2025 (5) TMI 896 - HC - Income Tax

Denial of deduction u/s 80P(2)(a)(i) - Application to condone the delay in filing the return u/s 139 (1) for two days rejected - petitioner did not furnish the documentary evidence showing that the person who was handling the affairs was ill - HELD THAT - Circular issued by the CBDT respondent no. 2 could not have rejected the application filed by the petitioner society u/s 119 (2) (b) of the Act more particularly when the reasons for which the petitioner society could not file return of income within prescribed period of time as per the provision of Section 139 (1) of the Act due to genuine hardship on account of health problems of the person who was handling the affairs of the petitioner society. The respondent no. 2 set aside the reasons given by the petitioner society on the ground that the petitioner society did not produce any corroborative evidence such as medical certificate or proof of treatment or hospital admission and discharge etc. of Mr. Rameshbhai Khristi ignoring the resolution passed by the petitioner society appointing temporarily Mr. Mukundbhai B. Vaishnav. Respondent no. 2 also did not consider the fact that Mr. Mukundbhai B. Vaishnav was not aware of the return filing provisions and therefore there as a delay in filing the return of income more particularly when filed the return of income to avail deduction u/s 80P (2) (a) (i) of the Act was made mandatory with effect from 01/04/2018 i.e. for the assessment year 2018-19-the year under consideration. Respondent no. 2 ought to have condone the delay for filing the return of income as deduction under Section 80P (2) (a) (i) of the Act could not have been denied which was otherwise available to the petitioner. It is also pertinent to note that return of income was filed late by only two days for the year under consideration. In view of the Circular no. 13 of 2023 issued by the CBDT to condone the delay in filing the return while exercising the powers u/s 119 (2) (b) of the Act respondent no. 2 has committed an error in rejecting the application to condone the delay so as to enable the petitioner to avail the benefit of deduction u/s 80P (2) (a) (i) of the Act. Thus the petition succeeds. The respondents are directed to pass fresh de-novo order by condoning the delay of two days in filing the return of income within a period of twelve weeks from the date of receipt of copy of this order so as to process the return of income.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

(a) Whether the delay of two days in filing the income tax return under Section 139(1) of the Income Tax Act, 1961 (the Act) by the petitioner society can be condoned under Section 119(2)(b) of the Act on grounds of genuine hardship.

(b) Whether the petitioner society was justified in claiming deduction under Section 80P(2)(a)(i) of the Act for the Assessment Year 2018-2019 despite the delay in filing the return.

(c) The scope and application of Circular No. 13 of 2023 issued by the Central Board of Direct Taxes (CBDT) regarding condonation of delay in filing returns claiming deduction under Section 80P.

(d) The evidentiary requirements and standards for establishing "genuine hardship" to condone delay under Section 119(2)(b) of the Act.

(e) The legal principles governing condonation of delay in filing returns and the balancing of technical and substantial justice in such cases.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Condonation of Delay under Section 119(2)(b) of the Act

Legal Framework and Precedents: Section 119(2)(b) empowers the tax authorities to condone delay in filing returns or claims for avoiding genuine hardship. The phrase "genuine hardship" has been interpreted liberally in several precedents to ensure substantive justice over technicalities. The Court relied on judgments including Gujarat Electric Co. Ltd. v. Commissioner of Income-tax, which emphasized a liberal construction of "genuine hardship" especially where delay was due to ill health of the person handling tax matters.

Other precedents such as Shri 108 Parshwanath Bhakti Vihar Jain Trust and Sarvoday Charitable Trust cases reiterated that procedural requirements, though mandatory, require equitable and judicious application, and delay caused due to bona fide reasons like illness should be condoned. The Court also referred to Kanyakaparameshwari Co-operative Society Ltd. case which emphasized that condonation of delay should be granted where bona fide reasons and unavoidable circumstances are shown, and that the powers under Section 119(2)(b) should be exercised to do substantial justice.

Court's Interpretation and Reasoning: The Court found that the respondent authority erred in rejecting the application for condonation by demanding documentary evidence such as medical certificates and ignoring the resolution passed by the petitioner society appointing a substitute person due to ill health of the original personnel. The Court held that the reasons given by the petitioner, including the ill health of the person handling the affairs and the temporary appointment of an untrained person unaware of filing requirements, constitute bona fide and unavoidable circumstances amounting to genuine hardship.

Key Evidence and Findings: The petitioner society is a small cooperative with honorary personnel and no permanent skilled staff. The delay was only two days beyond the extended due date. The petitioner produced a resolution dated 16/06/2018 acknowledging the ill health of the original personnel and the temporary appointment. The petitioner had a history of timely filing in previous years and filed the return as soon as the issue was realized.

Application of Law to Facts: The Court applied the principles from the cited precedents and the CBDT Circular No. 13 of 2023, which directs authorities to admit and decide condonation applications on merits for cooperative societies claiming deduction under Section 80P, especially where delay was caused due to circumstances beyond the assessee's control. The Court found that the respondent's refusal to condone delay based on lack of documentary evidence was too rigid and contrary to the liberal approach mandated by law and the Circular.

Treatment of Competing Arguments: The respondents argued that the petitioner failed to produce documentary evidence and that the appointed temporary personnel's ignorance was due to lack of due diligence. The Court rejected this strict approach, noting the cooperative's nature and the small delay involved. It emphasized that technicalities should not defeat substantive justice.

Conclusion: The delay of two days in filing the return should be condoned under Section 119(2)(b) as the petitioner demonstrated genuine hardship and bona fide reasons beyond its control.

(b) Claim of Deduction under Section 80P(2)(a)(i) of the Act

Legal Framework: Section 80P(2)(a)(i) provides for 100% deduction of income of cooperative societies engaged in certain activities. However, Section 80AC (substituted w.e.f. 01/04/2018) mandates that no deduction under Chapter VIA shall be allowed unless the return is filed on or before the due date under Section 139(1).

Court's Interpretation: The Court noted that the petitioner society's income was eligible for deduction under Section 80P. Due to the delay in filing the return, the deduction was disallowed by the tax authorities. However, the Court held that if the delay is condoned under Section 119(2)(b), the petitioner would be entitled to the deduction, as per the CBDT Circular No. 13 of 2023.

Key Evidence: The petitioner filed the return on 02/11/2018, two days after the extended due date of 31/10/2018. The deduction claimed was equal to the gross total income, resulting in nil taxable income. The petitioner had filed returns timely in prior years.

Application of Law to Facts: The Court applied the Circular which directs authorities to condone delay and allow deduction under Section 80P where delay is caused due to circumstances beyond the control of the assessee. Since the petitioner's delay was minor and due to genuine hardship, the deduction should not have been denied.

Conclusion: The petitioner is entitled to the deduction under Section 80P(2)(a)(i) upon condonation of the delay in filing the return.

(c) Applicability of CBDT Circular No. 13 of 2023

Legal Framework: The Circular authorizes Chief Commissioners of Income Tax to decide applications for condonation of delay in filing returns claiming deduction under Section 80P for assessment years 2018-19 to 2022-23 on merits, ensuring genuine hardship is considered and undue hardship mitigated.

Court's Interpretation: The Court held that the Circular mandates a liberal and merit-based approach to condonation applications, especially for cooperative societies. The Circular requires authorities to verify that delay was caused due to circumstances beyond the assessee's control and to consider documentary evidence where applicable.

Application of Law to Facts: The petitioner's delay was two days and caused by the ill health of the person responsible and the temporary appointment of an unaware substitute. The Circular's directives were not followed by the respondent, who rejected the application on technical grounds without due consideration.

Conclusion: The Circular supports condonation of the petitioner's delay and the impugned order rejecting the application is contrary to the Circular's mandate.

(d) Evidentiary Requirements for Genuine Hardship

Legal Framework: The authorities require appropriate documentary evidence to establish that delay was caused by circumstances beyond the assessee's control. However, precedents emphasize a liberal approach, especially in cases of illness or bona fide reasons.

Court's Interpretation: The Court found that the respondent's demand for medical certificates and proof of treatment was excessive and ignored the resolution passed by the petitioner society. The Court held that the petitioner's explanation, supported by the society's resolution and the nature of the society's operations, sufficed to establish genuine hardship.

Application of Law to Facts: The petitioner's failure to produce medical certificates was mitigated by the resolution and the nature of the society's personnel management. The Court emphasized that strict documentary proof should not defeat genuine hardship claims.

Conclusion: Documentary evidence requirements must be balanced with equitable considerations; the petitioner's evidence was sufficient to establish genuine hardship.

(e) Balancing Technical and Substantial Justice

Legal Framework: The Court referred to precedents that advocate a justice-oriented approach over technicalities in condoning delays, especially where no mala fide or deliberate negligence is shown.

Court's Interpretation: The Court emphasized that the petitioner did not benefit from delay and that denying condonation would defeat substantial justice. The Court reiterated that delay caused by illness and bona fide reasons should be condoned to avoid injustice.

Application of Law to Facts: The petitioner's delay was minimal and due to unavoidable circumstances. The Court found no evidence of tax evasion or avoidance, and thus condonation aligns with principles of equity and justice.

Conclusion: The Court adopted a liberal approach favoring condonation to ensure substantial justice.

3. SIGNIFICANT HOLDINGS

"The phrase 'genuine hardship' should be construed liberally and as the petitioner has satisfied all the conditions mentioned in circular dated October 12, 1993, the claim for refund advanced by the petitioner ought to have been examined on the merits."

"It is the responsibility and onus of the applicant to file Income tax return within due date and failure to do so due to the health problem of account staff cannot be construed as grounds of genuine hardship" - rejected by this Court as too rigid and ignoring bona fide reasons.

"The approach in cases of the present type should be equitable, balancing and judicious. Technically, strictly and liberally speaking, the respondent might be justified in denying exemption by rejecting condonation application, but an assessee substantially satisfying the condition for exemption should not be denied the same merely on the bar of limitation especially when the legislature has conferred wide discretionary powers to condone such delay."

"The Board hereby directs that the Chief Commissioners of Income tax are authorised to deal with such applications of condonation of delay and decide such applications on merits, in accordance with the law."

"No order rejecting the application under section 119 (2) (b) of the Act shall be passed without providing the applicant an opportunity of being heard."

Final determinations:

- The impugned order rejecting condonation of delay is quashed and set aside.

- The delay of two days in filing the return is condoned under Section 119(2)(b) of the Act.

- The respondents are directed to pass fresh orders allowing deduction under Section 80P(2)(a)(i) for the Assessment Year 2018-2019.

- The CBDT Circular No. 13 of 2023 is binding and mandates a merit-based, liberal approach to condonation applications for cooperative societies.