Income tax department must reconsider delayed return filing after accountant's bona fide error under Section 119(2)(b)

Gujarat HC allowed petition challenging rejection of condonation application under Section 119(2)(b) for delayed income tax return filing. Court held that respondent failed to consider petitioner's bona fide error committed by accountant. Applying principle "Ignorantia facti excusat," court ruled inadvertent error cannot justify punishing petitioner and unjustly enriching department. Denial of refund despite legitimacy would violate equity principles and Article 265. Court quashed impugned order and directed fresh consideration condoning delay for AY 2017-18 to process refund, though no interest payable per CBDT Circular 9/2015.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the delay in filing the Income Tax Return (ITR) for the Assessment Year 2017-18 can be condoned under Section 119(2)(b) of the Income Tax Act, 1961, given the circumstances of the Petitioner's case.
• Whether the Respondent was justified in rejecting the Petitioner's application for condonation of delay on the ground that no genuine hardship was demonstrated.
• Whether an inadvertent error by the Petitioner's accountant in omitting the claim for refund in the ITR constitutes a valid ground for condonation of delay.
• Whether denial of the refund due to delayed filing, despite acknowledgment of the Petitioner's entitlement to the refund, violates the principles of equity and Article 265 of the Constitution of India.
• The scope and exercise of discretionary power vested under Section 119(2)(b) of the Income Tax Act in cases of delay in filing returns.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of Delay under Section 119(2)(b) of the Income Tax Act, 1961

Relevant Legal Framework and Precedents: Section 119(2)(b) empowers the Board to authorize any income-tax authority (except certain appellate authorities) to admit applications or claims for refund, exemption, deduction, or other relief after the expiry of the prescribed period, if it is considered desirable or expedient to avoid genuine hardship. The Court referred to prior decisions interpreting this provision, emphasizing that the power to condone delay must be exercised to advance justice meaningfully rather than in a perfunctory manner.

Court's Interpretation and Reasoning: The Court noted that the Respondent rejected the condonation application solely on the ground that the Petitioner did not demonstrate genuine hardship. However, the Court found that the Respondent failed to consider the bona fide nature of the Petitioner's delay, which was caused by an inadvertent omission by the Petitioner's accountant. The Court held that such an error is excusable under the principle "Ignorantia facti excusat" (ignorance of fact is excusable).

Key Evidence and Findings: The Petitioner filed the return belatedly and sought condonation of delay. The delay was due to omission of TDS refund claim, which was a bona fide mistake. The Respondent acknowledged the legitimacy of the refund claim but denied condonation on the ground of no genuine hardship. The Court found this rejection unjustified.

Application of Law to Facts: The Court applied the discretionary power under Section 119(2)(b) liberally and purposively to avoid hardship to the Petitioner. The Court emphasized that the delay was the only obstacle to processing the refund, and the Petitioner's entitlement to refund was not disputed substantively.

Treatment of Competing Arguments: The Respondent argued that the delay was due to lack of due diligence and that an accountant's error is not a ground for condonation. The Court rejected this rigid stance, holding that bona fide errors should not be penalized to the extent of causing unjust enrichment to the Revenue.

Conclusion: The Court concluded that the Respondent ought to have condoned the delay and processed the refund claim on merits.

Issue 2: Violation of Article 265 of the Constitution of India

Relevant Legal Framework: Article 265 mandates that no tax shall be levied or collected except by authority of law. The Court considered whether denial of a refund legitimately due violates this principle.

Court's Interpretation and Reasoning: The Court held that denying the refund due to procedural delay, especially when the substantive right to refund is acknowledged, amounts to unjust enrichment of the Revenue and violates the constitutional principle under Article 265.

Application of Law to Facts: Since the refund amount corresponded to TDS deducted and remitted by the deductors, the Petitioner was entitled to it by law. The denial of refund on procedural grounds without considering bona fide reasons was contrary to the constitutional mandate.

Conclusion: The Court found that the denial of refund violated Article 265 and was therefore impermissible.

Issue 3: Scope of Discretionary Power under Section 119(2)(b) and CBDT Circular No. 9/2015

Relevant Legal Framework: CBDT Circular No. 9/2015 guides the exercise of power under Section 119(2)(b), emphasizing that condonation of delay should be granted only if genuine hardship is demonstrated.

Court's Interpretation and Reasoning: While acknowledging the Circular's mandate, the Court held that genuine hardship includes bona fide errors causing delay. The Court stressed that the power must be exercised liberally to advance justice and prevent undue hardship.

Application of Law to Facts: The Petitioner's delay was due to an inadvertent omission, which the Court considered a genuine hardship. The Court noted that although interest on the refund could be denied as per the Circular, the principal refund amount could not be withheld.

Treatment of Competing Arguments: The Respondent's contention that the Petitioner had sufficient opportunity to file timely was rejected as the Court found no mala fide intention or neglect, only an oversight.

Conclusion: The Court held that the Respondent's rejection of condonation was contrary to the spirit and object of Section 119(2)(b) and the Circular.

3. SIGNIFICANT HOLDINGS

"Ignorantia facti excusat" - ignorance of fact is excusable, and an inadvertent error by the Petitioner's accountant cannot be a ground to punish the Petitioner and unjustly enrich the Department.

The discretionary power under Section 119(2)(b) must be exercised liberally and purposively, in consonance with the object of the provision, to avoid genuine hardship.

Denying a refund legitimately due, on procedural grounds without considering bona fide reasons, violates Article 265 of the Constitution of India.

The Respondent's impugned order dated 17.10.2023 rejecting condonation of delay under Section 119(2)(b) was quashed and set aside. The Respondent was directed to pass a fresh order condoning the delay and allowing the Petitioner to file the return for Assessment Year 2017-18, so that the refund claim may be processed in accordance with law within twelve weeks.

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