2025 (5) TMI 1095 - HC - Income Tax

Rejection of Petitioner s application u/s 119 (2) (b) for condonation of delay in filing the revised income tax return ITR - CPC rejected the ITR filed by the petitioner on the ground that it was not accompanied by the Tax Audit Report TAR -It is the petitioner s case that its turnover was less than Rs. 10.00 Crores and therefore it was not required to file TAR along with the ITR. HELD THAT - Since the petitioner s case is that its cash payment and receipts did not exceed five percent of the total receipts and payments the petitioner was required to tick the box with Yes instead of box No . It is the petitioner s contention that its ITR could not be rejected on this ground. There is no appeal provided against the order rejecting the ITR as invalid. We do not consider it apposite to examine this question as the petitioner does not desire to pursue any contentious proceedings and seeks rectification of its return by filing the revised return. It is in the aforesaid context the petitioner moved the application under Section 119 (2) (b) of the Act. It is apparent from the above that the entire controversy has arises on account of checking the incorrect box in the return which has no implication on the assessment of the income of the petitioner. Petitioner s claim that its cash receipts are NIL and its cash payment did not exceed five percent of the total payments is not controverted. Petitioner has made out a case of genuine hardship for condonation of delay in filing the revised ITR. Accordingly the petition is allowed and the impugned order is set aside.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

- Whether the petitioner was required to file a Tax Audit Report (TAR) under Section 44AB of the Income Tax Act, 1961, along with the Income Tax Return (ITR) for Assessment Year (AY) 2022-23.

- Whether the rejection of the petitioner's ITR by the Central Processing Centre (CPC) on the ground of absence of TAR was justified.

- Whether the petitioner's application under Section 119(2)(b) of the Income Tax Act for condonation of delay in filing the revised ITR, aimed at rectifying the defect, was rightly rejected by the Principal Commissioner of Income Tax (PCIT).

- The legal effect of an inadvertent clerical error (incorrect ticking of checkboxes in the ITR) on the validity of the return and the scope for rectification through revised return filing.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Requirement of Tax Audit Report (TAR) under Section 44AB

The legal framework under Section 44AB mandates a tax audit for taxpayers whose turnover exceeds Rs. 1 crore, subject to certain conditions. However, an amendment raised the threshold to Rs. 10 crores if cash receipts and payments do not exceed 5% of total receipts and payments respectively.

The CPC rejected the petitioner's ITR on the ground that the TAR was not filed, citing that the taxpayer had claimed income under "Profits and gains of Business or Profession" exceeding Rs. 1 crore but had not submitted an audit report as required under Section 44AB.

The petitioner contended that its turnover was below Rs. 10 crores and that its cash receipts were nil and cash payments less than 5% of total payments, thus exempting it from the audit requirement.

The Court accepted the petitioner's factual claim that the cash receipts were nil and cash payments were less than 5%, which was not controverted by the revenue. Therefore, the petitioner was not required to furnish a TAR along with the ITR.

Issue 2: Validity of ITR rejection due to clerical error in audit information

The petitioner's ITR was rejected because it incorrectly ticked "No" instead of "Yes" in the audit information section (paragraphs (a2ii) and (a2iii)) regarding cash receipts and payments.

This clerical error led the CPC to conclude that the petitioner was required to file a TAR, and since it was not filed, the ITR was invalid.

The Court noted that this error was inadvertent and had no bearing on the actual income assessment or the substantive tax liability.

The Court further observed that there was no statutory appeal remedy against the rejection of the ITR as invalid, which complicated the petitioner's position.

Issue 3: Application for condonation of delay under Section 119(2)(b)

The petitioner filed an application under Section 119(2)(b) seeking condonation of delay in filing a revised ITR to rectify the clerical error and cure the defect.

The PCIT rejected this application, leading to the present challenge.

The Court considered that the petitioner had made out a case of genuine hardship, given the inadvertent nature of the error and the absence of any substantive tax evasion or misstatement.

The Court emphasized that the petitioner's cash receipt and payment figures were not disputed, reinforcing the legitimacy of the petitioner's claim for exemption from audit.

Consequently, the Court held that the petitioner should be allowed to file a revised return within a stipulated period, and the delay in doing so should be condoned.

Application of Law to Facts and Treatment of Competing Arguments

The CPC's strict interpretation of the audit requirement based on the incorrect tick marks was found to be unduly rigid and not in consonance with the substantive provisions of Section 44AB.

The Court balanced the technical non-compliance against the substantive compliance and absence of any tax loss or evasion, favoring the petitioner's request for relief.

The petitioner's contention that the clerical error did not affect the tax liability was accepted, and the Court declined to engage in a protracted dispute over the rejection of the ITR, focusing instead on the remedy through revised return filing.

3. SIGNIFICANT HOLDINGS

- "It is apparent from the above that the entire controversy has arises on account of checking the incorrect box in the return, which has no implication on the assessment of the income of the petitioner."

- "In the peculiar facts of this case, we are of the view that the petitioner has made out a case of genuine hardship for condonation of delay in filing the revised ITR."

- The Court held that the petitioner was not required to file the Tax Audit Report under Section 44AB, as the turnover threshold of Rs. 10 crores applied due to the petitioner's cash receipts and payments being within prescribed limits.

- The rejection of the ITR on the ground of absence of TAR was not justified given the petitioner's factual position and the clerical nature of the error.

- The Court set aside the impugned order rejecting the condonation application and allowed the petitioner two weeks to file the revised ITR curing the defects, directing that the delay would be condoned and the revised return considered without prejudice.