2025 (5) TMI 340 - AT - Income Tax

Condonation of delay - appeal before the learned CIT(A) was filed belatedly by 1570 days - HELD THAT - Delay was explained by the assessee on the basis that it had chosen to pursue a rectification route rather than the appellate remedy due to a bona fide belief that the disallowance was a clear mistake apparent from the record and could be rectified u/s 154 of the Act. The rectification application was filed in good faith and was pending for over two years before it was finally closed. Given this background we find that the explanation for delay is a genuine and under the bona-fide belief and not due to negligence or deliberate non-compliance. Therefore in the interest of substantial justice we deem it appropriate to condone the delay. Deduction u/s 80P(2)(a)(i) - appellant is registered under the Karnataka Souharda Sahakari Act 1997 - Claim denied as assessee had not filed its return of income within the due date as prescribed u/s 139(1) - HELD THAT - Assessee being subject to audit under the Karnataka Souharda Sahakari Act 1997 is covered within the scope of the said clause and is entitled to the benefit of the extended due date of 31.10.2019. Consequently the return filed on 25.09.2019 was well within the extended due date and the denial of deduction u/s 80P of the Act on the sole ground of late filing is unsustainable in law. In conclusion we hold that the assessee s appeal deserves to be allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the delay in filing the appeal before the Commissioner of Income Tax (Appeals) (CIT(A)) can be condoned despite being beyond the prescribed limitation period?

- Whether the assessee was entitled to claim deduction under section 80P(2)(a)(i) of the Income Tax Act for the assessment year 2019-20, given the return of income was filed after the original due date?

- Whether the extended due date for filing the return of income granted by the CBDT circular dated 27.09.2019 applies to the assessee, considering its statutory audit obligation under the Karnataka Souharda Sahakari Act, 1997?

- Whether the rectification application filed under section 154 of the Income Tax Act was a valid ground for delay in filing the appeal?

- Whether the principles of natural justice were violated by the Revenue in passing the order disallowing the deduction without providing notice or opportunity for hearing?

2. ISSUE-WISE DETAILED ANALYSIS

Delay in Filing Appeal and Condonation of Delay

Relevant Legal Framework and Precedents: The limitation for filing an appeal under section 249 of the Income Tax Act is 30 days from the date of service of the order. The CIT(A) dismissed the delay condonation application relying on the principle that filing an appeal and filing a rectification application are two separate legal remedies, and the delay caused due to awaiting rectification cannot be condoned. The CIT(A) also relied on a recent High Court decision emphasizing strict adherence to limitation periods.

Court's Interpretation and Reasoning: The Tribunal observed that the delay was explained by the assessee as due to a bona fide belief that the rectification application under section 154 was the appropriate remedy and that the disallowance was a mistake apparent from the record. The rectification application remained pending for over two years without response, and the delay was not due to negligence or deliberate non-compliance.

Application of Law to Facts: Considering the facts, the Tribunal held that the explanation for delay was genuine and in the interest of substantial justice, the delay in filing the appeal before the CIT(A) was condoned. This approach aligns with the principle that courts should prioritize the cause of delay over its duration and avoid procedural dismissals where the delay is bona fide.

Treatment of Competing Arguments: While the Revenue urged dismissal on limitation grounds, the Tribunal found the assessee's explanation credible, especially given the prolonged pendency of the rectification application and the absence of any prejudice to the Revenue.

Conclusion: Delay condoned; appeal admitted for adjudication on merits.

Entitlement to Deduction under Section 80P(2)(a)(i)

Relevant Legal Framework and Precedents: Section 80P(2)(a)(i) provides deduction to cooperative societies on income from their cooperative activities. The Income Tax Act under section 139(1) prescribes the due date for filing returns. The CBDT circular dated 27.09.2019 extended the due date for filing returns and audit reports for assessees required to furnish audit reports under the Income Tax Act or any other law.

Court's Interpretation and Reasoning: The Tribunal noted that the assessee was a cooperative society registered under the Karnataka Souharda Sahakari Act, 1997, which mandates audit of accounts under section 37 of that Act. The Tribunal held that the requirement of audit under the Karnataka Souharda Sahakari Act falls within the scope of the CBDT circular's extended due date provisions, as the circular covers audits mandated under any law for the time being in force.

Key Evidence and Findings: The assessee filed the return on 25.09.2019, which was after the original due date of 31.08.2019 but before the extended due date of 31.10.2019 granted by the CBDT circular. The Revenue contended that the extension applied only to assessees filing tax audit reports under the Income Tax Act, but the Tribunal rejected this narrow interpretation.

Application of Law to Facts: The Tribunal held that since the assessee was statutorily required to get its accounts audited under the Karnataka Souharda Sahakari Act, the extended due date applied. Therefore, the return was filed within the extended due date, making the claim for deduction under section 80P valid.

Treatment of Competing Arguments: The Revenue's argument that the extension was limited to audits under the Income Tax Act was rejected by the Tribunal as inconsistent with the explicit language of the CBDT circular and the statutory audit obligation under the cooperative society law.

Conclusion: The deduction under section 80P was rightly claimable as the return was filed within the extended due date.

Rectification Application under Section 154 and its Impact on Limitation

Relevant Legal Framework: Section 154 allows rectification of mistakes apparent from the record. The limitation for rectification under section 154(7) is one year from the date of order sought to be rectified.

Court's Interpretation and Reasoning: The assessee filed a rectification application on 21.12.2022, which remained pending for over two years without response. The CPC eventually closed the case in February 2024. The CIT(A) held that awaiting rectification could not justify delay in filing appeal.

Application of Law to Facts: The Tribunal recognized the rectification application was filed in good faith and that the delay caused by the pendency of rectification proceedings should be excluded from the computation of limitation for filing appeal. The Tribunal also rejected the Revenue's contention that the rectification was time-barred, noting that the delay was not attributable to the assessee.

Treatment of Competing Arguments: The Revenue argued that rectification was not a valid ground for delay, but the Tribunal gave weight to the bona fide belief of the assessee and the procedural delays by the Revenue.

Conclusion: The pendency of rectification application justified condonation of delay in filing appeal.

Violation of Principles of Natural Justice

Relevant Legal Framework and Precedents: The Supreme Court has held that where an order results in adverse civil consequences, notice and opportunity for hearing must be provided even if not expressly mandated by statute (The Excise Commissioner Karnataka vs. Mysore Sales International Ltd.).

Court's Interpretation and Reasoning: The assessee contended that no notice or opportunity for hearing was given before the disallowance of deduction under section 80P. However, the Tribunal did not explicitly address this issue in detail but considered the procedural irregularities in the context of delay condonation.

Application of Law to Facts: The absence of personal hearing or notice before disallowance was highlighted by the assessee as a violation of natural justice. Though not the primary basis for decision, this factor supported the Tribunal's inclination to allow the appeal on merits.

Conclusion: The procedural lapse reinforced the need to examine the matter on merits rather than dismissing on technical grounds.

3. SIGNIFICANT HOLDINGS

"The explanation for delay is a genuine and under the bona-fide belief and not due to negligence or deliberate non-compliance. Therefore, in the interest of substantial justice, we deem it appropriate to condone the delay and admit the appeal for adjudication on merits."

"The assessee being subject to audit under the Karnataka Souharda Sahakari Act, 1997, is covered within the scope of the said clause and is entitled to the benefit of the extended due date of 31.10.2019. Consequently, the return filed on 25.09.2019 was well within the extended due date, and the denial of deduction under section 80P of the Act on the sole ground of late filing is unsustainable in law."

"The pendency of rectification application filed in good faith and the delay caused by Revenue in processing the same justify exclusion of such period in computing limitation for filing appeal."

Core principles established include that the cause of delay, especially when arising from bona fide belief and procedural delays by authorities, must be considered over mere duration of delay; statutory audit obligations under laws other than the Income Tax Act can entitle an assessee to extended due dates as per CBDT circulars; and that procedural fairness requires examination on merits rather than dismissal on technical grounds where substantial justice is at stake.

Final determinations:

- Delay in filing appeal before CIT(A) is condoned.

- Deduction under section 80P(2)(a)(i) is allowable as the return was filed within the extended due date applicable to the assessee.

- The order of the CIT(A) dismissing the appeal on limitation grounds is set aside.

- The Assessing Officer is directed to allow the deduction as claimed by the assessee.