2025 (7) TMI 187 - HC - Income Tax

Delay in filing the income tax return - application filed for condonation of delay in filing the Return of Income rejected - denial of refund of excess Tax Deducted at Source on non filling of ROI - procedural aspect of the income tax law - petitioner being a non-resident was under the impression that no Return of Income was required to be filed as per the provisions of the Act as there was no tax liability - when legitimate refund was not received by the petitioner he thought it fit to file return claiming return at the time of his visit to India. HELD THAT - When the petitioner was not aware of the procedural aspect of the income tax law as well as the fact that he was medically unfit during the pendency of the application under Section 119(2)(b) of the Act the respondent authority could not have rejected the application as filing of return for claiming benefit under the provisions of the Act is procedural and the benefit accrued to the assessee cannot be taken away on account of technicalities when there is a genuine hardship. This can be drawn from the case of Sitaldas K. Motwani 2009 (12) TMI 36 - BOMBAY HIGH COURT as well as the case of Bombay Mercantile Co-op. Bank Ltd. 2010 (9) TMI 23 - BOMBAY HIGH COURT Considering the facts of the case as well as the settled legal position the petition succeeds and is accordingly allowed. The impugned order is hereby quashed and set aside and the matter is remanded to the respondent to pass a fresh order to condone the delay in filing the income tax return so as to enable the petitioner to get the refund as per the provisions of the Act.

The core legal questions considered by the Court in this matter are:

1. Whether the Commissioner of Income Tax was justified in rejecting the petitioner's application for condonation of delay in filing the belated Income Tax Return for the Assessment Year 2022-23 under Section 119(2)(b) of the Income Tax Act, 1961.

2. Whether the petitioner, a non-resident who had not filed returns for over two decades, was entitled to file a belated return after the prescribed period under the amended Section 139(4) of the Act.

3. Whether the petitioner's medical condition (Covid-19) and other circumstances constituted "genuine hardship" warranting condonation of delay under Section 119(2)(b).

4. Whether the rejection of the application without providing an opportunity of hearing and without considering the petitioner's bona fide reasons was legally sustainable.

5. Whether the petitioner was entitled to refund of excess Tax Deducted at Source (TDS) despite the delay in filing the return.

Issue-wise Detailed Analysis:

1. Validity of Rejection of Application for Condonation of Delay under Section 119(2)(b)

Legal Framework and Precedents: Section 119(2)(b) empowers the Commissioner to condone delay in filing returns or applications where sufficient cause is shown. The phrase "genuine hardship" has been liberally construed by various High Courts and the Supreme Court to advance substantial justice rather than be defeated by technicalities. Landmark precedents such as Sitaldas K. Motwani v. Director General of Income Tax and R. Seshammal v. Income Tax Officer emphasize a justice-oriented approach, holding that delay should not defeat legitimate claims where genuine hardship is shown.

Court's Interpretation and Reasoning: The Court observed that the Commissioner rejected the petitioner's application ex-parte without considering the medical certificates evidencing the petitioner's Covid-19 illness during the period for furnishing written submissions. The Court found this to be a denial of fair opportunity and contrary to principles of natural justice. The Court reiterated that the power under Section 119(2)(b) is to be exercised liberally to enable substantive justice.

Key Evidence and Findings: The petitioner submitted medical reports from the USA showing Covid-19 infection, which prevented timely response to notices. The petitioner also demonstrated ignorance of the amended limitation under Section 139(4) due to non-resident status and long absence from India. The Commissioner did not consider these facts.

Application of Law to Facts: The Court held that the petitioner's medical condition and genuine lack of awareness constituted sufficient cause and "genuine hardship" warranting condonation of delay. The rejection without hearing was arbitrary and unsustainable.

Treatment of Competing Arguments: The respondent contended ignorance of law is no excuse and no hardship was shown. The Court rejected this rigid approach, emphasizing that the petitioner did not benefit from delay and that the procedural bar should not override substantive justice.

Conclusion: The Court quashed the impugned order rejecting the condonation application and remanded the matter for fresh consideration after affording opportunity to the petitioner.

2. Entitlement to File Belated Return after the Amended Limitation under Section 139(4)

Legal Framework and Precedents: The amended Section 139(4) restricts filing of belated returns to three months prior to the end of the relevant Assessment Year. The petitioner's return for AY 2022-23 was filed beyond this period, rendering it invalid unless condonation is granted under Section 119(2)(b).

Court's Interpretation and Reasoning: The Court recognized the amendment but held that the procedural limitation can be relaxed under Section 119(2)(b) if genuine hardship is demonstrated. The petitioner's ignorance due to non-resident status and prolonged absence was a relevant factor.

Key Evidence and Findings: The petitioner filed the return only after visiting India in September 2023, beyond the prescribed deadline. The petitioner's bona fide efforts to comply once aware of the limitation were noted.

Application of Law to Facts: The Court emphasized that procedural bars should not defeat substantive rights and that the Commissioner has discretion to condone delay in appropriate cases.

Treatment of Competing Arguments: The respondent argued strict adherence to statutory deadlines and rejected ignorance as a ground. The Court, however, relied on precedents advocating liberal construction of "genuine hardship."

Conclusion: The petitioner is entitled to seek condonation of delay to file a belated return despite the amended Section 139(4) limitation.

3. Concept and Scope of "Genuine Hardship" under Section 119(2)(b)

Legal Framework and Precedents: The Court extensively discussed the concept of "genuine hardship" as elucidated in Sitaldas K. Motwani, R. Seshammal, Pankaj Kailash Agarwal, and other decisions. The term is to be liberally construed to prevent injustice due to technicalities. Genuine hardship includes medical incapacity, ignorance of law in certain contexts, and other bona fide difficulties.

Court's Interpretation and Reasoning: The Court held that "genuine hardship" is not confined to a narrow definition but includes all relevant circumstances that prevented timely compliance. The Court quoted that "no applicant would stand to benefit by lodging delayed returns" and that refusal to condone delay can defeat cause of justice.

Key Evidence and Findings: The petitioner's Covid-19 illness, non-resident status, and lack of knowledge of amended provisions were accepted as genuine hardship. The Court relied on medical certificates and petitioner's conduct.

Application of Law to Facts: The Court found the hardship genuine and sufficient to justify condonation of delay.

Treatment of Competing Arguments: The respondent's argument that ignorance of law is no excuse was rejected as overly technical and inconsistent with principles of equity.

Conclusion: The petitioner's circumstances constituted genuine hardship warranting relief under Section 119(2)(b).

4. Procedural Fairness and Opportunity of Hearing

Legal Framework and Precedents: Principles of natural justice require that an opportunity be given before adverse orders are passed. The Court referred to precedents where ex-parte rejection of condonation applications without considering explanations was held impermissible.

Court's Interpretation and Reasoning: The Court criticized the respondent for passing an ex-parte order without considering petitioner's medical condition or submissions. The Court underscored the need for reasoned orders and opportunity to be heard.

Key Evidence and Findings: The petitioner was abroad and ill during the period for furnishing submissions. Medical certificates were filed. No personal hearing was granted.

Application of Law to Facts: The Court held the impugned order to be arbitrary and violative of natural justice.

Treatment of Competing Arguments: The respondent did not dispute the absence of hearing but relied on procedural bars. The Court rejected this as insufficient justification.

Conclusion: The matter was remanded for fresh consideration after affording due opportunity to the petitioner.

5. Entitlement to Refund of Excess TDS Despite Delay

Legal Framework and Precedents: Refund of excess tax deducted is a substantive right. Precedents like R. Seshammal emphasize that the State cannot rely on hyper-technical pleas of limitation to deny refund where tax was not due.

Court's Interpretation and Reasoning: The Court noted that the petitioner's tax liability was nil after considering cost of acquisition and expenses, yet excess TDS was deducted. The Court held that such excess collection is not in accordance with law and refund cannot be denied on technical grounds.

Key Evidence and Findings: The petitioner's computation of income showed nil tax liability. The respondent did not controvert excess TDS deduction.

Application of Law to Facts: The Court held that the petitioner's right to refund is prima facie genuine and should be adjudicated on merits after condonation of delay.

Treatment of Competing Arguments: The respondent argued that no refund is due without timely filing. The Court rejected this as inconsistent with principles of justice and statutory powers under Section 119(2)(b).

Conclusion: The petitioner is entitled to refund subject to merits determination after condonation of delay.

Significant Holdings:

"The phrase 'genuine hardship' used in Section 119(2)(b) of the Act should be construed liberally. The Legislature has conferred the power to condone delay to enable the authorities to do substantive justice to the parties by disposing of the matters on merit."

"Refusing to condone the delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned, the highest that can happen is that a cause would be decided on merits after hearing the parties."

"There is no presumption that delay is occasioned deliberately or on account of culpable negligence or mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. The approach of the authorities should be justice-oriented so as to advance cause of justice."

"The State is not entitled to plead the hyper-technical plea of limitation to avoid return of amounts paid by mistake. Section 119 of the Act vests ample power in the Board to render justice in such situations."

"The authority must satisfy itself that the applicant has a prima facie correct and genuine claim and should not prejudge the merits of the refund claim at the stage of condonation of delay."

"Rejection of the application without affording an opportunity of hearing, especially when medical grounds are shown, is arbitrary and contrary to principles of natural justice."

The Court set aside the impugned order dated 02.11.2023 rejecting the application under Section 119(2)(b) and remanded the matter to the Commissioner for fresh consideration after affording opportunity to the petitioner. The Commissioner was directed to pass a reasoned order on the application for condonation of delay and thereafter the Assessing Officer was to consider the refund claim on merits and pass a fresh intimation under Section 143(1) within twelve weeks.

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