Gujarat High Court Condones Delay In Filing Income Tax Return, Finds Accountant's Error Caused Genuine Hardship

The Gujarat High Court has held that a taxpayer's delay in filing its income tax return due to a bona fide misunderstanding of audit requirements under Section 44AB of the Income Tax Act, resulting in denial of a tax deduction under Section 80-IAB for Special Economic Zone developers, constitutes “genuine hardship” warranting condonation.

The case arose from the petitioner firm's failure to file its return of income for Assessment Year 2023–24 within the prescribed due date of 31 July 2023. The delay of 87 days was attributed to incorrect professional advice that the firm was required to get its accounts audited under Section 44AB of the Income Tax Act.

Acting on this understanding, the return was not filed in time. Subsequently, upon realising that the audit requirement was not applicable in view of the amended proviso, the petitioner filed its return on 26 October 2023, claiming a deduction of Rs. 52.92 lakh under Section 80-IAB.

The return, however, was processed without granting the deduction, and a demand was raised. The petitioner thereafter filed an application under Section 119(2)(b) seeking condonation of delay.

The Principal Commissioner rejected the application on the ground that the petitioner had failed to demonstrate “genuine hardship” and that the explanation offered was general in nature and unsupported by documentary evidence.

Challenging the rejection, the petitioner contended that the delay was neither deliberate nor due to negligence but was occasioned solely by a bona fide misunderstanding of the legal position based on professional advice. It was further argued that refusal to condone the delay would result in denial of a substantial statutory deduction, thereby causing serious prejudice and hardship.

The petitioner further submitted that the delay was occasioned solely due to an inadvertent error and incorrect advice of the accountant of the Firm. Therefore, non-condonation would lead to denial of the statutory benefit under Section 80-IAB of the Act, causing genuine hardship to the petitioner.

The Division Bench comprising Justice A.S. Supehia and Justice Pranav Trivedi noted that the misconstruction of the provisions by the accountant resulted in non-consideration of the petitioner's legitimate claim under Section 80-IAB, which could not be treated as a mere technical lapse devoid of consequences.

The bench stated that "the respondent has ignored the fact that the misconstruction of the provisions by the accountant of the firm resulting into non-consideration of the genuine case of the petitioner would result into genuine hardship as the petitioner would be unable to get benefit under Section 80-IAB of the Act."

The court observed that such inadvertent errors, particularly those arising from professional advice, should not defeat substantive rights. It further observed that rejecting condonation in such circumstances would effectively result in unjust enrichment of the State by denying a lawful deduction.

The court further stated that the authority had failed to appreciate that the very consequence of such delay, i.e., denial of an otherwise admissible deduction, would itself amount to genuine hardship.

The bench opined that "rejection of application to condone the delay by the respondent on the ground that the petitioner did not showcase any genuine hardship was not tenable and it would amount to unjust enrichment by the State by not allowing the deduction due to the petitioner. It is further observed that misconstruction of the proviso, which compelled the petitioner to undergo tax audit, though otherwise not required, cannot be held to be fatal to the case of the petitioner. Such misconstruction cannot entitle the respondent to reject the application for condonation and consequently deny the claim under Section 80-IAB of the Act to the petitioner."

Accordingly, the High Court set aside the impugned order and directed the respondent authority to pass a fresh order condoning the delay and reconsidering the petitioner's claim on merits within twelve weeks.

For Petitioner: Advocate B.S. Soparkar

For Respondent: Advocate Maithili D Mehta