2025 (5) TMI 623 - HC - Income Tax

Rejection of Application u/s 119 (2)(b) - condonation of delay in filing Income Tax returns - impugned order has been passed without affording the petitioner an opportunity of hearing - HELD THAT - Power u/s 119(2)(b) of the Act has been consistently held to be quasi judicial in nature. Importantly grant of personal hearing is found necessary for valid exercise of power u/s 119(2)(b) of the Income Tax Act. In this regard it may be relevant to refer to judgment of this Court in the case of Envission Communication (P) Ltd. 2023 (11) TMI 129 - MADRAS HIGH COURT held that the power under Section 119(2)(b) of the Act being quasi-judicial in nature and which could result in adverse civil consequence it must be exercised in compliance with principles of natural justice. However this Court finds that the impugned order is made in violation thereof in view of the fact that the impugned order does not assign reason but only contains the conclusion in other words non-speaking and thus unsustainable . Thus set aside the impugned order. The respondents are directed to pass fresh order after affording the petitioner a reasonable opportunity of hearing.

The core legal question considered by the Court was whether the order rejecting the petitioner's application under Section 119(2)(b) of the Income Tax Act, 1961, for condonation of delay in filing Income Tax returns was validly passed without affording the petitioner an opportunity of personal hearing. Specifically, the issues were:

Whether the power under Section 119(2)(b) of the Income Tax Act is quasi-judicial in nature.
Whether principles of natural justice, including the right to a personal hearing, are applicable when exercising the power under Section 119(2)(b).
Whether the impugned order, which was non-speaking and passed without hearing, is sustainable in law.
Whether the absence of personal hearing causes prejudice to the petitioner and vitiates the exercise of discretion under Section 119(2)(b).

Issue-wise Detailed Analysis

1. Nature of Power under Section 119(2)(b) of the Income Tax Act

The Court examined the nature of the power conferred by Section 119(2)(b), which allows the tax authorities to condone delay in filing returns beyond the prescribed period to avoid genuine hardship. The Court referred to the judgment of the Karnataka High Court in Envission Communication (P) Ltd. v. Principal Commissioner of Income-tax, which held that the power under Section 119(2)(b) is quasi-judicial. The reasoning was that the power involves discretion based on relevant facts and circumstances and is not a mere administrative function. The authority must consider the plea for condonation and pass a reasoned order, which is characteristic of judicial or quasi-judicial functions.

The Court also cited the precedent of H.S. Anantharamaiah vs. Central Board of Direct Taxes, which emphasized that the Board alone exercises this discretion and must do so by applying judicial mind, considering all relevant facts, and giving reasons. The power is not arbitrary but must conform to the principles of natural justice.

Further, the Court referred to the Division Bench decision in Precot Mills Ltd. v. Central Board of Direct Taxes, which extended the quasi-judicial nature to applications under Section 119(2)(a), reinforcing the principle that such powers require reasoned orders and adherence to natural justice.

2. Applicability of Principles of Natural Justice and Right to Hearing

Given the quasi-judicial nature of the power, the Court held that principles of natural justice must be complied with. This includes affording the affected party a reasonable opportunity of hearing before passing an order that could adversely affect their rights. The Court emphasized that the authority must provide either an oral hearing or allow written submissions addressing the grounds for refusal.

The Court rejected the respondent's argument that Section 119(2)(b) does not contemplate a personal hearing. It held that the absence of explicit statutory language does not exclude the application of natural justice, especially when the power is quasi-judicial and the order can have adverse civil consequences.

The Court also noted that failure to grant a hearing results in a non-speaking order, which is legally unsustainable.

3. Validity of the Impugned Order

The impugned order under challenge was passed without affording the petitioner any opportunity of hearing and did not assign any reasons, merely concluding the rejection of the application. The Court found this to be a violation of the principles of natural justice and held the order to be non-speaking and thus unsustainable.

The Court distinguished the respondent's reliance on a prior decision where condonation of delay was refused on merits, clarifying that the present challenge was limited to the procedural infirmity of non-hearing rather than the substantive merits.

4. Prejudice Caused by Non-Grant of Personal Hearing

The respondent contended that no prejudice was caused to the petitioner since the delay was over six years and any refund claim would be rejected. The Court rejected this submission, emphasizing that the question of prejudice is not determinative of the need to follow natural justice. The quasi-judicial nature of the power requires adherence to procedural fairness regardless of the likelihood of success on merits.

5. Directions and Conclusion

In light of the above, the Court set aside the impugned order and directed the respondents to pass a fresh order after affording the petitioner a reasonable opportunity of hearing. The Court clarified that it did not express any opinion on the merits of the application, leaving the decision to be made independently and uninfluenced by the Court's observations.

Significant Holdings

"The nature of the power/ function discharged by the Respondents in exercise of its power under Section 119(2)(b) of the Act is quasi-judicial in nature and thus ought to be made in compliance with principles of natural justice which inter-alia requires the authority to grant a reasonable opportunity apart from assingning reasons. In other words, an order under Section 119(2)(b) of the Act ought to be a speaking order."

"Clause (b) of sub-section (2) of section 119 of the Act enables or empowers the Boards to admit an applications or a claim or return filed after the expiry of the period specified for avoiding genuine hardship caused in any case or class of cases. Thus, the statute makes it incumbent upon the Board to consider the case pleaded under clause (b) of sub-section (2) of section 119 of the Act by an assessee who files his return beyond time. This power has to be exercised by the Board and the Board alone and not by any other authority. It is not possible to hold that this power is administrative when it relates to condonation of delay in a case where the return is filed beyond the period prescribed. The Board is required to exercise its discretion by taking into consideration all the relevant facts and circumstances and determine whether the delay in filing the return should or should not be condoned. The order must be informed by reasons. It is not an arbitrary exercise of power. This power has all the traits of judicial power."

"When an authority discharges its quasi-judicial function, it goes without saying that it has to conform to the principles of natural justice. It has to affords an opportunity to the party who is going to be affected by the decision of the Board. Therefore, the Board is required to afford an opportunity of hearing to the assessee, either oral hearing or through submission of written arguments with reference to the points made against the assessee for not granting the relief sought for by him."

"Having considered the arguments of both sides and following the above decisions, this Court finds that the power under Section 119(2)(b) of the Act being quasi-judicial in nature and which could result in adverse civil consequence, it must be exercised in compliance with principles of natural justice. However, this Court finds that the impugned order is made in violation thereof, in view of the fact that the impugned order does not assign reason but only contains the conclusion, in other words non-speaking and thus unsustainable."

The Court's final determination was to set aside the impugned order and direct the authority to pass a fresh order after affording the petitioner a reasonable opportunity of hearing, without expressing any opinion on the substantive merits of the application under Section 119(2)(b).

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