2025 (11) TMI 1519 - HC - Income Tax

Delay condonation under s.119(2)(b) allowed for revised AY 2018-19 return; s.143(1) demand and adjustments halted.

HC allowed the writ petition filed by the assessee-company challenging refusal of condonation of delay under s.119(2)(b) for filing a revised/rectified ... Delay in filing the said revised/rectified Return of Income - Condonation of Delay u/s 119 - after a lapse of almost 17 months from the date of issuance of intimation u/s 143(1) Petitioner filed the revised/rectified Return of Income on 27.05.2021 based on the revised tax audit report - HELD THAT:- Delay on account of the disruption caused by the Pandemic of COVID-19 was beyond the control of the Petitioner assessee. We cannot completely overlook the conduct of the Petitioner assessee. In paragraph 4 of the impugned order of Respondent No.1 dated 29.01.2025, it is recorded that the Jurisdictional Assessing Officer in its report has stated that the Petitioner has filed the Return of Income in past years within the limitation period. Even for the present AY 2018-19, the original Return of Income was filed within the due date. We also find that in paragraphs 4 and 5 of the impugned order it is stated that Jurisdictional AO as well as the Range Head had submitted that it was a fit case for condonation of delay in filing the return. Petitioner has given sufficient explanation for the delay. We find that there was a bona fide reason for the delay in filing the said revised/rectified Return of Income. Time and again, this Court has taken the view that the authorities, whilst considering applications u/s 119(2)(b), ought to take a justice oriented approach rather than a pedantic one. One such decision is in the case of Magenta EV solutions Private Limited vs. CBDT [2025 (9) TMI 1710 - BOMBAY HIGH COURT] We find no reasonable justification for not condoning the delay in filing the revised/rectified Income Tax Return by the Petitioner Company. We deem it fit to allow the Writ Petition, and therefore, quash and set aside the impugned order. We also hereby condone the delay in filing the revised/rectified Income Tax Return of the Petitioner company. In the meantime any demand/ recovery/adjustment arising under intimation under Section 143(1) shall not be proceeded further. ISSUES PRESENTED AND CONSIDERED 1. Whether delay in filing a revised/rectified Return of Income beyond the limitation under Section 139(5) can be condoned under the residuary powers of the revenue under Section 119(2)(b) of the Income Tax Act, 1961. 2. Whether pandemic-related disruptions (COVID-19) and non-receipt/non-tracing of an electronic intimation under Section 143(1) constitute sufficient cause for condonation of the delay in filing a revised return. 3. What standard of review the Court should apply to an administrative order rejecting an application under Section 119(2)(b) - i.e., whether the Court should substitute its discretion, interfere only on Wednesbury/unreasonableness grounds, or adopt a broader justice-oriented review. 4. Whether an inadvertent reporting error in the tax audit report (clause 20(b)) that led to an incorrect disallowance in the intimation under Section 143(1) and its subsequent rectification justifies exercise of discretion to condone delay. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay under Section 119(2)(b) Legal framework: Section 139(5) prescribes the time limit for filing a revised return; Section 119(2)(b) confers power on the revenue to condone delay and allow rectification in deserving cases. Precedent Treatment: The Court referred to prior judicial pronouncements favouring a justice-oriented approach by authorities when considering condonation under Section 119(2)(b), rather than a pedantic application of limitation. Interpretation and reasoning: The Court examined whether the facts constituted a 'deserving case' for exercise of the discretionary power. It considered the nature of the error (auditor reporting), the timing of discovery (post-Section 143(1) intimation), the period of delay, and explanations offered. The Court accepted that Section 119(2)(b) is intended to permit remedial relief where bonafide mistakes or circumstances prevent timely revision and that such power should be exercised to advance substantive justice. Ratio vs. Obiter: Ratio - Authorities exercising Section 119(2)(b) must adopt a justice-oriented approach and may condone delay where bonafide explanation exists and prejudice to revenue is not established. Obiter - considerations about specific timelines in other fact patterns not essential to decision. Conclusion: The Court concluded that exercise of discretion under Section 119(2)(b) was warranted and that the impugned rejection should be quashed and delay condoned; authorities were directed to consider the revised return and issue fresh intimation. Issue 2 - Effect of COVID-19 and non-receipt/non-tracing of electronic intimation as sufficient cause Legal framework: Causation for delay is assessed on adequacy of explanation and whether delay was beyond assessee's control; extraordinary events (such as pandemic) can be relevant. Precedent Treatment: The Court relied on the general principle that pandemic-related disruptions may be relevant to excuse delay where plausibly linked to non-action, subject to cogency of explanation. Interpretation and reasoning: The Court found it plausible that the intimation under Section 143(1) could have been missed in the assessee's email and that disruption caused by COVID-19 could have delayed discovery and follow-up. The Court weighed this against the Respondent's contention that the assessee had sufficient time pre-pandemic to act and that filing activity during the pandemic (a later return filed for a different year) suggested operational capacity. Ratio vs. Obiter: Ratio - Pandemic-related disruption can be a valid component of a bonafide explanation for delay but must be assessed in context and against other conduct indicia. Obiter - speculative findings about general email practices. Conclusion: The Court accepted the pandemic and non-tracing of the intimation as part of an adequate explanation when considered with other facts, thereby supporting condonation of delay. Issue 3 - Standard of judicial review of administrative discretion under Section 119(2)(b) Legal framework: Judicial review of administrative discretion ordinarily constrains intervention to illegality, irrationality, or non-application of mind; however, courts may interfere where the authority fails to adopt a justice-oriented approach or acts pedantically. Precedent Treatment: The Court applied established administrative law principles, emphasizing that while discretion is vested in revenue authorities, such discretion must be exercised reasonably and not mechanically. Interpretation and reasoning: The Court reviewed the impugned order's rationale and material on record (including internal notes recommending condonation) and found that the authority's rejection did not withstand a justice-oriented review given the bonafide explanation and lack of demonstrated prejudice to the revenue. Ratio vs. Obiter: Ratio - Courts may set aside an administrative rejection of condonation if the authority's conclusion is not supportable on a justice-oriented assessment of the facts. Obiter - reference to possible alternative fact-findings the authority might have reached. Conclusion: The Court interfered with the administrative order as it found the rejection inconsistent with a justice-oriented exercise of discretion and remitted the matter for consideration of the revised return. Issue 4 - Impact of auditor's reporting error and subsequent rectification on entitlement to relief Legal framework: The correctness of tax assessment or intimation arising from audit report inputs may be corrected by the assessee by filing a revised audit report and revised/rectified return; the timing of such correction is governed by limitation rules but may be excused under Section 119(2)(b). Precedent Treatment: Courts have recognized that bonafide auditor errors, once discovered, can justify rectificatory action and, in deserving circumstances, condonation of delay. Interpretation and reasoning: The Court noted that the original tax audit report overstated amounts by including employer contribution in clause 20(b) when clause 20(b) required reporting only of employees' contributions not paid by due date. The petitioner filed a revised audit report and revised return once the discrepancy was noticed after the Section 143(1) intimation. The Court treated the error as bonafide and material to the disputed disallowance, observing that the jurisdictional officers had, in internal communications, considered the case fit for condonation. Ratio vs. Obiter: Ratio - Where a rectification flows from a bonafide auditor reporting error that materially affects tax liability, such facts strengthen the case for condonation under Section 119(2)(b). Obiter - observations on the auditor's professional obligations outside the scope of decision. Conclusion: The auditor's reporting error and subsequent revision constituted a valid basis for allowing the revised return and condoning delay, and the Court directed fresh consideration leading to a fresh intimation under Section 143(1). Relief and consequential directions (operative conclusion) The Court quashed the administrative order rejecting condonation, condoned the delay in filing the revised/rectified Return of Income, directed the revenue authorities to consider the revised return and issue a fresh intimation under Section 143(1), and restrained any demand/recovery/adjustment arising from the earlier intimation pending fresh consideration; no order as to costs.