Late Form 10 Filing a Curable Defect, Condoned on Genuine Hardship Grounds.

Issue

Can the benefit of income accumulation under Section 11(2) of the Income-tax Act be denied to a charitable trust for a procedural delay in filing Form No. 10, especially when the intent to accumulate was declared, all substantive conditions were met, and the delay was due to a bona fide misunderstanding of a new law?

Facts

The assessee-trust filed its income tax return for AY 2018-19, claiming exemption under Section 11 and the benefit of accumulation of income under Section 11(2).
The mandatory Form No. 10 for accumulation was filed electronically after the statutory due date under Section 139(1).
The Assessing Officer denied the accumulation benefit solely due to this late filing.
The assessee proved that all substantive requirements were met: the intent to accumulate was disclosed in the return, supported by a Board resolution, and reflected in the Form 10B audit report, all of which existed before the due date.
The delay was explained as a bona fide misunderstanding, as AY 2018-19 was the first year of a statutory amendment, and the assessee (based on the pre-amended law) believed the form could be filed later, during the assessment proceedings.
The assessee argued that denying the exemption would cause “genuine hardship,” as the accumulated funds had already been correctly applied towards the trust’s objects.

Decision

The High Court (implied) ruled decisively in favour of the assessee.
It held that the delay in filing Form No. 10 was a procedural irregularity, not a fatal defect that would extinguish the right to claim the exemption.
The court found that the assessee would suffer “genuine hardship” if the delay was not condoned, as this would result in a large tax demand on an otherwise-exempt entity.
Given that the assessee had met all substantive conditions (intent to accumulate, correct investment, and timely application), the procedural delay was ordered to be condoned.

Key Takeaways

Substance Over Form: This is a classic “substance over form” judgment. The court prioritized the fulfillment of the substantive conditions of the law (intent, investment, application) over a procedural deadline.
Late Form 10 is a Curable Defect: The filing of Form 10 before the completion of the assessment is generally treated as a curable, procedural defect, not a fatal non-compliance.
Genuine Hardship is a Key Test: When a procedural lapse leads to a substantial and unjust tax demand on an otherwise-compliant charitable trust, it meets the “genuine hardship” test for condonation.
Bona Fide Misunderstanding: A bona fide misunderstanding of a new statutory amendment (especially in its first year of implementation) is a valid “sufficient cause” for a delay.

HIGH COURT OF BOMBAY

Columbia Global Center in India

Income-tax Officer (Exemptions) Ward – 1(2), Mumbai^*

B. P. COLABAWALLA and AMIT S. JAMSANDEKAR, JJ.

WRIT PETITION (L) NO. 23170 OF 2025

OCTOBER 7, 2025

Nitesh Joshi and Sameer Dalal, Advs. for the Petitioner. Dinesh R. Gulabai, (through V.C.) for the Respondent.

ORDER

1. Rule. Respondents waive service. With the consent of the parties, Rule made returnable forthwith and heard finally.

2. The above writ petition is filed seeking to quash and set aside the impugned order dated 7th March 2025, passed by Respondent No. 2, rejecting the Petitioner’s application for condonation of delay in filing Form No. 10 for the Assessment Year 2018-19. Consequently, a direction is also sought to Respondent No.2 to condone the aforesaid delay and allow the Petitioner’s claim for accumulation of its income of Rs.1,15,95,743/- under Section 11(2) of the Income-tax Act, 1961 (for short “the Act”) for the said year.

3. The present Petition relates to Assessment Year 2018-19, wherein the Petitioner, being a charitable institution, filed its Return of Income on 22nd October 2018, claiming exemption under Section 11 and offering Nil income to tax. In the said Return of Income, it inter alia claimed the benefit of accumulation of income in accordance with Section 11(2) of the Act of Rs.1,15,95,743/-. As per Section 11(1) of the Act, a charitable institution is statutorily permitted to unconditionally accumulate fifteen percent of its income and has to apply eighty-five percent thereof towards its objects. If there is a shortfall in the application of income, Section 11(2) enables accumulation thereof to be applied in later years, subject to the fulfillment of specified conditions. In the present case, the said accumulation under Section 11(2) has been carried out in accordance with a resolution passed by the Petitioner’s Board of Directors and also stood duly reflected in the Audit Report in Form No. 10B obtained as per Section 12A(b) of the Act.

4. The said Return of Income was selected for scrutiny by issuance of notice dated 22nd September 2019 issued under Section 143(2) of the Act. One of the requirements for claiming accumulation under Section 11(2) of the Act is the filing of an application in Form No.10. The said Form has been filed by the Petitioner on 25th September 2019, i.e., immediately after the return was selected for scrutiny. The said Form ought to have been filed on or before 31st October 2018, being the due date for filing the Return of Income under Section 139(1) of the Act. Hence, there was a delay of 338 days in filing the said Form. Since there was a delay in the filing of the said Form, an application for condonation of such delay was filed before Respondent No.2 on 10th February 2020. In the assessment order passed under Section 143(3) of the Act on 28th September 2021, the Petitioner’s claim for accumulation of its income under Section 11(2) of the Act has been denied only on the ground that it failed to file the requisite Form within the stipulated time, and till the completion of the assessment, the Petitioner has not furnished the status of its application of condonation of delay. Consequent thereto, a demand of Rs. 82,90,538/- (comprising tax of Rs. 49,22,973/- and interest thereon of Rs. 34,17,628/- less TDS credit of Rs. 50,060/-) has been raised.

5. Subsequently, while considering the aforesaid application for condonation of delay, Respondent No.2 issued notices dated 21st February 2020, 22nd December 2021 and 25th February 2025 seeking various information and clarifications, which were duly explained by the Petitioner in its letters dated 4th March 2020, 4th January 2022 and 28th February 2025. Consequent thereto, the impugned order dated 7th March 2025 has been passed rejecting the application for condonation of such delay in filing of Form No. 10. In support of his order, Respondent No.2 has held that the Petitioner has not furnished any documentary evidence to substantiate the reasons for the delay in filing the said Form. According to him, the requirement relating to reasonable cause would be fulfilled only when the assessee is unable to comply with the requirement for reasons beyond its control. In the present case, the delay has been attributed to inaction and negligence on the part of the Petitioner, which, according to him, cannot be condoned in a mechanical or a routine manner. Aggrieved by this impugned order, the Petitioner has filed the present petition.

6. In this factual backdrop, the learned Counsel appearing for the Petitioner urged that the fact relating to accumulation as per Section 11(2) of the Act stood duly reflected in the Board Resolution, Audit Report in Form No. 10B and the Return of Income filed by it for the Assessment Year 201819. These documents have been in existence from a point of time before the due date for filing the Return of Income under Section 139(1). Further, the other requirements in Section 11(2), being investment of the accumulated amount in accordance with Section 11(5), and its application towards its objects within the stipulated time, also stand fulfilled. The said amount stood applied towards its objects in the previous year relevant to the Assessment Year 2020-21. Hence, the substantive requirements stood complied with. These facts are not in dispute, and the only reason given for the denial of exemption to the extent of such accumulation in the assessment order for Assessment Year 2018-19 is the delay in filing Form No. 10. As per Section 11(2) as it stood upto Assessment Year 2015-16, there was no stipulation with respect to any period of limitation for filing Form No. 10. The Hon’ble Apex Court in the case of CIT v. Nagpur Hotel Owners’ Association [2001] 114 Taxman 255/247 ITR 201 (SC) had taken a view that the said Form could be filed even during the assessment proceedings. In the present case, notice under Section 143(2) of the Act was issued on 22nd September 2019, and the said Form No.10 was duly filed on 25th September 2019. Section 11(2) came to be amended by the Finance Act, 2015, with effect from 1st April 2016, which inter alia, introduced the requirement that the prescribed Form ought to be filed before the due date for filing the Return of Income, which in the present case, was 31st October 2018. Simultaneously, Rule 17 of the Income-tax Rules, 1962 (for short “the Rules”) was also amended, mandating the filing of this Form in an electronic form. Though the said amendments became applicable from Assessment Year 2016-17, in the absence of any accumulation for Assessment Years 2016-17 and 2017-18, the present year, being Assessment Year 2018-19, was the first year in which the Petitioner was required to fulfil the said requirement. Based on the pre-amended law, the Petitioner carried the impression that the said Form could be filed during assessment proceedings. In support of the aforesaid arguments, reliance was placed on the judgment of the Delhi High Court in Bar Council of India v. CIT (Exemption) [2024] 158 taxmann.com 311/297 Taxman 247/466 ITR 780 (Delhi), wherein also, the assessee’s claim that Form No. 10 could not be filed within the specified time due to human inadvertence and the amendment in the law going unnoticed, has been accepted.

7. Further, it was the submission of the Petitioner that it encountered technical glitches on the Income-tax portal while filing the said Form at a later point of time. In this regard, the relevant dates and the supporting material are presently not available with the Petitioner, as the Executive/professional looking into the said aspect is no longer associated with it. Filing of the said Form is only a procedural requirement for which reliance has been placed on the judgment of this Court in Kotak Family Foundation v. CIT (Exemption) [2025] 176 taxmann.com 56/306 Taxman 57 (Bombay) and the Gujarat High Court in Brahmchari Wadi Trust v. CIT (Exemption) [2025] 173 taxmann.com 54 (Gujarat) both of which are concerned with a period after the amendment brought in the Act and the Rules from 1st April 2016. That under Section 119(2)(b) of the Act, the power to condone delay can be exercised with a view to avoid genuine hardship. In the present case, the Petitioner would suffer such hardship if said delay is not condoned and the accumulated amount is brought to tax, was the submission. The demand raised pursuant to passing of the assessment order dated 28th September 2021 stands at Rs.82,90,538/-, while the Petitioner has already utilised the entire accumulated amount of Rs.1,15,95,743/- in the previous year relevant to Assessment Year 2020-21. In such circumstances, with a view to pay up the said demand, the Petitioner will have to curtail its application of income towards charitable activities in the later years and/or find means to raise further funds for payment of the demand. In such circumstances, according to the Petitioner, the condition relating to the exercise of power under Section 119(2)(b) with a view to avoid genuine hardship stands fulfilled. In a case like the present one, where the substantive requirement in Section 11(2) stands fulfilled and the filing of Form No.10, which represents a procedural requirement, has been complied with before completion of assessment, the Petitioner’s claim ought to be allowed.

8. On the other hand, the learned Counsel for the Respondents vehemently opposed the Petition and urged that the Petitioner had failed to demonstrate reasonable cause for the entire period of delay. The amendment, as brought about in Section 11(2) by the Finance Act, 2015, with effect from 1st April 2016, including the amendment in Rule 17 of the Rules, is mandatory and cannot be regarded as a procedural formality. If the statutory deadlines are relaxed without sufficient cause, the time limit laid down by the Legislature would be undermined. He also placed reliance on the judgment of the Hon’ble Supreme Court in the Case of Pr. CIT v. Wipro Ltd. [2022] 140 taxmann.com 223/288 Taxman 491/446 ITR 1 (SC) for the proposition that exemption provisions cannot be given a liberal reading. Unless the assessee fully and clearly satisfies all the prescribed conditions, no exemption can be allowed.

9. In the rejoinder, the Counsel for the Petitioner explained that in Wipro Ltd. (supra), the assessee had claimed exemption under Section 10B in the original Return of Income filed by it. Since it had incurred a loss for the year under consideration, it filed a revised Return of Income, withdrawing its claim of such exemption to enable it to carry forward and set off the loss. For opting out of the said Section, one of the requirements as per Section 10B(8) of the Act was filing of a declaration before the due date for filing the Return of Income. Therefore, filing of the said declaration within the stipulated time was a prerequisite and a mandatory requirement for opting out of the said provision. The issue involved in that case was a peculiar one and would have no application to the present case, where it was submitted that the Petitioner has not changed its claim. The requirement relating to the filing of Form No. 10 was a procedural requirement which had been delayed due to human inadvertence, and the substantive requirements in the said Section stood fulfilled.

10. We have heard the learned Counsel for the parties. From the record, we find that the delay has been explained by the Petitioner on the basis that Assessment Year 2018-19 was the first year after the amendment brought in by the Finance Act, 2015, with effect from 1st April 2016, when the Petitioner had accumulated the income under Section 11(2) of the Act. It bonafide believed that the said Form could be filed during the assessment proceedings, which is also shown by the fact that the notice under Section 143(2) selecting the said Return of Income for scrutiny, was issued on 22nd September 2019, and the said Form has been electronically filed on 25th September 2019. This fact relating to the accumulation of income formed part of the Return of Income filed on 22nd October 2018. It has been duly supported by a resolution passed by the Petitioner’s Board of Directors and an Audit report in Form No. 10B given by its statutory Auditor. Therefore, this was not a new claim raised for the first time by filing Form No. 10 on 25th September 2019, but represented a claim which was always made and stood duly supported by documents which existed from a point of time before the due date for filing of the Return of Income. Further, the substantive requirements to be fulfilled while claiming the benefit of Section 11(2) of the Act viz., investment of the accumulated amount in accordance with Section 11(5) and its application towards its objects within the stipulated time, also stood fulfilled. In such circumstances, we are of the opinion that a liberal view needs to be taken and, hence, the delay in filing Form No. 10 for the year under consideration needs to be condoned.

11. The Delhi High Court, in Bar Council of India v. CIT(E) (supra) was concerned with a similar factual scenario being delay in filing of Form No.10 for accumulation of income as per Section 11(2) of the Act, where the amendment in the law went unnoticed and the assessee proceeded on the basis of the pre amended law to the effect that the said Form No.10 could be filed during the assessment proceedings. Accepting this explanation furnished by the assessee in that case to explain the delay in filing Form No.10, the Court has observed “. we are unable to fathom as to what benefit would accrue to the Petitioner by delaying the filing of Form 10. In our opinion the discretion conferred for condoning the delay was not correctly exercised by the Commissioner of Income Tax.” We concur with the said view and hold that the requirement relating to reasonable cause being shown for the delay in filing of the said Form No.10 has been satisfied in the present case.

12. We are also of the view that Respondent No.2 ought to have taken a justice-oriented approach rather than a pedantic one and condoned the delay. This Court, in People’s Mobile Hospitals v. CIT (E) [Writ Petition No. 2632 of 2025, dated 15-9-2025] has followed its earlier judgments in Mirae Asset Foundation v. Pr. Commissioner of Income-tax [2025] 176 taxmann.com 345/306 Taxman 3 (Bombay)/WP No. 713 of 2025), Sau Dwarkabai Tai Karwa Charitable Public Trust v. CIT (Exemptions) [2025] 174 taxmann.com 245 (Bombay)and Kotak Family Foundation (supra) and condoned the delay. In these cases also, this Court was concerned with condonation of delay in filing of similar forms within the stipulated time while claiming exemption under Section 11 of the Act. Therein, reliance was also placed on a judgment of the Gujarat High Court in the case of Sarvodaya Charitable Trust v. ITO (E) [2021] 125 taxmann.com 75 (Gujarat)/[2021] 278 Taxman 148 (Gujarat) laying down the principle that in cases like the present one, the approach of the authority 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, under Section 119(2)(b) of the Act, conferred discretionary powers to condone the delay on the authorities concerned with a view to avoid genuine hardship.

13. In the present case, the Petitioner would suffer genuine hardship if the delay is not condoned, as the accumulated amount of Rs.1,15,95,743/-has already been applied towards the objects of the Trust in the Assessment Year 2020-21. If the said claim of exemption in respect of the accumulated amount is denied and the tax demand of Rs.82,90,538/- arising on account of denial of the benefit of accumulation is recovered, it would place the Petitioner in gross financial difficulty.

14. With respect to the reliance placed by the learned Counsel for the Respondent on the judgment of the Hon’ble Supreme Court in the case of Wipro Ltd. ( supra) is concerned, we find that the ratio laid down therein was peculiar to the facts of that case. In that case, the assessee for the first time exercised its option to opt out of the exemption claim under Section 10B by filing a revised Return of Income. The exemption under Section 10B, which was claimed in the original Return of Income, was later sought to be foregone. In that scenario, Sub-Section (8) of Section 10B, according to which the declaration for opting out had to be filed before the due date for filing of the Return of Income, has been emphasised. In the present case, the Petitioner has not changed its claim at any point of time. Its claim for accumulation of income is duly supported by the Board Resolution, Audit Report in Form No. 10B and Return of Income, which had been filed before the due date of filing the Return of Income. Further, the compliance with the substantive requirements in the said Section also cannot be overlooked. In such circumstances, we are of the opinion that the said judgment has no application to the Petitioner’s case. In any event, the said case was not concerned with the exercise of powers under Section 119 (2)(b) of the Act.

15. In view of the foregoing discussion, we hereby quash and set aside the impugned order dated 7th March 2025 passed by Respondent No. 2 under Section 119(2)(b) of the Act. Consequent thereto, we also hereby condone the delay in filing Form No. 10 by the Petitioner.

16. Rule is made absolute in the aforesaid terms, and the Writ Petition is also disposed of in terms thereof. There shall be no order as to costs.

17. 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.