In a significant judgment, the Bombay High Court addressed the issue of delayed filing of Form 9A by a charitable trust and the subsequent denial of tax exemptions under Section 11 of the Income Tax Act, 1961. The court emphasized that bona fide delays, not attributable to the assessee, should be considered procedural lapses and condoned to prevent undue hardship.
Background of the Case
The assessee, a charitable trust established in 2006, operates multiple schools in Malad (West). Recognized as a charitable institution, the trust consistently filed returns declaring nil income, claiming exemptions under Section 11 of the Income Tax Act. During an assessment year, the trust identified computational errors and submitted a revised income computation. Subsequently, it filed Form 9A on the Income Tax portal, albeit after the prescribed deadline, accompanied by an application seeking condonation of the delay under Section 119(2)(b) of the Act.
The jurisdictional Assessing Officer (AO) rejected the application, primarily on the grounds that the initial return contained incorrect claims regarding depreciation and capital expenditure under Section 11(1). This rejection led the trust to appeal to the Bombay High Court, seeking relief from the AO's decision.
Court's Observations and Judgment
The Division Bench, comprising Justice G.S. Kulkarni and Justice Advait M. Sethna, scrutinized the circumstances leading to the delayed filing of Form 9A. The court noted that procedural changes had altered the submission process, contributing to the delay. Importantly, the court observed that the delay was not due to any fault of the assessee.
The court criticized the AO for failing to consider the trust's explanations for the delay and for conflating the late submission of Form 9A with the disallowance of deductions for depreciation and capital expenditure under Section 11(1). The Bench highlighted that the AO's order lacked substantive reasoning and disproportionately focused on the procedural delay without assessing its impact on the trust's eligibility for exemptions.
Emphasizing the discretionary power vested in tax authorities under Section 119(2)(b), the court stated that such discretion should be exercised judiciously to avoid causing undue hardship to assessees. The Bench underscored that procedural lapses, especially those not attributable to the assessee, should not impede the rightful claims of exemptions.
Consequently, the Bombay High Court set aside the AO's order, directing the tax authorities to condone the delay in filing Form 9A and to process the trust's exemption claims under Section 11 accordingly.
Implications of the Judgment
This ruling reinforces the principle that tax authorities must exercise their discretionary powers with fairness and judiciousness, particularly concerning procedural delays. It underscores the importance of distinguishing between genuine procedural lapses and deliberate non-compliance. The judgment serves as a precedent, ensuring that charitable institutions are not unduly penalized for delays beyond their control, thereby upholding the spirit of the Income Tax Act in promoting charitable activities.
In summary, the Bombay High Court's decision highlights the necessity for tax authorities to adopt a balanced approach, ensuring compliance without causing undue hardship to assessees, especially in cases involving procedural delays not attributable to them.
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