CIT Cannot Reject Delay Condonation Plea On Grounds Beyond Scope of Application: Gujarat High Court

The Gujarat High Court on 9 March held that while deciding an application for condonation of delay under Section 119(2)(b) of the Income Tax Act, the Authority cannot examine issues beyond the scope of the delay condonation request.

Section 119(2)(b) empowers the Central Board of Direct Taxes (CBDT) to authorise Income Tax authorities to admit delayed refund or loss carry-forward claims on showing “genuine hardship.”

A Division Bench of Justice A. S. Supehia and Justice Pranav Trivedi held that the Commissioner of Income Tax (Exemption) wrongly rejected Shri Jain Dehrasar Upasraya Ane Sadharan's delay condonation plea for filing Form 10B by questioning its registration status instead of examining the explanation for the delay.

The Bench held:

"the Commissioner of Income Tax (Exemption) has fell in error in traveling beyond the scope of the application filed by the petitioner under Section 119(2) of the Act, seeking condonation of delay in filing the Form 10B. The only course available to the CIT (Exemption) was to either accept or reject the application seeking condonation of delay by considering the explanation tendered therein. The petitioner Trust in its communication dated 19.03.2023 has categorically explained the delay, however, without examining the reasoning tendered by the petitioner in explaining the delay, the CIT has rejected the application on the ground that the petitioner had failed to provide the registration certificate under Section 12AA of the Act for A.Y. 2021-22."

Shri Jain Dehrasar Upasraya Ane Sadharan, a charitable trust, has been engaged in running a Jain temple and promoting Jain philosophy for over four decades.

The Trust filed its return of income for the assessment year 2021–22 declaring a total income of Rs. 1.86 lakh after claiming exemption of Rs. 7.84 lakh under Section 11 of the Income Tax Act.

The audit report in Form 10B was uploaded by the Trust's auditor within the prescribed time limit. However, the Trust accepted and verified the report on the e-filing portal with a delay of 42 days due to a technical lapse. The return was initially processed under Section 143(1) accepting the claim of exemption.

Subsequently, the Centralised Processing Centre passed a rectification order under Section 154 disallowing the exemption on the ground that the audit report had not been filed within time.

The Trust thereafter applied for condonation of delay under Section 119(2)(b), explaining that there was no delay in uploading the audit report by the auditor and that the delay occurred only at the stage of verification on the portal. It also pointed out that it had long-standing registration under Section 12A of the Act dating back to 1973 and had been granted exemption in earlier assessments.

Despite this explanation, the Commissioner of Income Tax (Exemption) rejected the application on the ground that the Trust had failed to produce a copy of the registration certificate under Section 12AA for the relevant year.

The High Court held that the Commissioner had exceeded the scope of the proceedings. It observed that while considering an application for condonation of delay, the authority was required only to evaluate the reasons furnished for the delay and decide whether they warranted condonation.

The Bench found that the Commissioner had failed to examine the explanation given by the Trust and instead rejected the application on an unrelated ground concerning the production of a registration certificate, an issue that could be examined separately during assessment proceedings. It held:

“the CIT has thus committed and error in rejecting the application seeking condonation of delay on a ground which was not within the scope of the examination of the application seeking condonation of delay. Thus, the impugned order is hereby quashed and set aside.”

Holding that such an approach was legally unsustainable, the Court quashed the impugned order and remanded the matter to the Commissioner of Income Tax (Exemption) for reconsideration of the application.

Accordingly, the Court directed the authority to examine the reasons furnished by the Trust for the delay and pass a fresh order in accordance with law within six weeks.

For Petitioner: Advocate, Hardik V Vora

For Respondent: Advocate, Aman Mir