2024 (5) TMI 1620 - HC - Income Tax

Challenge allowed to rejection of condonation under s.119(2)(b) for delayed income tax return; order quashed and remitted for fresh consideration

HC allowed challenge to the rejection of a condonation application under s.119(2)(b) for delayed IT return filing, holding the authority erred in ... Rejection of condonation of the delay in filing the IT return u/s 119(2)(b) - HELD THAT:- When the petitioner filed his IT return the same could have been accepted condoning the delay by invoking Section 119 (2)(b) of the IT Act, but the same has been rejected. But fact remains, the Apex Court in a [2020 (5) TMI 418 - SC ORDER] and [2021 (8) TMI 1429 - ORISSA HIGH COURT] had been pleased to extend the limitation/ relaxation of general and special laws due to extra ordinary situation prevailing for COVID-19 Pandemic, but however the CBDT vide Circular dated 09.06.2015 had provided the guidelines for condonation of delay in filing of the IT return, could be made for refund and carry forward of loss and set up provided to follow the procedure referring Section 119 (2) (b) within a period of six years from the end of assessment year for which applications have been filed. The condonation delay application filed by the petitioner should not have been rejected straightway in a cryptic, confused and absurd manner without considering the orders passed by the apex Court as well as by this Court as mentioned above. Had the order of the apex Court been taken into consideration, the authority could not have been rejected the condonation of delay application of the petitioner. Therefore, this Court is of the considered view that the order so passed by the Principal CIT, the opposite party no.2 dated 24.07.2023 under Annexure-1 cannot be sustained in the eye of law and the same is liable to be quashed and is hereby quashed. ISSUES PRESENTED AND CONSIDERED 1. Whether the authority erred in rejecting the application to condone delay in filing the income-tax return under Section 119(2)(b) when the taxpayer's failure to file timely was attributable to medical illness and late availability/uploading of statutory audit report (Form 3CB/3CD) required under Section 44AB. 2. Whether the guidelines issued by the Central Board of Direct Taxes for condonation of delay and the temporal reliefs/relaxations extended by higher courts in relation to the COVID-19 pandemic were required to be taken into account in deciding an application under Section 119(2)(b). 3. Whether the impugned order rejecting condonation was sufficiently reasoned or whether a cryptic/rejection without adequate consideration warrants quashing and remand for fresh decision in accordance with law. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation under Section 119(2)(b) where delay arises from illness and delayed statutory audit compliance Legal framework: Section 119(2)(b) empowers tax authorities to condone delay in filing returns for purposes such as refund and carry forward of losses, subject to applicable rules and guidelines; Section 44AB prescribes statutory audit and requirement to furnish audit report (Forms 3CB/3CD) with the return where turnover/receipts exceed prescribed limits. Precedent Treatment: The Court considered existing administrative guidelines and judicial decisions recognizing that condonation may be granted where delay is shown to be bona fide and attributable to circumstances beyond the assessee's control. Higher court relaxations during the COVID period were noted as relevant factual/legal background. Interpretation and reasoning: The Court found on the record that the claimant was undergoing medical treatment during the relevant period and produced a medical certificate; further, the statutory auditor uploaded the required audit reports on 31.03.2022, which materially affected the ability to file a complete return. Those events were held to be circumstances beyond the taxpayer's control that could justify condonation under Section 119(2)(b). The Court observed that because the assessee's transactions attracted statutory audit, the absence of Forms 3CB/3CD prevented valid filing until the auditor's compliance; therefore, the delay cannot be treated as simply inexcusable lateness. Ratio vs. Obiter: Ratio - where delay in filing an income-tax return is demonstrably due to bona fide medical incapacity and/or delayed compliance by a required statutory auditor, such facts constitute grounds that merit consideration for condonation under Section 119(2)(b). Obiter - observations on the relative weight of medical evidence and auditor conduct in other factual matrices. Conclusion: The Court concluded that the facts established a plausible ground for condonation and that the authority ought to have considered condoning the delay instead of outright rejection. Issue 2 - Relevance of CBDT guidelines and higher court/Court relaxations during COVID-19 in condonation decisions Legal framework: Administrative guidelines issued by the CBDT prescribe procedure and time-limits for considering condonation applications under Section 119(2)(b), including a six-year time frame from the end of the assessment year in certain contexts; judicial orders in suo motu matters and other writs extended or relaxed limitation rules during the COVID-19 pandemic. Precedent Treatment: The Court acknowledged and treated the apex Court's suo motu orders and the High Court's earlier reliefs for pandemic-related disruptions as material background that provincial authorities should take into account when exercising discretion. The CBDT circular of 09.06.2015 was treated as governing the internal procedure and substantive reach of condonation relief in tax matters. Interpretation and reasoning: The Court held that the Revenue authority should have considered both the CBDT guidelines (including the six-year window where applicable) and the exceptional pandemic-era relaxations in assessing the condonation application. The presence of pandemic-related reliefs and specific administrative guidelines were not to be ignored; failure to factor them rendered the decision legally infirm. The Court treated the guidelines as applicable benchmarks for the exercise of discretion under Section 119(2)(b). Ratio vs. Obiter: Ratio - administrative guidelines and relevant judicial relaxations form material considerations that must be applied when an authority exercises discretion to condone delay under Section 119(2)(b). Obiter - commentary on interplay between pre-existing CBDT guidelines and ad hoc pandemic orders. Conclusion: The Court concluded that the authority should have applied the CBDT guidance and considered pandemic-related extensions/reliefs in the evaluation of the condonation application, and failure to do so contributed to the illegality of the impugned order. Issue 3 - Sufficiency of reasons and availability of judicial review where impugned order is cryptic Legal framework: Administrative action under income-tax laws must be reasoned, especially when discretion is exercised to deny relief; judicial review is available where an order is cryptic, confused, or fails to address material facts and applicable legal principles. Precedent Treatment: The Court relied on settled administrative law principles that require intelligible reasons when discretionary powers are exercised and that a bare rejection without addressing pleaded grounds may render the order unsustainable. Interpretation and reasoning: The Court found the impugned order to be a straight rejection lacking adequate consideration of the petitioner's medical evidence, the delayed auditor compliance, and the higher court/CBDT relaxations. Characterizing the order as cryptic, confused and absurd, the Court held that it did not display application of mind to the material facts and governing legal guidelines and therefore could not be sustained. Ratio vs. Obiter: Ratio - a conclusory or cryptic rejection of a condonation application without addressing material facts and applicable guidelines is legally unsustainable and susceptible to quashing and remand. Obiter - procedural parameters for what constitutes adequate reasoning in different factual permutations. Conclusion: The Court quashed the impugned order for lack of proper consideration and inadequate reasoning and remitted the matter to the authority for fresh consideration in accordance with law, taking into account the medical evidence, auditor compliance, CBDT guidelines and pandemic-related relaxations. Relief and Direction (operative conclusion) The impugned order rejecting condonation was quashed; the matter was remitted to the appropriate authority to consider the belated return and the condonation application afresh, in accordance with law and relevant guidelines, including consideration of the medical certificate, the statutory audit/upload timeline, CBDT guidelines, and applicable judicial relaxations. The writ petition was disposed accordingly.