2025 (5) TMI 814 - AT - Income Tax

ITAT condones 100-day delay in filing appeal citing COVID-19 pandemic and pending section 154 application as sufficient cause

Milagro Ceremica Private Ltd. Versus Circle 15 (2) (1), Mumbai

Milagro Ceremica Private Ltd. Versus Circle 15 (2) (1), Mumbai - TMI Issues Presented and ConsideredThe core legal questions considered by the Tribunal in this appeal are:Whether the delay of 100 days in filing the first appeal before the Commissioner of Income Tax (Appeals) (CIT(A)) can be condoned on the grounds presented by the assessee, including the pendency of an application filed under section 154 of the Income-tax Act, 1961 and the disruptions caused by the COVID-19 pandemic;Whether the appellate authority erred in dismissing the appeal in limine on the ground of delay without adjudicating the merits of the claim of depreciation disallowance and the addition of provident fund contribution;Whether the assessing officer was justified in disallowing the depreciation claimed by the assessee on the basis that the depreciation amount was not reflected in the DEP schedule of the Income Tax Return (ITR), despite the assessee having claimed depreciation in the profit and loss account and in the original return;Whether the addition of Rs. 4,992/- towards recognized provident fund contributions by the assessing officer was justified, given the assessee's claim that the same was already accounted for in the original return;The procedural correctness and fairness in the assessment and appellate proceedings, including the handling of rectification application under section 154 and the requirement of a speaking order on the merits of the appeal.Issue-wise Detailed Analysis1. Condonation of Delay in Filing AppealLegal Framework and Precedents: Section 249(3) of the Income-tax Act empowers the CIT(A) to admit an appeal after the expiry of the prescribed period if there is 'sufficient cause' for delay. The term 'sufficient cause' has been judicially interpreted in numerous Supreme Court decisions to require a liberal and justice-oriented construction rather than a rigid or pedantic approach. Landmark precedents cited include Collector Land Acquisition v. Mst. Katiji and N. Balakrishnan v. M. Krishnamurthy, which emphasize that delay should be condoned unless it is deliberate, mala fide, or part of a dilatory tactic. The courts have held that the object of limitation is to prevent unending uncertainty but not to destroy the right of parties to seek justice.Court's Interpretation and Reasoning: The Tribunal noted that the delay of 100 days in filing the appeal before the CIT(A) was explained by the assessee on two grounds: (a) the pendency of an application for rectification under section 154, which was filed in good faith as the assessee believed there was a mistake apparent from record, and (b) disruptions caused by the COVID-19 pandemic, which affected normal functioning and timelines.The Tribunal observed that the period of delay fell within the pandemic phase, during which the Supreme Court had waived delays in suo moto proceedings. The CIT(A) had dismissed the appeal solely on the ground of delay without considering the merits, despite acknowledging the pendency of the rectification application and the pandemic-related difficulties.Application of Law to Facts: Applying the principles from the cited Supreme Court decisions, the Tribunal concluded that the reasons given by the assessee constituted 'sufficient cause' for condonation of delay. The Tribunal emphasized the need to prioritize substantial justice over technicalities and noted the absence of mala fide or deliberate delay on the part of the assessee.Treatment of Competing Arguments: The Revenue's position, implicitly supporting the dismissal of the appeal on delay grounds, was outweighed by the assessee's bona fide explanation and the pandemic context. The Tribunal rejected the mechanical approach of the CIT(A) and underscored the importance of adjudicating appeals on merits.Conclusion: The Tribunal condoned the delay and directed the CIT(A) to admit the appeal for meritorious adjudication.2. Merits of Disallowance of DepreciationLegal Framework: Depreciation is an allowable deduction under the Income-tax Act, subject to compliance with prescribed conditions. The claim must be substantiated and reflected in the return of income and supporting schedules. The assessing officer's disallowance on the ground that depreciation was not included in the DEP schedule of the ITR is a procedural consideration but cannot override the fact that depreciation was claimed in the profit and loss account and original return.Key Evidence and Findings: The assessee had claimed depreciation of Rs. 19,46,910/- as per the Companies Act in the profit and loss account and Rs. 17,62,663/- as per the Income-tax Act in the return of income. The assessee submitted details during assessment proceedings and filed a revised return to include depreciation in the DEP schedule. Despite this, the assessing officer disallowed the depreciation claim and made an addition of Rs. 17,67,655/-.Application of Law to Facts: The Tribunal noted that the assessing officer did not consider the facts and submissions made by the assessee and passed the order without giving effect to the legitimate depreciation claim. The assessing officer's reliance on the absence of depreciation in the DEP schedule, despite the claim being made in the profit and loss account and original return, was not justified.Treatment of Competing Arguments: The Revenue's argument was procedural, focusing on the DEP schedule omission. The assessee's argument was substantive, emphasizing that depreciation was claimed and substantiated. The Tribunal, while not deciding the merits at this stage, recognized the need for adjudication on the merits by the CIT(A).Conclusion: The matter was remitted to the CIT(A) for de novo consideration on merits with opportunity to the assessee to substantiate the claim.3. Addition of Provident Fund ContributionKey Evidence and Findings: The assessing officer added Rs. 4,992/- as contribution to recognized provident fund, alleging it was not offered to tax. The assessee contended that this amount was already reflected in the computation of income in the original return.Application of Law to Facts: The Tribunal noted that this issue was not adjudicated by the CIT(A) due to dismissal of appeal on delay grounds. The assessee's contention that the addition was a duplication was not considered on merits.Conclusion: The issue requires adjudication on merits by the CIT(A) upon remand.4. Procedural Fairness and Requirement of Speaking OrderLegal Framework: Principles of natural justice and fair procedure require that appeals be adjudicated on merits and that orders passed should be speaking and reasoned. Dismissal of appeal solely on delay without considering merits, especially when delay is explained, is not in consonance with justice.Findings: The CIT(A) dismissed the appeal in limine on delay grounds without considering the merits of depreciation and provident fund issues. The Tribunal found this approach unsatisfactory and directed that the appeal be admitted and decided on merits by the CIT(A) with a speaking order.Conclusion: The appeal was remanded for de novo adjudication with directions to afford reasonable opportunity to the assessee and to avoid undue adjournments.Significant Holdings'The expression 'sufficient cause' is to be used liberally and the cause of substantial justice deserves to be preferred over technical considerations.''Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated.''There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides.''The Tribunal condones the delay of 100 days in filing the appeal before the CIT(A) on account of bona fide reasons including pendency of rectification application and disruptions caused by the COVID-19 pandemic.''The appeal dismissed by the CIT(A) on the ground of delay without adjudicating the merits is set aside and remitted for de novo consideration.''The assessing officer's disallowance of depreciation merely on the ground of non-inclusion in DEP schedule, despite claim in profit and loss account and original return, is not justified and requires adjudication on merits.''The addition of provident fund contribution disallowed by the assessing officer, which was claimed in original return, also requires merit adjudication.''The appellate authority is directed to pass a speaking order after giving reasonable opportunity to the assessee and to avoid unnecessary adjournments to expedite disposal.'