Gujarat HC: CIT(Exemption) Cannot Travel Beyond Scope of Section 119(2)(b) Application While Deciding Form 10B Condonation Request

Background and Overview

A significant ruling has emerged from the Gujarat High Court in the matter of Jain Dehrasar Upasraya ane Sadharan Vs CIT (Exemption), where the Court unequivocally held that the Commissioner of Income Tax (Exemption) had overstepped the permissible boundaries of inquiry while adjudicating an application for condonation of delay filed under Section 119(2)(b) of the Income Tax Act, 1961. The impugned order dated 31.01.2024 was consequently quashed and set aside, with the matter remanded for fresh consideration.

The case revolves around a charitable trust with deep roots in religious and charitable activities spanning more than four decades, which had sought condonation of a technical delay in the acceptance of its audit report in Form 10B for Assessment Year 2021–22, and the consequential allowance of exemption amounting to Rs. 7,84,608/- under Section 11 of the Income Tax Act, 1961.

About the Assessee

The petitioner is a charitable trust registered under the Gujarat Public Trusts Act, 1950, engaged in maintaining a Jain derasar and propagating Jain religious philosophy for over 45 years. It has been registered under the said Public Trusts Act since 28.03.1973 bearing Registration No. J-2/74. Additionally, it had obtained fresh registration under the new provisions of Section 12A of the Income Tax Act, 1961 for Assessment Years 2022–23 to 2026–27.

Chronology of Events

Understanding the sequence of events is essential to appreciate why the Gujarat High Court intervened:

Filing of Audit Report and Return

  • As per Circular No. 01/2022 dated 11.01.2022, the due date for filing the audit report in Form 10B was extended to 15.02.2022, and the due date for filing the return of income was extended to 15.03.2022 for Assessment Year 2021–22.
  • The trust's auditor, Mr. Viral J Gandhi, duly uploaded the audit report in Form 10B on 21.12.2021, well within the prescribed due date.
  • The return of income was subsequently filed on 28.01.2022, declaring total income of Rs. 1,86,570/- after claiming exemptions of Rs. 7,84,608/- under Section 11 of the Income Tax Act, 1961.

The Technical Delay in Acceptance

  • Although the audit report was uploaded timely by the auditor, the acceptance/approval of the said report by the trust on the e-filing portal occurred on 29.03.2022 — resulting in a delay of 42 days beyond the extended due date of 15.02.2022.
  • This acceptance was completed through the Aadhaar OTP of the principal contact of the trust.

Initial Processing and Subsequent Rectification

  1. The return was initially processed under Section 143(1) of the Income Tax Act, 1961 vide intimation bearing DIN CPC/2122/A7/287648907 dated 10.08.2022, and the declared income was accepted, including the exemption claimed.
  2. However, the Assessing Officer subsequently passed a suo moto rectification order under Section 154 of the Income Tax Act, 1961 dated 07.03.2023, redetermining the total income at Rs. 9,71,176/- by disallowing the exemption and raising a demand of Rs. 1,35,480/-.
  3. The stated basis for rectification was described as "suo moto for Form 10B & 10BB as date issue", while the detailed error description cited non-compliance with the amended registration provisions under Section 12AB of the Income Tax Act, 1961.