2024 (11) TMI 1548 - HC - Income Tax

Order rejecting condonation application quashed; 29-day audit delay covered by Circular paragraph 6(ii); s.143(1) intimation set aside

HC allowed the petition, holding that paragraph 6(ii) of the Circular dated 26.07.2023 covers the 29-day delay in filing the audit report and return ... Condonation of delay of 29 days caused in filing the return of income - HELD THAT:- Paragraph No.6(ii) of the Circular dated 26.07.2023 will come to the rescue of the petitioner-society. The delay of getting the accounts audited and filing of Audit Report belatedly by the Sub-auditor appointed by the State will come within the purview of the provisions of paragraph No.6(ii) of the said Circular. Thus, the respondent-Department was supposed to invoke the provisions of the aforesaid Circular and in wake of the undisputed fact of the Audit Report having been prepared in the year 2019, the petitioner’s application was ought to be allowed as indubitably, filing of the report in the year 2019 belatedly by the Sub-auditor can be said to be genuine predicament. Hence, we hereby quash and set aside the order dated 27.06.2024 rejecting the application of the petitioner-Society seeking condonation of delay of 29 days caused in filing the return of income. As a sequel thereof, we quash and set aside the intimation order dated 16.05.2019 passed by the respondent-Department under section 143(1) of the Act. ISSUES PRESENTED AND CONSIDERED 1. Whether an application for condonation of delay of 29 days in filing return of income for an assessment year can be admitted under section 119(2)(b) of the Income Tax Act where the delay was caused by belated completion of audit by a State-appointed sub-auditor. 2. Whether Circular No.13 of 2023 (26.07.2023), particularly paragraph 6(ii), is applicable in determining whether such delay caused by late audit completion constitutes 'genuine hardship' warranting exercise of powers under section 119(2)(b). 3. Whether an intimation issued under section 143(1) should be quashed and the taxpayer permitted to file a fresh return under section 139(1) if the condonation application is held to be maintainable and should have been allowed. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation under section 119(2)(b) where delay results from late audit completion Legal framework: Section 119(2)(b) empowers the Board to authorise an income-tax authority to admit applications or claims for exemption, deduction, refund or other relief after the statutory period where, in the Board's view, it is desirable or expedient to avoid 'genuine hardship', and to deal with such matters on merits. Precedent Treatment: The judgment does not reference any specific precedent authority applied, distinguished, or overruled in relation to the interpretation of section 119(2)(b). Interpretation and reasoning: The Court proceeded on the undisputed factual matrix that the State sub-auditor's consolidated audit report for multiple years was dated 06.03.2019 and that the sub-auditor had not appointed the statutory auditor until 31.10.2018. The petitioner's affidavit asserted these facts and they were not denied in the respondent's affidavit. The Court held that delayed completion and filing of the audit report by a State-appointed auditor constitutes a 'genuine predicament' which falls within the scope of hardship contemplated by section 119(2)(b). Given the absence of factual denial, the respondent-department ought to have exercised the delegated power to condone the delay. Ratio vs. Obiter: Ratio - where the delay in filing a return is caused by belated completion of statutory audit by a State authority (and such facts are undisputed), that constitutes a fit case of 'genuine hardship' under section 119(2)(b) warranting admission of a belated application/return and consideration on merits. Obiter - none elaborated beyond application to facts. Conclusions: The impugned rejection of the condonation application under section 119(2)(b) was unsustainable on the undisputed facts that the audit was completed belatedly by the State sub-auditor. The condonation should have been granted. Issue 2 - Applicability and effect of Circular No.13 of 2023, para 6(ii), in deciding condonation applications Legal framework: Administrative instructions issued under section 119 empower the Board to issue directions to subordinate authorities and to authorise admission of delayed claims where avoidance of genuine hardship is warranted. Circular No.13/2023 provides guidelines for deciding condonation applications including consideration of delays caused by statutory auditors appointed under State law and the date of completion of audit vis-à-vis the due date for filing returns. Precedent Treatment: No judicial precedents were cited to treat the circular as binding precedent; the Court treated the circular as an instructive administrative guideline consistent with the statutory power under section 119. Interpretation and reasoning: The Court construed paragraph 6(ii) of the Circular as directly applicable to a situation where delay in furnishing the return was caused by delay in getting accounts audited by auditors appointed under State law (including a State sub-auditor). The circular requires the competent CCsIT/DGsIT to examine the date of completion of audit relative to the due date for filing returns when deciding condonation applications. The Court reasoned that the circular 'comes to the rescue' of the petitioner because it expressly contemplates condonation where delay arises from late audit completion and thus the respondent-department was obliged to invoke the circular's provisions and examine the matter accordingly. Ratio vs. Obiter: Ratio - administrative circulars issued under section 119 that direct subordinate authorities to consider delays caused by late statutory audits are applicable and relevant in the exercise of condonation powers; where facts show such audit-caused delay and are undisputed, the circular supports allowing condonation. Obiter - broader statements on the general bindingness of circulars were not expanded beyond application to the facts. Conclusions: Paragraph 6(ii) of Circular No.13/2023 applied to the facts and mandated that the department examine and, given the undisputed late audit, ought to have allowed the condonation application; hence reliance on the circular supports quashing the rejection. Issue 3 - Consequences for intimation under section 143(1) and permission to file fresh return under section 139(1) Legal framework: Section 143(1) records computation/intimation following filing of return; section 139(1) prescribes the time for filing returns and, if a belated return is admitted under appropriate authority (e.g., under section 119(2)(b)), the taxpayer may file a return within the period permitted. Precedent Treatment: The judgment does not cite authority on the specific remedy of quashing a section 143(1) intimation where condonation should have been granted; the Court applied statutory and administrative provisions to the facts. Interpretation and reasoning: Because the Court concluded that the department should have condoned the 29-day delay, the intimation issued on 16.05.2019 under section 143(1) (which followed an un-condoned late return and consequent disallowance of deduction under section 80P) had to be set aside. Allowing condonation logically necessitates permitting the taxpayer to file a fresh return in accordance with section 139(1) so that the claim for deduction under section 80P can be adjudicated on merits. Ratio vs. Obiter: Ratio - where a condonation rejection is quashed and the delay is held to be a genuine hardship under section 119, consequent intimation/assessment based on the earlier position must be set aside and the taxpayer permitted to file a fresh return within a reasonable time so that the claim can be considered on merits. Obiter - none beyond the necessary remedial consequence. Conclusions: The intimation under section 143(1) was quashed; the department is directed to permit filing of a fresh return within one month for the relevant assessment year and to consider the claim (including section 80P deduction) on merits in accordance with law. Cross-References and Implementation Where factual assertions regarding delayed appointment/completion of audit by a State-appointed auditor are undisputed, paragraph 6(ii) of Circular No.13/2023 must inform the exercise of powers under section 119(2)(b); failure to apply the circular or to admit such a condonation application is liable to be quashed and remedied by permitting a fresh return and vacating any consequential intimation/assessment.