2025 (5) TMI 1385 - AT - Income Tax

Delay in filing the appeal before the CIT(A) - Addl/JCIT(A) dismiss the appeal as the same is filed beyond the time limit permitted u/s 249 - HELD THAT - On going through the facts of the case we find force in the assessee s contention that on an honest bonafide belief that that the outcome of the rectification would address the discrepancies prima facie there is no need to file appeal for the mistakes which were apparent on the face of the record which resulted in delay filing of appeal. In our opinion it cannot be said that assessee is very callous in its approach in filing the appeal belatedly before the ld. ADDL/JCIT(A). Being so when substantial justice and technical consideration are pitted against each other the cause of substantial justice deserves to be preferred for the other side cannot claim to have vested right for injustice being done because of non-deliberate delay. We are of the opinion that If the delay is not condoned it would amount to legalising an illegal order which would result in unjust enrichment on the part of the State by retaining the tax relatable thereto. Under the scheme of Constitution the Government cannot retain even a single pie of the individual citizen as tax when it is not authorised by an authority of law. Therefore if we refuse to condone the delay that would amount to legalise an illegal and unconstitutional order passed by the lower authority. Therefore in our opinion by preferring the substantial justice the delay of in filing the appeal before ld. Addl/JCIT(A) has to be condoned. Thus we are condoning the delay in filing the appeal before the ld. Addl/JCIT(A) belatedly and accordingly remit the entire issues in dispute to the file of ld. Addl/JCIT(A) with the above observations.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal are:

(a) Whether the delay in filing the appeal before the Commissioner of Income-tax (Appeals) [CIT(A)] was justifiable and whether the delay ought to have been condoned.

(b) Whether the order of intimation passed under section 143(1) of the Income Tax Act, 1961 (the Act) was valid, particularly concerning the non-granting of full credit for prepaid taxes (TDS) as reflected in Form 26AS.

(c) Whether the assessing officer and CIT(A) erred in disallowing the credit for prepaid taxes amounting to Rs. 9,60,271/- despite its reflection in Form 26AS and the provisions of the Act.

(d) Whether the appellant's status as a commission agent and the nature of TDS deducted under different sections (194A, 194H, 194Q) were properly appreciated in the assessment and appellate orders.

(e) Whether the levy of interest under sections 234A, 234B, and 234C of the Act was justified and correctly computed.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Delay in filing the appeal and condonation thereof

Relevant legal framework and precedents: Section 249 of the Income Tax Act prescribes the time limit for filing appeals before the CIT(A). The power to condone delay is discretionary and must be exercised judiciously. The Supreme Court's ruling in Collector, Land Acquisition v. Mst. Katiji (167 ITR 471) lays down guiding principles for condonation of delay, emphasizing preference for substantial justice over technicalities.

Court's interpretation and reasoning: The Tribunal noted that the delay in filing the appeal before the CIT(A) was primarily due to the appellant's bona fide belief that the rectification proceedings under section 154 of the Act would rectify the discrepancy relating to TDS credit. The appellant contended that the delay was neither intentional nor due to negligence but was caused by circumstances beyond their control.

The Tribunal found that the CIT(A) had dismissed the appeal in limine without considering the merits and without condoning the delay, holding that there was no sufficient cause for delay. However, the Tribunal disagreed with this approach, emphasizing that the appellant had provided a reasonable explanation for the delay. The Tribunal applied the six principles from the Katiji case, highlighting that refusal to condone delay can defeat justice and that every day's delay need not be explained pedantically.

Application of law to facts: The Tribunal held that the appellant's honest and bona fide belief regarding the rectification proceedings constituted sufficient cause for delay. It further observed that substantial justice should prevail over technicalities, especially when the delay is not deliberate or negligent.

Treatment of competing arguments: The Department argued that the delay was due to negligence and no sufficient cause was shown. The Tribunal rejected this, finding the appellant's explanation credible and emphasizing the importance of hearing the appeal on merits.

Conclusion: The Tribunal condoned the delay in filing the appeal before the CIT(A) and remitted the matter back for fresh adjudication on merits after hearing the appellant.

(b) Validity of the order of intimation under section 143(1) and non-granting of full TDS credit

Relevant legal framework and precedents: Section 143(1) of the Act allows the Assessing Officer (AO) to make an intimation based on the return filed, subject to verification and correction of arithmetical errors or incorrect claims. Section 199 of the Act governs the credit for tax deducted at source (TDS) and mandates that credit be given as per the details reflected in Form 26AS.

Court's interpretation and reasoning: The Tribunal noted that the AO accepted the total income declared by the appellant but drastically reduced the TDS credit from Rs. 11,34,672/- to Rs. 1,74,401/-, raising a demand of Rs. 10,80,290/-. The AO did not provide reasons for disallowing the TDS credit, nor was there any mismatch reported between TDS claimed and allowed as per Form 26AS.

The Tribunal examined Form 26AS and found TDS deducted under sections 194A (interest on security deposits), 194H (commission or brokerage), and 194Q (purchase of goods). It accepted the appellant's submission that the appellant is a commission agent selling goods on behalf of agriculturists, and that purchasers deducted TDS under section 194Q treating the appellant as the seller, whereas the appellant declared only commission and interest as income.

Application of law to facts: The Tribunal held that the AO and CIT(A) failed to appreciate the appellant's status and the nature of TDS deducted. The disallowance of TDS credit without proper reasons and without reconciling the facts with Form 26AS was not in accordance with law. The Tribunal emphasized that the credit for prepaid taxes should be granted as per section 199 and the entries in Form 26AS.

Treatment of competing arguments: The Department maintained the correctness of the intimation and disallowance of TDS credit. The Tribunal found the Department's approach lacking in explanation and contrary to the legal provisions.

Conclusion: The Tribunal found merit in the appellant's contention that the TDS credit was wrongly disallowed and that the order of intimation under section 143(1) was flawed in this respect.

(c) Treatment of appellant's status as commission agent and implications on TDS credit

Relevant legal framework and precedents: The income tax provisions distinguish between income earned as commission and income from sale of goods. TDS under different sections applies accordingly. The correctness of TDS credit depends on the nature of income and the corresponding TDS provisions.

Court's interpretation and reasoning: The Tribunal accepted the appellant's submission that it is a commission agent and that the purchasers deducted TDS under section 194Q treating the appellant as the seller of goods, which is factually incorrect. The appellant declared only commission and interest income, which was reflected in the profit and loss account.

Application of law to facts: The Tribunal held that the TDS deducted under section 194Q on the entire sale consideration was not applicable to the appellant's income, which was limited to commission. Therefore, the credit for TDS should be aligned with the actual income declared and the nature of transactions.

Treatment of competing arguments: The Department did not adequately address this distinction. The Tribunal found that failure to appreciate this fact led to erroneous disallowance of TDS credit.

Conclusion: The Tribunal concluded that the appellant's status and the nature of income must be properly considered for granting TDS credit, and the failure to do so vitiated the impugned orders.

(d) Levy of interest under sections 234A, 234B, and 234C

Relevant legal framework: Sections 234A, 234B, and 234C of the Act prescribe interest for defaults in furnishing return, payment of advance tax, and deferment of advance tax respectively. The levy of interest must be based on correct period, rate, and method of calculation.

Court's interpretation and reasoning: The appellant contended that the interest levied was bad in law as the period, rate, quantum, and method of calculation were not discernible or correct. The appellant relied on the Apex Court decision in Karanvir Singh (349 ITR 692) to deny liability for interest.

Application of law to facts: The Tribunal did not expressly adjudicate on the interest issue in the present order, as the appeal was remitted for fresh consideration. However, the appellant's contention raised a legitimate question regarding the correctness of interest levy.

Treatment of competing arguments: The Department maintained the correctness of interest levy. The Tribunal's order implies that all issues, including interest, should be re-examined on merits after condonation of delay.

Conclusion: The interest levy issue remains open for fresh adjudication by the CIT(A).

3. SIGNIFICANT HOLDINGS

"When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a nondeliberate delay."

"If the delay is not condoned, it would amount to legalising an illegal order which would result in unjust enrichment on the part of the State by retaining the tax relatable thereto. Under the scheme of Constitution, the Government cannot retain even a single pie of the individual citizen as tax, when it is not authorised by an authority of law."

The Tribunal established the principle that delay in filing appeal before the CIT(A) should be condoned where there is a bona fide explanation, especially when refusal would defeat substantial justice.

The Tribunal held that the Assessing Officer and CIT(A) erred in not granting the full credit for prepaid taxes as per Form 26AS and the provisions of section 199 of the Act, particularly failing to consider the appellant's status as a commission agent and the nature of TDS deducted under different sections.

The Tribunal remitted the matter to the CIT(A) for fresh adjudication on merits after condoning the delay, emphasizing the need for a fair hearing and proper appreciation of facts and law.