2025 (12) TMI 807 - HC - Income Tax

Delay condonation for 30-month late ITR u/s119 denied; internal disputes not 'genuine hardship' for relief

HC dismissed the writ petition challenging rejection of condonation of a 30-month delay in filing ITR for AY 2018-19 under s.119 of the Income-tax Act. ... Condonation of a 30-month delay in filing the ITR - due to a dispute between the directors of the petitioner company, coupled with financial crunch, it could not file its ITR for the AY 2018-19 within the prescribed time limitation which was extended upto 31.10.2018 - scope of ‘genuine hardship’ - As submitted by assessee there was only a singular instance of delay which had arisen in the AY 2018-19 due to extraordinary circumstances which were beyond the control of the petitioner and the same cannot be the reason for rejecting the application HELD THAT:- The submission is not at all convincing, in view of the stand taken by the respondents in their counter affidavit inasmuch as the internal dispute among the Directors of the company is not a genuine hardship, which can be the ground on which the delay can be condoned. Dispute between the Directors, when the company is an ongoing concern cannot be the reason to not to file the ITR which is a statutory obligation on the part of the company. The plea of dispute amongst the Directors is not borne out from the record. No document has been filed evidencing the same. That apart, the fact that ITR for AY 2017-18 was filed on 31.07.2017 and similarly for AY 2019-20 on 30.07.2020 shows that the company was filing ITR for those AY’s and the same could have been filed for the AY 2018-19 which was filed on 20.09.2021, that is much later than the above two assessment years. The Court in Sitaldas K. Motwani [2009 (12) TMI 36 - BOMBAY HIGH COURT] has explained the scope of ‘genuine hardship’ and held the same must be construed liberally, owing to the legislative intent behind the provision to impart justice to the parties but such liberal construction to allow a delay of 30 months on a generic reason would amount to travesty of the very legislative intent itself. Insofar as the judgment of K.C Antony [2022 (11) TMI 1065 - KERALA HIGH COURT] on which the petitioner has placed reliance is concerned, we note that the same has been overruled by Kerala High Court [2024 (12) TMI 1672 - KERALA HIGH COURT] Even otherwise, the issue in the case was related to the limitation period for filing the application under Section 119 of the Act, as such has no application to the facts of the present petition. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the rejection by the competent authority of the application under Section 119(2)(b) of the Income Tax Act, 1961 seeking condonation of a 30-month delay in filing the income tax return for AY 2018-19, to enable carry forward of loss and refund of TDS, was legally justified. 1.2 Whether internal disputes between directors and financial hardship of a company constitute 'genuine hardship' within the meaning of Section 119(2)(b) so as to warrant condonation of such delay. 1.3 Whether the case law relied upon by the assessee regarding liberal construction of 'genuine hardship' and refund claims under Section 119(2)(b) was applicable to the facts of the present matter. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Justification of rejection under Section 119(2)(b); scope of 'genuine hardship' for condoning 30-month delay Legal framework (as discussed by the Court) 2.1 The Court proceeded on the basis of Section 119(2)(b) of the Income Tax Act, 1961, which empowers the competent authority to condone delay in specified cases where 'genuine hardship' is shown, and on CBDT Circular No. 09/2015 which emphasizes that such power is to be exercised in cases of genuine hardship and extraordinary circumstances, and not routinely. Interpretation and reasoning 2.2 The Court recorded that the due date for filing the return for AY 2018-19 (for a company) was 30.09.2018, extended first to 15.10.2018 and thereafter to 31.10.2018, whereas the return was actually filed on 20.09.2021, resulting in a delay of about 30 months. 2.3 The assessee's explanation was: (i) internal dispute and lack of cohesion among directors; (ii) consequent resignations and management disruptions; (iii) serious financial crunch; and (iv) that these factors collectively made it impossible to ensure timely statutory compliance. 2.4 The Court found this explanation unconvincing. It accepted the stand of the revenue that internal disputes among directors of a company do not, by themselves, constitute 'genuine hardship' in law for non-compliance with statutory filing timelines, since the company is a separate legal entity which is obliged to comply with the Act. 2.5 The Court emphasized that, even if a company's management faces internal disputes, that cannot, in the absence of cogent supporting material, justify total failure to file the return for such a long period when the business remains an ongoing concern. The statutory obligation to file an ITR is independent and continuing. 2.6 The Court noted there was no documentary material produced either before the authorities or before the Court to substantiate any serious or litigated dispute between the directors, or any other extraordinary circumstance that rendered timely filing impossible. 2.7 The Court further reasoned that the conduct of the assessee in filing returns for AYs 2017-18 and 2019-20 showed that returns could and were being filed in proximate years, contradicting the plea that disputes made it impossible to comply for AY 2018-19 alone. The fact that the return for AY 2018-19 was filed much later than those for AYs 2017-18 and 2019-20 undermined the contention that the same dispute had disabled filing only for that particular year during the prescribed/extended period. 2.8 The Court also took note of the revenue's contention that the extensions of statutory due dates up to 31.10.2018 afforded sufficient time and opportunity to file the return, which the assessee failed to utilize, and that the narrative of financial hardship and personal circumstances of one director was unsubstantiated by documentary evidence. 2.9 The Court aligned with the approach, as cited from a recent decision, that statutory time limits for filing returns and availing deductions/refunds must retain sanctity, and that powers of condonation under Section 119(2)(b) can only be exercised in 'extraordinary circumstances' and not upon a generic plea of inadvertence or internal management issues. Conclusions 2.10 The Court held that internal disputes among directors and unsubstantiated allegations of financial hardship, in the facts presented, did not amount to 'genuine hardship' under Section 119(2)(b). 2.11 Absence of documentary proof of any severe dispute or litigation impacting the ability to file the return, coupled with the fact of timely filing for neighbouring assessment years, led the Court to uphold the authority's refusal to condone the 30-month delay. 2.12 Consequently, the rejection of the assessee's application under Section 119(2)(b) seeking condonation of delay, and thereby the consequential denial of carry forward of loss and TDS refund for AY 2018-19, was held to be justified, and the writ petition was dismissed. Issue 3: Applicability of cited precedents on liberal construction of 'genuine hardship' and refund under Section 119(2)(b) Legal framework (as discussed by the Court) 2.13 The Court examined a series of authorities relied upon by the assessee concerning (i) liberal interpretation of 'genuine hardship' under Section 119(2)(b); and (ii) the need to avoid denial of legitimate refunds and prevent unjust enrichment of the State. The Court compared the factual matrices and legal holdings in these decisions with the present case. Interpretation and reasoning 2.14 With respect to a decision where delay was condoned owing to internal disputes between management and promoters/investors, the Court observed that in that case the disputes were supported by cogent evidence, including proceedings before the Company Law Board and appellate proceedings before a High Court, and an auditor had been appointed by order of court to complete statutory audits and enable filing of returns. Those 'glaring' facts, judicially recognized, demonstrated genuine hardship. In contrast, in the present matter, no litigation records or equivalent documentary proof of disabling disputes were produced. 2.15 The Court also noted that while the Supreme Court had declined to interfere in that matter on facts, it expressly kept open the legal question regarding the scope of CBDT's power under Section 119(2)(b) and directed that the judgment should not be treated as a precedent, further limiting its applicability. 2.16 Regarding a case where deduction under Section 80IC was denied because an audit report (Form 10CCB) had not been uploaded though the return was filed in time and the accounts were duly audited, the Court recorded that the assessee there had substantially complied with statutory obligations and the lapse related to a procedural omission despite bona fide efforts. That factual setting, showing clear and timely compliance except for a technical lapse, was held to constitute 'genuine hardship.' The present case, involving complete non-filing of the return for 30 months without extraordinary substantiated cause, was held to be materially different. 2.17 As to a decision where a delay of 60 days occurred due to the accountant's poor health, the Court held that a short delay supported by a specific, medically explained inadvertence is not comparable with a prolonged delay of 30 months based on generic assertions of director disputes, without documentation. 2.18 Concerning a precedent which elaborates that 'genuine hardship' should be construed liberally and that substantive justice should generally prevail over technicalities in refund and limitation matters, the Court accepted the principle but held that a liberal construction cannot be stretched to the extent of condoning a delay of 30 months on a vague and unsubstantiated plea. Doing so, the Court held, would itself amount to a travesty of the very legislative intent behind Section 119(2)(b). 2.19 With respect to a Kerala decision relied upon to argue about absence of limitation for filing a Section 119(2)(b) application, the Court noted that: (i) it dealt with the question of limitation for moving a condonation application, not with the determination of 'genuine hardship' on facts; and (ii) it has been overruled by a Division Bench of the same High Court, rendering it inapplicable in any event. 2.20 The Court also noted, in alignment with another recent decision cited by the revenue, that statutory timelines must not be rendered nugatory by routine condonation; powers under Section 119(2)(b) are reserved for extraordinary circumstances and must be exercised sparingly. Conclusions 2.21 The Court held that none of the precedents cited by the assessee assisted it on the specific facts of this case, as each turned on materially different circumstances where either (i) substantial statutory compliance was demonstrably made; (ii) the hardship was convincingly established through objective evidence; or (iii) the legal issue concerned limitation or refund principles distinct from the present factual context. 2.22 The general principles of liberal interpretation of 'genuine hardship' and avoidance of unjust enrichment of the State were not considered sufficient, in the absence of extraordinary, proven hardship, to justify condonation of a 30-month delay in filing the return. Accordingly, the Court affirmed the rejection of the condonation application and dismissed the petition.