2026 (1) TMI 554 - HC - Income Tax

Delay in filing tax returns with audit reports due to unavailable co-op auditors; refusal condonation set aside, returns accepted

Refusal to condone delay in filing returns with audit reports for AYs 2018-19 to 2022-23 under s. 119(2)(b) was tested on whether 'genuine hardship' and ... Refusal to condone the delay in furnishing return of income pertaining to the Assessment Years 2018-19 to 2022-23, exercising power u/s 119(2)(b) - Scope of “genuine hardship” constituting “sufficient cause” for condonation of delay - Since, the books of account of the petitioner could not be audited within time-frame because of acute shortage of departmental auditors, as a result of which it could not file its returns of income and audit report(s) within the statutory period allowed u/s 139(1) Whether the PCCIT appropriately exercised his discretion by considering germane factors to determine ‘genuine hardship’ in rejecting the application under Section 119(2)(b)? - HELD THAT:- Petitioner has made out a case disclosing “genuine hardship” constituting “sufficient cause” for condonation of delay. So far as the merits of the claim of the petitioner for condonation of delay in concerned, this Court finds that though the petitioner is bound to get its accounts audited under Section 62 of the OCS Act, the delay in completion of audit by the auditor appointed under the Act is not attributable to the petitioner. The argument of the learned Senior Standing Counsel that the delay being inordinate could not be condoned cannot be found favour with inasmuch as the documents enclosed to the application u/s 119(2)(b) of the IT Act read with the Central Board of Direct Taxes Circular followed by the Letter of the Ministry of Cooperation make it clear that there was default on the part of the AGCS in providing for auditors at the relevant period. Besides showing sufficient cause for delay in preparing the audit reports for the Assessment Years in question, which are now ready for filing along with returns, the assessee could establish “genuine hardship”. If the discretion conferred u/s 119(2)(b) of the IT Act is not exercised in favour the petitioner, it would lead to depriving an assessee to claim deductions as is entitled to under Section 80P of the IT Act. Of course, such claim is subject to verification and/or scrutiny by the appropriate authority. Conclusion - It is consistent view that the power conferred under Section 119(2)(b) of the IT Act is a benevolent provision intended to mitigate “genuine hardship” of assessee. It should be exercised liberally so as to facilitate the assessee to avail the legitimate benefit as entitled to, but not in a pedantic or hyper-technical manner. It deserves to be stated that the Authorities under the IT Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception, not being properly instructed or due to certain intervening circumstances beyond its control, is over-assessed, the Authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. This Court finds it expedient to hold that the petitioner, in the present case, is not in default for not being able to furnish its returns along with the audit report(s) within the period specified in the IT Act, because the statutory authority failed to assist the petitioner in getting its accounts audited as required under the OCS Act. On the facts and in the circumstances discussed above, this Court finds that the petitioner has rendered explanation which is sufficient and reasonable warranting consideration of application for condonation of delay by the PCCIT invoking Section 119(2)(b) by application of judicious discretion. Having taken cognizance of the fact that the audit has now been completed for the Assessment Years from 2018-19 to 2022-23 on or before 25.01.2024, the said authority should have exercised conscientious discretion, and should not have rejected the application on hyper-technical ground or by adhering to pedantic approach. Under the above premises, the Order dated 13.06.2024 passed by the Principal Chief Commissioner of Income Tax, Odisha Region, refusing to condone the delay in exercise of power u/s 119(2)(b) cannot withstand judicial scrutiny. Consequently, this Court sets aside said Order (Annexure-3) and exercising power under Article 226 of the Constitution of India issues writ of mandamus to the authority concerned to allow the petitioner to file return(s) of income along with audit report(s). Issues: Whether the Principal Chief Commissioner of Income Tax acted lawfully in refusing to condone the delay under Section 119(2)(b) of the Income-tax Act, 1961 in respect of returns for Assessment Years 2018-19 to 2022-23 where delay in filing was attributed to non-availability/late appointment of statutory auditors under the relevant State law.Analysis: The Court examined the scope of Section 119(2)(b) which permits condonation of delay to avoid 'genuine hardship' and the criteria outlined in Central Board of Direct Taxes Circular No.13 of 2023 for cases involving Section 80P claims for AY 2018-19 to AY 2022-23. It considered documentary material showing repeated requests to the statutory audit authority and the Directorate of Cooperative Audit, the timeline of events including pandemic-related circumstances, and that the audits for the years in question were completed on 25.01.2024. The Court applied established principles on 'genuine hardship', 'sufficient cause' and the requirement that a quasi-judicial authority must exercise its discretion conscientiously and not be influenced by irrelevant past events. The Court further noted that procedural requirement of producing audit reports is to be treated in a justice-oriented and liberal manner where statutory authorities caused delay, and that the PCCIT failed to confine enquiry to relevant years and did not adequately consider the material demonstrating circumstances beyond the assessee's control.Conclusion: The refusal to condone the delay under Section 119(2)(b) was set aside and the petitioner was directed to be permitted to file the returns of income along with audit reports; this conclusion is in favour of the assessee (appellant) and against the Revenue.