Commissioner's rejection of delayed revision application under Section 264 overturned for taking pedantic approach instead of liberal stance

Gujarat HC quashed the Commissioner's order rejecting a revision application under Section 264 for delay. The petitioner filed revision within five months of receiving Tribunal's order regarding subsidies being capital receipts (following SC precedent in Chaphalkar Brothers). HC held the Commissioner should have taken a liberal approach rather than pedantic stance, finding sufficient cause for delay with no negligence or mala fide. The delay was condoned and matter remanded for decision on merits.

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Issues Involved:
1. Whether the subsidies received by the petitioner should be treated as capital receipts or revenue receipts.
2. Whether the delay in filing the revision application under Section 264 of the Income Tax Act, 1961 should be condoned.

Issue-wise Detailed Analysis:

1. Nature of Subsidies:
The petitioner, a limited company engaged in textile manufacturing, filed its return of income for the Assessment Year 2015-16, declaring a total loss that included various subsidies. The subsidies were initially treated as revenue receipts. However, the petitioner argued that these subsidies should be considered capital receipts based on a prior decision by the Income Tax Appellate Tribunal (ITAT) for the Assessment Year 2012-13, where similar subsidies were treated as capital receipts. This position was further supported by the Supreme Court's judgment in the case of Chaphalkar Brothers Pune, which classified such subsidies as capital in nature.

2. Delay in Filing Revision Application:
The petitioner filed a revision application under Section 264 on 01.07.2019 to revise the return for the Assessment Year 2015-16, requesting that the subsidies be treated as capital receipts. The application was filed beyond the one-year limitation period prescribed under Section 264(3) of the Act. The petitioner sought condonation of the delay, arguing that the relevant judgments were not available within the prescribed period. The respondent-Principal Commissioner of Income Tax rejected the revision application on the grounds of limitation, stating that the petitioner had not provided sufficient reasons for the delay.

Arguments by the Petitioner:
- The petitioner contended that the subsidies should be treated as capital receipts based on judicial precedents.
- It was argued that the delay in filing the revision application should be condoned as the relevant judgments were pronounced after the expiry of the limitation period.
- The petitioner cited the Bombay High Court's decision in Hindalco Industries Ltd., which emphasized a liberal approach towards condonation of delay to advance substantial justice, especially when no negligence or mala fide intent is involved.

Arguments by the Respondent:
- The respondent maintained that the revision application was filed beyond the statutory period and that the petitioner did not provide a cogent reason for the delay.
- It was argued that the provisions of Section 264(3) are binding, and the delay could not be condoned without sufficient cause.

Court's Analysis and Judgment:
The court acknowledged that the subsidies should be treated as capital receipts based on the Supreme Court's decision in Chaphalkar Brothers Pune and the ITAT's decision for the Assessment Year 2012-13. The court further noted that the petitioner filed the revision application within five months of receiving the ITAT's order, indicating no negligence or mala fide intent.

The court emphasized that the Commissioner should adopt a liberal approach towards condonation of delay, as held by the Bombay High Court in Hindalco Industries Ltd. The court cited several precedents, including the Supreme Court's decision in Collector, Land Acquisition v. Mst. Katiji & Others, which advocated for a rational and pragmatic approach towards condonation of delay to advance substantial justice.

The court concluded that the Commissioner should have considered the sufficient cause for the delay and exercised the revisional power to advance substantial justice. Consequently, the court quashed the impugned order dated 20th March 2020, condoned the delay in filing the revision application, and remanded the matter back to the respondent for a decision on merits after giving the petitioner an opportunity to be heard.

Conclusion:
The court ruled in favor of the petitioner, directing the respondent to reconsider the revision application on its merits, thereby emphasizing the need for a liberal and justice-oriented approach in condoning delays.

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