A delay in the online “verification” of an audit report in Form 10BB is a condonable procedural lapse, especially when the report was uploaded on time and the delay was due to a professional’s oversight.

A delay in the online “verification” of an audit report in Form 10BB is a condonable procedural lapse, especially when the report was uploaded on time and the delay was due to a professional’s oversight.

Issue

Should a delay in the final online “verification” step of filing an audit report in Form 10BB be condoned, if the report was uploaded by the Chartered Accountant within the due date and the delay in verification was caused by an oversight on the part of the professional?

Facts

• An assessee, a charitable educational institution, was required to file an audit report in Form 10BB by the due date to claim its tax exemption under the Income-tax Act.
• The Chartered Accountant (CA) had correctly prepared the audit report and had uploaded it to the income tax portal within the prescribed due date.
• However, the e-filing process for this form is a two-step procedure. The final step, which is the online verification of the uploaded form by the assessee’s authorized person, was completed with a delay of 81 days.
• The reason provided for this delay was that the CA had failed to properly prompt or instruct the authorized person from the assessee’s institute to log in and complete the verification step on time.
• Due to this delay in the final step, the Centralized Processing Center (CPC) treated the form as having been filed late. Consequently, it denied the trust’s entire exemption claim and raised a large tax demand. The Principal Commissioner also rejected the trust’s application to condone the delay, stating that no reasonable cause was shown.

Decision

The High Court ruled in favour of the assessee.

• It held that the delay was not deliberate or with any bad intent (mala fide). It was clearly caused by an oversight on the part of the professional on whom the assessee was relying, which constitutes a reasonable cause.
• The court emphasized that if this relatively minor procedural delay was not condoned, the assessee (a charitable institution) would suffer “grave hardship” by losing its entire tax exemption, which would be an unjust and disproportionate outcome.
• The delay in verifying the Form 10BB was therefore directed to be condoned.

Key Takeways

1. Substance Over Form: The court prioritized the substantive compliance (which was getting the audit done and the report uploaded on time) over the final procedural step (the online verification). The main purpose of the law—to ensure the accounts were audited—had been met.
2. Reliance on Professionals is a Valid Excuse: A delay that is caused by a bona fide error, a miscommunication, or an oversight of a professional (like a CA) or their staff is generally considered a reasonable cause that can be condoned. A taxpayer cannot be expected to be an expert in every technical nuance of the e-filing process.
3. “Genuine Hardship” is a Key Consideration: The condonation provisions under Section 119 of the Act are specifically designed to prevent “genuine hardship.” Losing a major tax exemption, which could cripple a charitable institution’s activities, due to a minor and unintentional procedural delay is a classic example of such hardship.
4. The Two-Step Verification Process is Prone to Errors: This case highlights the practical difficulties of the two-step e-filing process, where both the CA and the taxpayer have a role to play. A failure in communication between the two can easily lead to such lapses, and the courts are often sympathetic to these real-world problems.