A delay in Form 10B verification was condoned due to an accountant’s error.

A delay in Form 10B verification was condoned due to an accountant’s error.

Issue

Should a significant delay in the e-verification of an audit report in Form 10B be condoned if the audit itself was completed on time and the delay was due to an inadvertent error by the taxpayer’s accountant?

Facts

• An assessee, a charitable trust registered under Section 12A, had its claim for tax exemption under Section 11 denied.
• The sole reason for the denial was that the audit report in Form 10B was e-verified with a substantial delay of 447 days.
• The assessee explained that they had, in fact, obtained the audit report from their auditors well within the due date. The failure was only in the final procedural step of uploading and verifying it on the portal.
• The reason provided for this lapse was “inadvertence and oversight” on the part of their accountant. The assessee also highlighted its long and consistent history of timely compliance for over 25 years.
• Despite this explanation, the Commissioner rejected the application to condone the delay.

Decision

The court ruled decisively in favour of the assessee.

• It held that the delay was clearly due to a bona fide human error on the part of the accountant and was not deliberate or with any malicious intent.
• The court gave significant weight to the assessee’s long history of timely compliance, which supported the argument that this was an isolated and unintentional mistake.
• It concluded that not condoning the delay would cause “genuine hardship” to the charitable trust, as it would be unfairly denied a substantial tax exemption on a purely technical ground.
• The Commissioner’s rejection order was quashed, and the 447-day delay was condoned.

Key Takeways

1. Substance Over Form: The courts will often prioritize the substantive act of compliance (in this case, getting the accounts audited on time) over a secondary procedural requirement (the timely e-verification).
2. An Error by a Professional is a “Reasonable Cause”: A delay that is caused by a genuine mistake, oversight, or negligence of a professional like an accountant, upon whom the taxpayer has relied, is generally considered a “sufficient and reasonable cause” for condoning a delay.
3. Genuine Hardship is a Key Factor: The provisions for condoning delay are specifically designed to prevent “genuine hardship.” Denying a charitable trust its entire tax exemption, which could impact its charitable activities, for a well-explained procedural lapse is a classic example of such hardship.
4. A Good Compliance History Matters: A taxpayer’s past record of consistent and timely compliance can be a very persuasive factor. It helps to prove that a current default is likely a one-off, unintentional mistake rather than a pattern of non-compliance.