An auditor’s error is a reasonable cause to condone a delay in filing Form 10B.

An auditor’s error is a reasonable cause to condone a delay in filing Form 10B.

Issue

Should a delay in uploading the mandatory audit report in Form 10B be condoned if the delay was caused by an inadvertent error on the part of the auditor’s staff, particularly when the audit itself was completed and the report was obtained by the taxpayer on time?

Facts

• An assessee, a charitable trust running an educational institution, claimed tax exemption under Section 11 of the Income-tax Act, 1961. A key condition for this is the timely filing of an audit report in Form 10B.
• The trust had fulfilled its primary obligation by getting the audit report prepared and signed by the auditor well within the due date.
• However, due to an inadvertent mistake by the auditor’s accountant, the form was uploaded to the income tax portal late, with a significant delay of 181 days.
• As a direct consequence of this procedural lapse, the Centralized Processing Center (CPC) denied the trust’s exemption claim and raised a substantial tax demand of ₹1.30 crores.
• The trust’s application to the Commissioner to condone this delay under Section 119(2)(b) was rejected on the grounds that there was no reasonable cause for the delay.

Decision

The High Court ruled decisively in favour of the assessee.

• It held that the delay was not deliberate or with any malicious intent (mala fide). It was clearly due to the inadvertence of the auditor’s staff, which qualifies as a reasonable cause.
• The court gave significant weight to the fact that the assessee had substantially complied with the law by getting the audit completed on time and had acted promptly to upload the form as soon as the error was discovered.
• The Commissioner’s mechanical rejection order was quashed and set aside, and the court itself condoned the 181-day delay, thus restoring the trust’s eligibility for the tax exemption.

Key Takeways

• Substance Over Form: The courts will often prioritize substantive compliance over procedural lapses. In this case, the substantive act was getting the audit done on time, which the assessee did. The delay was only in the procedural act of uploading.
• Reliance on Professionals is a Valid Reason: A taxpayer who has diligently entrusted their compliance work to a professional, like a Chartered Accountant, should generally not be made to suffer for a bona fide error or oversight committed by the professional or their staff. This is considered a sufficient and reasonable cause for delay.
• Genuine Hardship is a Key Consideration: The provisions for condoning delay are meant to prevent genuine hardship. Denying a charitable trust its entire tax exemption, leading to a massive demand, for a minor and well-explained procedural delay is a classic example of such hardship.
• Authorities Must Exercise Discretion Judiciously: The Commissioner’s power to condone delay is a discretionary power that must be exercised fairly and reasonably, not mechanically. The authority should consider the reasons for the delay, the conduct of the assessee, and the consequences of not condoning the delay.