivaram, learned senior counsel for the petitioner

submits that approach of the Commissioner of Income Tax (Exemptions)

is too technical, Mr. Walve, learned standing counsel revenue however

justifies the approach adopted by the Commissioner. Referring to section

119(2)(b), Dr. Shivaram submits that this Court in Sitaldas K. Motwani

Vs. Director General of Income Tax, 323 ITR 223 had observed that the

phrase 'genuine hardship' appearing in section 119(2)(b) (of Income Tax Act, 1961) should be

construed liberally. When substantial justice and technical considerations

are pitted against each other, cause of substantial justice deserves to be

preferred because the other side cannot claim to have a vested right in

injustice being done on account of a non-deliberate delay. He submits

that in a number of judgments this Court had remanded the proceedings

back to the Commissioner.

16. Submissions made by learned counsel for the parties have been

considered.

17. Section 11 (of Income Tax Act, 1961) which deals with income from property held for

charitable or religious purposes provides that the categories of income

mentioned thereunder shall not be included in the total income of the

previous year of the person in receipt of the income. On the other

hand, section 12 (of Income Tax Act, 1961) deals with income of trusts or institutions from

contributions. Section 12A (of Income Tax Act, 1961) lays down the conditions for applicability

of sections 11 and 12. As per Rule 17B (of Income Tax Rules, 1962) the report of audit of accounts

of a trust or institution which is required to be furnished electronically

under clause (b) of section 12A (of Income Tax Act, 1961) shall be in Form No.10B. In other

words, where the total income of the trust or institute as computed

under the Act without giving effect to the provisions of section 11 (of Income Tax Act, 1961) and

section 12 (of Income Tax Act, 1961) exceeds the maximum amount which is not chargeable to

income tax in any previous year, the accounts of the trust or institution

for that year should be audited by an accountant as defined in the

explanation below sub-section (2) of section 288 (of Income Tax Act, 1961) which should then

be furnished along with the return of income for the relevant

assessment year.

18. Before we advert to the impugned order, it would be apposite to

deal with section 119 (of Income Tax Act, 1961) which confers power upon the CBDT to

issue instructions and directions to other income tax authorities as it may

deem fit for proper administration of the Act which are required to be

observed and followed by the income tax authorities. Section 119(2)(b) (of Income Tax Act, 1961)

is relevant and the same is extracted hereunder:-

“Section 119(2) (of Income Tax Act, 1961)

(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, authorise 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.”

19. From the above, we find that CBDT 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 the Act after

the expiry of the period specified under the Act for making such

application or claim and deal with the same on merit in accordance with

law. Thus, in an appropriate case CBDT can pass a general order or a

special order; by such an order it can authorize any income tax authority

not being a Commissioner (Appeals) which would include

Commissioner of Income Tax (Exemptions); to admit an application or

claim for any exemption etc. after expiry of the period specified under

the Act; and to deal with the same on merit in accordance with law.

20. Having noticed the above, we may now examine Circular No.2 /

2020 dated 03.01.2020 issued by the CBDT. The subject of the circular

is condonation of delay under section 119(2)(b) (of Income Tax Act, 1961) in filing of

Form No.10B for the assessment year 2018-19 and subsequent years.

Referring to the earlier circulars issued by the CBDT, it was noticed that

the delay in filing Form No.10B for the assessment year 2016-17 and

assessment year 2017-18 in all such cases where the audit report for the

previous year had been obtained before filing of return of income and

had been furnished subsequent to the filing of the return of income but

before the dates specified under section 139 (of Income Tax Act, 1961) should be

condoned; in all other cases of belated applications in filing Form

No.10B for assessment years prior to assessment year 2018-19,

Commissioners of Income Tax have been authorized to admit and

dispose of such applications by 31.03.2020. While entertaining such

belated applications, Commissioners should satisfy themselves that the

assessees were prevented by reasonable cause from filing such

application within the stipulated time. By the Circular No.2 / 2020, the

following portions have been added:-

“5. In addition to the above, it has also been decided by the

CBDT that where there is delay of upto 365 days in filing Form

No.10B for Assessment Year 2018-19 or for any subsequent

Assessment years, the Commissioner of Income-tax are hereby

authorized to admit such belated applications of condonation of

delay u/s. 119(2) (of Income Tax Act, 1961) and decide on merits.

6. The Commissioners of Income-tax shall, while

entertaining such belated applications in filing Form No.10B,

satisfy themselves that the assessee was prevented by

reasonable cause from filing such application within the

stipulated time.”

21. As per the above it has been decided by the CBDT that when

there is delay of upto 365 days in filing Form No.10B for assessment

year 2018-19 or for any subsequent assessment years, Commissioners of

Income Tax have been authorized to admit such belated applications for

condonation of delay under section 119(2) (of Income Tax Act, 1961) and to decide the

same on merit. It has further been clarified that while entertaining such

belated applications, Commissioners of Income Tax should satisfy

themselves that the assessees were prevented by reasonable cause from

filing such applications within the stipulated time. Thus, by the above

Circular No.2 of 2020, CBDT has issued general order under section

119(2)(b) empowering the Commissioners of Income Tax to condone

delay in filing Form No.10B for the assessment year 2018-19 or for any

subsequent assessment years.

22. Let us now deal with the impugned order dated 19.02.2020 passed

by the Commissioner of Income Tax (Exemptions), Mumbai. The same

reads as under:-

“The assessee has filed application for condonation of delay in

filing Form No.10B for A.Y. 2018-19 on 07.11.2019. It was

stated in the application that due to oversight on part of the

Chartered Accountant Form 10B was delayed in e-filing. The

assessee has requested for condonation of delay in filing Form

No.10B.

2. On perusal of application for condonation of delay of

assessee as well as relevant provisions of the Income Tax Act,

1961 (the Act), Circulars & Notifications, it is observed that the

power u/s. 119(2)(b) (of Income Tax Act, 1961) lies with the CBDT. However,

for the condonation of delay u/s.119(2)(b) (of Income Tax Act, 1961) in filing of Form No.10B for A.Y.2018-19 and

subsequent years, has been delegated to the Commissioner of

Income-tax (Exemptions), vide Circular No.02/2020 in

F.No.197/55/2018-ITA-I dated 03rd January, 2020. The relevant

excerpts from the circulars is reproduced as under:

“5. In addition to the above, it has also been

decided by the CBDT that where there is delay of

upto 365 days in filing Form No.10B for

Assessment Year 2018-19 or for any subsequent

Assessment Years, the Commissioners of Income-

tax are hereby authorized to admit such belated

applications of condonation of delay u/s.119(2) (of Income Tax Act, 1961) of

the Act and decide on merits.”

3. As per para 5 of the above Circular dated 03.01.2020, it

is very clear that the delay of upto 365 days in filing of Form

No.10B for Assessment Year 2018-19 and subsequent

Assessment Years, the Commissioners of Income-tax are

authorized to admit such belated applications of condonation of

delay u/s 119(2) (of Income Tax Act, 1961) and decide on merits.

3.1. In this case, the assessee has filed its return of income u/

s. 139(1) on 15.08.2018 and revised return of income

u/s.139(5) (of Income Tax Act, 1961) on 30.03.2019. Further, the original and revised

Form No.10B was filed on 06.11.2019. The details and the

documentary evidences filed by assessee have been examined

during the course of proceedings. It is seen that the Form

No.10B is filed electronically after lapse of more more than

365 days of the due date of the filing of return of income i.e.

31.10.2018. The case of the assessee is not covered under para

5 of the CBDT Circular dated 03.01.2020 wherein the CBDT

has delegated the power to the Commissioner of Income-tax to

admit belated applications of condonation of delay u/s. 119(2) (of Income Tax Act, 1961)

of the Act only upto 365 days in filing of Form No.10B and

decide on merits.

4. In view of the above, the application for condonation of

delay for A.Y.2018-19 is hereby rejected.”

23. Commissioner noted that petitioner had filed return of income on

15.08.2018 and revised return of income on 30.03.2019. Form No.10B

was filed on 06.11.2019. Form No.10B was required to be filed within

the due date of filing of return, in this case 31.10.2018. There was thus

delay of more than 365 days in filing Form No.10B. Referring to the

Circular dated 03.01.2020, Commissioner noted that CBDT has

delegated the power to the Commissioner to admit belated applications

in filing Form No.10B for the assessment year 2018-19 and onwards for

a period of only upto 365 days. Since in this case the delay is more than

365 days, Commissioner expressed inability to condone the delay and

hence rejected the application for condonation of delay.

24. We do not find any error or infirmity in the view taken by the

CBDT vide Circular No.2 / 2020 or by the Commissioner while passing

the impugned order dated 19.02.2020. Fixing a period of one year’s

delay i.e., 365 days of delay for condonation of delay in filing Form

No.10B for the assessment year 2018-19 and onwards cannot be said to

be arbitrary or irrational. Therefore the general order passed by the

CBDT in this regard under section 119(2)(b) (of Income Tax Act, 1961) cannot be faulted.

However, there is also nothing in section 119(2)(b) (of Income Tax Act, 1961) preventing or

precluding CBDT from passing a special order in any given case from

condoning the delay in filing Form No.10B beyond 365 days despite

passing a general order.

25. That being the position and having regard to the mandate of

section 119(2)(b) (of Income Tax Act, 1961), we feel that even at this stage, petitioner may

approach CBDT under the aforesaid provision seeking a special order to

the Commissioner of Income Tax (Exemptions), Mumbai to condone the

delay in filing Form No.10B for the assessment year 2018-19 which is

beyond 365 days and thereafter to deal with the said claim on merit and

in accordance with law.

26. Thus, having regard to the above and upon due consideration we

deem it appropriate to issue the following directions:-

1. Petitioner shall file an application before the CBDT

under section 119(2)(b) (of Income Tax Act, 1961) to authorize the

Commissioner of Income Tax (Exemptions), Mumbai

to condone the delay in filing Form No.10B for the

assessment year 2018-19 and to deal with the same on

merit in accordance with law;

2. If such application is filed by the petitioner within a

period of three weeks from today, CBDT shall pass an

appropriate order in terms of direction No.1 above

within a period of four weeks from the date of receipt

of such application with due intimation to the

petitioner.

27. Ordered accordingly.

28. The above directions in paragraph No.26 shall also cover Writ

Petition No.1288 of 2020.

29. Both the writ petitions are accordingly disposed of. However,

there shall be no order as to cost.