2025 (10) TMI 705 - HC - Income Tax

Petitioner permitted to file fresh condonation application under Section 119(2)(b) after earlier denial for lack of proof

The HC allowed the petitions and directed the petitioner to file a fresh application for condonation of delay under Section 119(2)(b); the respondent is ... Condonation of delay to file return of income - 'genuine hardship' - HELD THAT:- There is no flaw in the decision making process as well as no violation of the principles of natural justice and, therefore, the petition is misconceived and is required to be dismissed. As further submitted that provisions of Section 119(2)(b) of the Act clearly mandates that grounds for condonation of delay demonstrate genuine hardship. The petitioner’s claim of not filing a return due to perceived non-taxable income does not align with the established criteria for “genuine hardship” as envisioned by the legislative intent. The petitioner was afforded ample opportunity to present his case through communication dated 18.6.2024. The communication explicitly requested the submission of necessary details, documents and supporting evidence in support of his claim of genuine hardship and rationale for not filing the return, computation of total income and relevant documents justifying his eligibility. As the petitioner during the Section 119(2)(b) proceedings, failed to furnish any cogent reason establishing genuine hardship, the authority correctly rejected the application. On the basis of such submissions, Mr. Sanghani has requested to dismiss the present writ petition. Petitioner was not having any taxable income till A.Y. 2022-23. Subsequent to the land acquisition award, the petitioner was not aware about the Tax Deduction at Source, only being employed in the very same year and on acquiring Permanent Account Number, the petitioner came to be aware about tax deducted at source. It is also not in dispute that the petitioner was not heard and the respondent had gone into merits of the genuineness of the transaction and the quantum of award. The issue of genuine hardship has come up for consideration in numerous judgments before the Hon’ble Apex Court and before this Court. The term ‘genuine’ means not fake or counterfeit, real, not pretending (not bogus or merely a ruse).However, ‘genuine hardship’ means genuine difficulty. In the instant case, the respondent was required to consider the facts of the case by condoning the delay and allowing the petitioner to file Income-tax return for the A.Y 2022-23. Petitions succeed and accordingly allowed. The petitioner shall make a fresh Application for condonation of delay and the respondent may consider such Application. ISSUES PRESENTED AND CONSIDERED 1. Whether the income-tax authority's rejection under Section 119(2)(b) of the Income Tax Act of an application for condonation of delay to file return is vitiated for want of opportunity of hearing and consideration of 'genuine hardship'. 2. Whether, on the facts that (a) the applicant had not been required to file returns prior to the relevant assessment year, (b) tax was deducted at source on a capital receipt and reflected in Form 26AS only after PAN registration, and (c) the applicant filed the delayed return voluntarily before any statutory notices, the authority ought to have exercised its Section 119(2)(b) power to admit the belated claim. 3. Scope and standard of 'genuine hardship' under Section 119(2)(b) - what constitutes sufficient material to justify condonation and the constitutional/principled requirement of considering such material on merits. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Natural justice and procedural propriety in exercise of power under Section 119(2)(b) Legal framework: Section 119(2)(b) empowers the Board, by general or special order, to authorise an income-tax authority to admit an application for exemption, deduction, refund or other relief after the prescribed period and deal with it on merits 'for avoiding genuine hardship'. Precedent Treatment: The Court referred to established judicial treatment that Section 119 exists to render equitable relief against hyper-technical limitation pleas where genuine hardship is demonstrated; the Madras High Court decision cited emphasises that the State cannot invoke mere limitation to defeat refunds/reliefs where substantive justice demands exercise of Section 119 powers. Interpretation and reasoning: The statutory power is discretionary but must be exercised judicially. Where an authority treats the application merely by rejecting it on limitation grounds without affording an opportunity to explain the circumstances giving rise to delay or without examining the alleged hardships, the decision-making process is flawed. The term 'genuine hardship' contemplates real, not feigned or bogus, difficulty; therefore the authority must consider the applicant's factual explanations and supporting material before reaching a conclusion. Ratio vs. Obiter: Ratio - administrative action under Section 119(2)(b) rejecting condonation cannot be sustained if the authority fails to afford an opportunity to be heard and does not consider the applicant's pleaded 'genuine hardship' on merits. Obiter - descriptive observations on the meaning of 'genuine' and reference to policy considerations about the State's conduct. Conclusions: The impugned order was procedurally deficient because the authority proceeded to decide on merits without hearing the petitioner and without adequately examining the claim of genuine hardship; such failure rendered the order unsustainable. Issue 2 - Application of Section 119(2)(b) to the facts: first-time return, TDS on capital receipt, knowledge arising on PAN registration and voluntary filing prior to notices Legal framework: Section 119(2)(b) is remedial and intended to prevent hardship caused by technical time bars where substantive entitlement exists; the authority must assess whether facts disclose genuine hardship and whether remedy should be granted consistently with law. Precedent Treatment: The Court relied on judicial authorities recognizing that the Board's power under Section 119 is to be exercised to render justice in cases of bona fide mistakes or where taxpayers who could not reasonably comply are prejudiced by strict limitation rules. Interpretation and reasoning: On the facts presented - (i) absence of prior taxable income so no routine filing obligation till the relevant year; (ii) TDS on compensation that the petitioner believed to be capital in nature; (iii) TDS became visible only after PAN registration and engagement of a CA; and (iv) voluntary filing of the delayed return before any coercive proceedings - the petitioner put forward a plausible case of genuine hardship and bona fide default. These facts required consideration on merits rather than summary rejection. The authority's insistence on additional proof or denials without hearing and without engaging with the sufficiency of the documentary material was contrary to the remedial spirit of Section 119(2)(b). Ratio vs. Obiter: Ratio - when a taxpayer files a belated return accompanied by a plausible explanation of non-filing (first-time filer, absence of knowledge of TDS, discovery on PAN registration) and files voluntarily before notices, the authority must consider condonation on merits under Section 119(2)(b) rather than mechanically rejecting it. Obiter - assessment of quantum or ultimate correctness of capital characterization of receipts was not undertaken and is not decided. Conclusions: The facts as pleaded warranted fresh consideration under Section 119(2)(b). The authority erred in rejecting the condonation application without proper adjudication of those facts; accordingly the matter must be remitted for fresh consideration. Issue 3 - Evidentiary threshold for 'genuine hardship' and scope of review on judicial intervention Legal framework: The statutory discretion entails an evaluative enquiry into the nature and sufficiency of the reasons for delay; the authority may require supporting documents, but the denial of the application without affording adequate opportunity to produce material transgresses principles of fair decision-making. Precedent Treatment: Courts have clarified that 'genuine hardship' is not to be narrowly construed so as to defeat substantive rights; however, the relief is not automatic and depends on the quality of explanation and evidence presented. Interpretation and reasoning: The Court observed that while the authority can and should request relevant documents, such requests cannot substitute for an adjudicatory hearing. If the taxpayer either provides reasonably persuasive explanations and documentation or seeks reasonable time to do so, the authority must evaluate whether those materials meet the standard of genuine hardship; the reviewing court's role is to ensure the process complied with principles of natural justice and statutory purpose rather than re-weigh evidence on merits in the first instance. Ratio vs. Obiter: Ratio - procedural fairness requires the authority to give an opportunity to be heard and to consider available material before rejecting an application under Section 119(2)(b); the court will remit for fresh consideration where such procedural infirmity is shown. Obiter - delineation of precise documentary quantum necessary in every case is context-dependent and not settled by the present order. Conclusions: The correct approach is to permit the applicant to file a fresh application with supporting documents and for the authority to decide afresh within a specified reasonable timeframe, assessing whether the explanation and evidence satisfy the 'genuine hardship' threshold. Relief and consequential direction (operative conclusion) The Court allowed the petition and directed that the petitioner may make a fresh application for condonation of delay; the income-tax authority is directed to consider such application in light of the Court's observations and the remedial purpose of Section 119(2)(b), and to decide the same on merits within twelve weeks of filing, with no order as to costs.