Delay condonation under s.119(2)(b) allowed for AY 2024-25 due to key staff resignations disrupting filings

HC allowed the petition by the assessee-company challenging rejection of its application for condonation of delay under s.119(2)(b) IT Act for AY 2024-25. It held that successive resignations of key accounts staff at the remote business location disrupted operations and constituted reasonable and sufficient cause for not filing the return within the statutory deadline, despite exercise of ordinary business care and prudence. The HC set aside the PCIT's order dated 18.08.2025 and directed the authority to accept the return/audit report and grant all consequential reliefs as if filed in time.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the rejection of the assessee's application for condonation of delay in filing return for the relevant assessment year under Section 119(2)(b) of the Income-tax Act was legally sustainable.

1.2 What is the scope and application of the expressions "genuine hardship" and "sufficient/reasonable cause" in the context of condonation of delay in filing income-tax returns, particularly in light of CBDT circulars.

1.3 Whether the circumstances arising from repeated resignations and non-availability of key accounts personnel constituted a reasonable and sufficient cause warranting condonation of delay.

1.4 Whether the authority exercising power under Section 119(2)(b) is required to adopt a liberal and judicious approach while considering applications for condonation of delay and whether such approach was followed in the impugned order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Sustainability of rejection of condonation under Section 119(2)(b)

Legal framework (as discussed): The Court proceeded on the basis of Section 119(2)(b) of the Income-tax Act, 1961, which empowers the competent income-tax authority to condone delay where it is satisfied that the assessee has suffered "genuine hardship". The Court also adverted to CBDT Circulars, particularly Circular No. 11/2024 and the extension Circular dated 26.10.2024, which guide the exercise of such power and delegate authority to specified officers to consider condonation applications.

Interpretation and reasoning: The Court noted that the petitioner had placed before the competent authority detailed material and an affidavit explaining the non-availability and frequent resignation of employees in the accounts department, with specific dates of joining and relieving. It held that the PCIT failed to appropriately appreciate the "genuine hardship" and the cause shown, and instead proceeded on a speculative assumption that if the books and audit report were complete, a physical audit report could have been filed with the jurisdictional Assessing Officer to establish hardship. The Court observed that such reasoning brushed aside the sworn factual assertions and did not address the real difficulty faced in preparing and filing the return in time. The Court emphasized that the petitioner did not stand to gain by delayed filing and that the explanation should have been tested pragmatically, not with a pedantic approach.

Conclusions: The Court concluded that the impugned order rejecting condonation of delay suffered from non-consideration and misappreciation of relevant material and failed to apply the statutory standard of "genuine hardship" as informed by CBDT circulars. The rejection of condonation under Section 119(2)(b) was held to be unsustainable and was set aside.

Issue 2: Meaning and application of "genuine hardship" / "sufficient or reasonable cause" under Section 119(2)(b) and CBDT circulars

Legal framework (as discussed): The Court referred to CBDT Circular No. 11/2024, which vests discretion in specified authorities to condone delay in cases involving refund claims and carry forward of losses, subject to specified conditions. It also noted that the circulars require a liberal approach where genuine hardship is demonstrated and cover pending applications for condonation. Prior case law (including decisions of this Court and other High Courts) was cited, where "genuine hardship" in Section 119(2)(b) had been considered and interpreted.

Interpretation and reasoning: The Court reiterated that "genuine hardship" is to be construed liberally and not in a narrow or technical sense. It endorsed the principle that an assessee does not stand to benefit by lodging a claim belatedly and that the power under Section 119(2)(b), as clarified by CBDT circulars, is to be exercised to mitigate real hardship where circumstances beyond the assessee's control have prevented timely compliance. The Court adopted the understanding that a "reasonable cause" is an event or circumstance beyond the taxpayer's control which, despite the exercise of ordinary business care and prudence, prevents timely filing. It observed that the statutory authorities, being empowered by CBDT circulars, must adopt a liberal and judicious approach in assessing such hardship.

Conclusions: The Court held that, on the legal standard of "genuine hardship" and "reasonable cause" as developed in precedent and CBDT circulars, the assessee's case fell within the ambit of Section 119(2)(b). The authority's narrow and speculative reasoning was inconsistent with the required liberal interpretation.

Issue 3: Whether frequent resignations and non-availability of accounts personnel constituted sufficient/reasonable cause for delay

Interpretation and reasoning: The Court examined the specific chronology of appointments and resignations of employees handling accounts and tax compliance, as furnished by the assessee and supported by an affidavit. It recorded that employees joined between 15.05.2023 and 09.01.2024 and left between 29.02.2024 and 07.11.2024, and held that it was "inconceivable" that a new incumbent, joining for a short span, could quickly acquaint himself with all nuances of the company's transactions, refund claims and loss positions for the relevant financial year. The Court reasoned that the sudden departure of employees possessing specialized knowledge in accounts and access to critical financial information disrupted normal operations, and that such disruption could prevent timely filing despite the exercise of ordinary business care and prudence. It found that these facts, asserted on affidavit, could not have been lightly brushed aside on a mere surmise that a physical audit report could have been filed if books were complete.

Conclusions: The Court held that the sequence of resignations and the resulting disruption in the accounts department constituted a reasonable and sufficient cause and "genuine hardship" for not filing the return within the stipulated/extended time. This was a circumstance beyond the assessee's control and fully justified condonation of delay.

Issue 4: Duty of the authority under Section 119(2)(b) to adopt liberal and judicious approach and scope of judicial review

Interpretation and reasoning: The Court emphasized that, by virtue of CBDT circulars, statutory authorities exercising powers under Section 119(2)(b) are required to adopt a liberal approach and judiciously consider the plight of the assessee, particularly where refund and carry forward of losses are at stake. The PCIT, being a senior officer, was expected to apply this standard and to consider the totality of circumstances, including that the assessee would suffer immeasurable loss if refund and carry forward of loss were denied. The Court, examining the impugned order, found that the authority failed to exercise discretion in accordance with these principles and ignored material that directly supported the claim of hardship. The judicial review was thus confined to assessing whether relevant considerations were properly weighed and whether the statutory discretion was exercised on correct principles.

Conclusions: The Court concluded that the authority had not exercised its discretion under Section 119(2)(b) in a liberal and judicious manner as mandated by CBDT circulars and binding legal principles. In exercise of its writ jurisdiction, the Court set aside the impugned order refusing condonation and directed the competent authority to treat the return and audit report for the relevant assessment year as filed within time and to grant all consequential reliefs, including consideration of refund and carry forward of loss in accordance with law.

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