Orissa HC: Section 12A Exemption Can’t Be Denied Solely for Delay in Submitting Audit Report

The Orissa High Court ruled that the benefit of the exemption claim under Section 12A of the Income Tax Act, 1961, should not have been rejected solely on the ground of delay in filing the audit report.

The Society for Training Action Research filed a petition challenging the ruling that dismissed its request for condonation of delay under Section 119(2)(b) of the IT Act, 1961.

The delay pertained to the filing of the audit report in Form 10B, as mandated by Rule 17B of the Income Tax Rules, 1962, to claim exemption under Section 12A of the Act for the Assessment Year 2017–18.

The petitioner approached the High Court under Articles 226 and 227 of the Constitution of India after the Commissioner of Income Tax (Exemption), Hyderabad, rejected the condonation request.

The Opposite Party No.2 has rejected the application for condonation of delay of 353 days in filing the audit report, even after showing enough cause by the applicant. Due to the negligence of the auditor, the delay was caused, which was not admitted by the said authority.

Inappropriate decisions have been referred to and laid on by the CIT to disallow the exemption claimed in the returns. However, in the audit report in Form 10B can be furnished even before the assessment, it was furnished dated 19.03.2021.

On 31.03.2020, the audit report was due for submission. Hence, merely 353 delays were there. The CIT’s approach shows pedantic instead of using his judicial discretion; he must have been practical in his approach.

CIT has been delegated under Section 119(2)(b) of the Income Tax Act under Circular No.10 of 2019, dated 22.05.2019, with the authority to exercise discretion while dealing with the application for condonation of delay in filing the Form 10B for the Assessment Year 2017-18.

If this discretion is furnished before the Commissioner of Income Tax (Appeals) (CIT(A)), then the reason for the delay not being admitted, the order is susceptible to being interrupted within the present proceeding, thus it is obligated to be set aside.

Income Tax Department counsel, CIT practising his discretion u/s Section 119(2)(b) of the IT Act, denied the application for the condonation of delay as it does not disclose enough cause of the applicant. The applicant does not show genuine hardship; the rejection of the petition for condonation of delay is not unexplained.

The Court admits that there is no dispute regarding the delay of 353 days in submitting the audit report in Form-10B specified under Rule 17B of the IT Rules for claiming benefit u/s 12A of the IT Act for the AY 2017-18. The applicant has taken advantage of the exemption since AY 2016-17 is also not in the record.

The court has the opinion that the advantage of exemption must not have been refused just because of the delay in filing the audit report, which can be made at a subsequent phase, either before the assessing officer or the appellate authority, by assigning enough cause.

The bench of Chief Justice Harish Tandon and Justice Murahari Sri Raman ruled that only a technicality cannot be the basis to claim the exemption u/s 12A of the IT Act.

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Therefore, CIT is not able to consider the application for condonation of delay in its right earnest as per the provisions of Section 119(2)(b) of the Income Tax Act, 1961, read with the authority granted by Circular No.10/2019, on 22.05.2019.

Thus, discovering that applicant encounters genuine hardship in the related period and refusal to condone the delay invoking authority u/s 119(2) of the IT Act being arbitrary exercise of discretion having reference to the fact-situation, Order on 12.02.2025 passed via Commissioner of Income Tax (Exemption), Hyderabad-opposite party No.2 (Annexure-1) are hereby set aside.

The case is remitted to the stipulated authority related to acknowledging the audit report in Form 10B provided under Rule 17B of the Income Tax Rules to claim exemption u/s 12A of the Income Tax Act and in consequence thereof, the Commissioner of Income Tax (Exemptions)-opposite party No.2 is mandated to grant all significant relief to the applicant via considering the Audit Report in Form 10B of the AY 2017-18 submitted dated 19.03.2021, as if it is filed within the duration established invoking Section 119(2)(b) of the Income Tax Act, 1961.