An accountant's medical emergency is a reasonable cause for condoning a filing delay.

An accountant’s medical emergency is a reasonable cause for condoning a filing delay.

Issue

Is the unforeseen medical emergency of a key staff member, such as an accountant, a “reasonable cause” that warrants the condonation of a short delay in the filing of the mandatory audit report in Form 10B for a charitable trust?

Facts

A charitable trust, in order to claim its tax exemption under Section 11 of the Income-tax Act, 1961, was required to file its audit report in Form 10B by the due date of October 7, 2022.
The trust filed the form, along with its tax return, on November 5, 2022, resulting in a delay of 29 days.
An application for condonation of this delay was filed under Section 119(2)(b). The reason provided was that the trust’s accountant had suffered a miscarriage and was on medical bed rest, which delayed the finalization of the accounts.
The Commissioner rejected this application. The reason given was that the trust had not shown a sufficiently reasonable cause that prevented it from filing the audit report on time.

Decision

The High Court ruled in favour of the assessee.

The court held that the Commissioner ought to have condoned the delay. It noted that the delay was short (only 29 days) and, more importantly, the factual situation put forth by the assessee (the accountant’s medical issue) was never doubted by the Commissioner.
It found that not condoning this delay would cause genuine hardship to the trust, as it would be denied its entire, substantial tax exemption for a minor and well-explained procedural lapse.
The Commissioner’s rejection order was therefore set aside, and the court itself condoned the 29-day delay in filing Form 10B.

Key Takeways

“Reasonable Cause” Should Be Interpreted Liberally: The term “reasonable cause” is not rigid and should be understood in a practical sense. The unexpected medical incapacitation of a key person responsible for compliance is a classic example of a reasonable cause for delay.
Weighing Hardship is Key: When deciding on a condonation application, authorities should balance the minor inconvenience caused by a procedural delay against the severe and disproportionate financial hardship the taxpayer would face if the delay is not excused.
Substance Trumps Form: The primary purpose of filing Form 10B is to ensure that a trust’s accounts have been properly audited. As long as this substantive requirement has been met, a short, well-explained delay in the filing procedure should generally be condoned.
Authorities Should Exercise Discretion Judiciously: The Commissioner’s decision was seen as overly rigid. Authorities who are given discretionary powers (like the power to condone delay) are expected to exercise them fairly and judiciously, not in a mechanical or arbitrary manner.

HIGH COURT OF BOMBAY

St. Thomas High School

Commissioner of Income-tax (Exemption)

B. P. COLABAWALLA and FIRDOSH P. POONIWALLA, JJ.

WRIT PETITION (L) NO. 14483 OF 2025

SEPTEMBER 2, 2025

Ms. Vasanti Patel for the Petitioner. Prathmesh Bhosle, Adv. for the Respondent.

ORDER

1. The above Writ Petition challenges the impugned order dated 30th January 2025, passed by Respondent No.1 for the Assessment Year 2022-23 under Section 119(2)(b) of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] rejecting the Petitioner’s application dated 16th March 2023 filed for condonation of delay of 29 days. By the impugned order, Respondent No.1 has refused to condone the delay in filing Form No. 10B for A.Y. 2022-23. Consequently, the exemption claimed by the Petitioner under Section 11 of the Act has been denied to the Petitioner which is a Charitable Trust.

2. The Petitioner is a Charitable Trust established for education purpose and is registered as a Public Charitable Trust under the provisions of the Maharashtra Public Trust Act, 1950, with the office of the Charity Commissioner, Greater Mumbai vide PTR No. E-1233 (BOM) on 24th February 1956. The Petitioner is a Charitable Trust established for educational purposes, having PAN AABTS9310C. It is also registered under Section 12A(1)(a)(i) of the Act vide registration No. AABTS9310CE19750 dated 23rd September 2021 and under Section 12A(a) of the Act vide order dated 26th November 1975. The primary object of the Trust is to provide and promote educational facilities like primary education, secondary education and junior college higher education. The Petitioner, in furtherance of its educational object, is running St. Thomas High School and Junior College for promoting education.

3. The Petitioner filed the Return of Income for the A.Y. 2022-23 on 5th November 2022 i.e. within the time limit prescribed under Section 139(1) of the Act as extended by the CBDT from time to time. The due date for filing the audit report in Form No.10B in terms of the provisions of Section 12A(1)(b) was 7th October 2022. The audit report in Form No.10B was filed by the Petitioner on 5th November 2022 (i.e. the same day on which the Return of Income was filed) resulting in a delay of about 29 days. The assessment for A.Y. 2022-23 was processed under Section 143(1) of the Act on 8th March 2023, disallowing the exemption claimed by the Petitioner under Section 11 of the Act. This was on the basis that Form No.10B was not filed within the prescribed time-frame.

4. Accordingly, the Petitioner filed an application on 16th March 2023 before Respondent No.1 seeking a condonation of delay in filing Form No.10B. It was submitted that the Petitioner could upload the audit report only by 5th November 2022 i.e. 29 days after the due date. The Petitioner could not file the said Form No.10B in due time because the accounts of the Petitioner were handled by a lady accountant who unfortunately suffered a miscarriage in the month of August 2022 and was advised to take bed rest for two months, and due to which she was unable to attend the office at the relevant time. The above fact was substantiated by a medical certificate, and in view thereof, the Petitioner could not submit the accounts to the chartered accountant/auditors for finalising the audit report and signing of the financial statements for the financial year ending 31st March 2022. Accordingly, Form No.10B was e-filed on 5th November 2022 before filing of the Return of Income for A.Y. 2022-23 which was e-filed on the extended due date i.e. 5th November 2022. It was also stated that the audit report in Form No.10B was available on record when the said Return of Income was processed under Section 143(1) of the Act at CPC on 8th March 2023. Accordingly, the Petitioners prayed for condonation of delay of 29 days in filing the audit report in Form No. 10B.

5. Respondent No.1, however, vide the impugned order dated 30th January 2025 rejected the application for condonation of delay on the ground that the Petitioner has not been able to adduce any reasonable cause which prevented it from filing the audit report within the specified date.

6. In this backdrop, the Counsel for the Petitioners, submitted that Respondent No.1 has not doubted or denied any of the facts as stated by the Petitioner. In fact, there is not even a mention that the delay of 29 days is caused because of any wilful/intentional default on the part of the Petitioner. The fact that accountant was not keeping good health and could not attend the office is also not disputed by Respondent No.1. The evidence filed in support thereof is also not doubted by Respondent No.1. The delay was caused on account of serious health issues of the accountant (as stated above), and who was responsible for maintaining the financial records and co-ordinating the preparation for filing the audit report. This failure was beyond the Petitioner’s control and not due to any wilful neglect. The delay was purely technical and there was no loss of revenue and nor any attempt to evade tax.

7. In support of her arguments, the Counsel for the Petitioner relied upon the judgments of this Court in the case of Mirae Asset Foundation v. Pr. CIT 345 (Bombay)/Writ Petition No. 713 of 2025, Sau Dwarkabai Tai Karwa Charitable Public Trust v. CIT (Exemptions) 245 (Bombay)and Kotak Family Foundation v. CIT (Exemption) 56 (Bombay) as well as the judgment of the Hon’ble Gujarat High Court in the case of Sarvodaya Charitable Trust v. ITO. (Exemption) 148 (Gujarat). It was contended by the learned Counsel that it is a fairly settled legal position that filing of audit report in Form No. 10B is directory in nature i.e. the requirement of furnishing the audit report by the due date is merely procedural and the benefits of Section 11 cannot be denied only on account of the delay in filing of the said audit report, especially when such report was available at the time of processing/assessment.

8. On the other hand, the Counsel for the Respondent however, defended the action of the Revenue and stated that the Petitioner has failed to make out a case for condonation of delay as discussed by Respondent No.1 in his order.

9. Having heard the learned Counsel for the parties, we agree with the contentions of the Petitioner. We find that admittedly, there was only a 29 day delay in filing Form No. 10B. In the present case, when one considers that Respondent No.1 never doubted the factual situation put forth by the Petitioner to explain the delay, Respondent No.1 ought to have condoned the delay. We find that if this delay is not condoned, there will be genuine hardship to the Petitioner, inasmuch as, the Petitioner would be denied the exemption otherwise claimed under the provisions of Section 11 of the Act and which is a substantial amount.

10. We are of the view that Respondent No.1 ought to have taken a justice oriented approach rather than a pedantic one, and condoned the delay. We also find that in similar facts, this Court in the case of Mirae Asset Foundation (supra), Sau. Dwarkabai tai Karwa Charitable Trust (supra) and Kotak Family Foundation (supra) has taken a similar view and condoned the delay. Even the Hon’ble Gujarat High Court in the case of Sarvodaya Charitable Trust (supra) took the view that in cases like the present one (delay in filing Form No. 10B), the approach of the authorities ought to be equitious, balancing and judicious and availing of exemption should not be denied merely on the bar of limitation. This is more so, when the legislature has conferred wide discretionary powers to condone the delay on the authorities concerned. The relevant portion of this decision reads thus:-

“31. Having given our due consideration to all the relevant aspects of the matter, we are of the view that the approach in the cases of the present type should be equitious, balancing and judicious. Technically, strictly and liberally speaking, the respondent no. 2 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 condonation 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.

32. We may also refer to the decision of this Court in CIT v. Gujarat Oil and Allied Industries Ltd. [1993] 201 ITR 325 (Guj.), 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 before the Income- Tax Officer or before the appellate authority by assigning sufficient cause.”

11. In view of the foregoing discussion, we hereby quash and set aside the impugned order dated 30th January 2025 passed by Respondent No.1 under Section 119(2)(b) of the Act.

12. Now that the impugned order is quashed, we also hereby condone the delay in filing Form No. 10B by the Petitioner.

13. Rule is made absolute in the aforesaid terms and the Writ Petition is also disposed of in terms thereof. No order as to costs.

14. This order will be digitally signed by the Private Secretary/Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.