M/S. THE MYSORE PAPAER MILLS LIMITED vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX BENGALURU - 2

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WP/21313/2026HC KarnatakaKAHC01047137202622 July 2026Author: B M SHYAM PRASAD11 pages
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What did the High Court hold?

The High Court allowed the petition in part, quashing the order dated 28.02.2026 passed by the first respondent. The proceedings were restored to the first respondent for due consideration, with liberty granted to the petitioner to produce documents by 30.09.2026. The Court held that the petitioner relies on a set of circumstances that can be established by documents, which can be produced before the first respondent. If these documents demonstrate the closure of operations, retrenchments, disputes, non-audit by CAG, and filing of returns on tentative figures, the first respondent must examine these circumstances to determine if the petitioner satisfies the twin test under paragraph 4(i) of Circular No. 11/2024. This twin test requires that the assessee was prevented by a reasonable cause from filing the return within the due date and that the case is of genuine hardship on merits. The first respondent is directed to consider these documents in light of the Court's observations. The petitioner is directed to appear before the first respondent on 31.09.2026 at 3:00 pm.

What were the facts?

The petitioner, M/s. The Mysore Paper Mills Limited, filed a writ petition challenging an order dated 28.02.2026 passed by the Principal Commissioner of Income Tax (1st respondent). This order rejected the petitioner's application under Section 119(2)(b) of the Income Tax Act, 1961, for condonation of delay in filing its income tax return for Assessment Year 2018-19. The return was due by 31.10.2018, but was filed on 30.04.2022. The application for condonation was filed on 31.05.2025. The petitioner is a public enterprise that ceased operations in November 2015, leading to retrenchment disputes. Its accounts are audited by the Comptroller and Auditor General of India (CAG), but these audits were not conducted due to disputes. The petitioner argued that the delay was due to these circumstances and sought a refund of Rs. 13,51,240/- along with interest.

What were the issues?

1. Whether the first respondent erred in rejecting the petitioner's application for condonation of delay under Section 119(2)(b) of the Income Tax Act, 1961, for Assessment Year 2018-19, despite the circumstances presented by the petitioner? Assessee's Contentions: The petitioner argued that the delay in filing the return was due to its status as a public enterprise that stopped operations in November 2015, leading to retrenchment disputes. The petitioner's books of accounts, usually audited by the CAG, were not audited due to these disputes. The petitioner also contended that the reassessment proceedings remained inconclusive, and it had filed a grievance for refund of TDS. The petitioner submitted that the first respondent should have considered these circumstances and the fact that the returns were filed on tentative figures subject to audit. Revenue's Contentions: The revenue contended that the first respondent rejected the application as it did not fall within the parameters of Section 119(2)(b) and Board's Circular No. 11/2024. Specifically, the revenue argued that the application for condonation was filed five years after the due date, and the petitioner failed to establish a reasonable cause and genuine hardship. The revenue also stated that no material was produced to demonstrate a reasonable and sufficient cause for the delay.

Which sections of the Income-tax Act were involved?

Section 119(2)(b),Section 148A,Section 148,Section 139(9A)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 22ND DAY OF JULY, 2026 BEFORE THE HON'BLE MR. JUSTICE B M SHYAM PRASAD WRIT PETITION NO. 21313 OF 2026 (T-IT)

BETWEEN:

M/S. THE MYSORE PAPAER MILLS LIMITED (A COMPANY INCORPORATED UNDER THE MYSORE COMPANIES REGULATION, VIII OF 1917) HAVING ITS REGISTERED OFFICE AT NO. 31, 1ST FLOOR, KARNATAKA STATE CO-OPERATIVE FEDERATION BUILDING, DEVARAJ URS ROAD, BENGALURU-560 001, KARNATAKA. REPRESENTED BY ITS COMPANY SECRETARY AND AUTHORISED SIGNATORY, MR. MOHAN DATTATRAYA KULKARNI, AGED ABOUT 70 YEARS …PETITIONER (BY SRI. PRASANNA N URALA, ADVOCATE) AND:

1.

THE PRINCIPAL COMMISSIONER OF INCOME TAX BENGALURU - 2 BMTC BUILDING, 80 FEET ROAD, 6TH BLOCK, NEAR KHB GAMES VILLAGE, KORAMANGALA, BENGALURU 560 095.

Digitally signed by VANAMALA N Location: HIGH COURT OF KARNATAKA

2.

THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(1), BMTC BUILDING, KORAMANGALA BANGALORE 560097, KARNATAKA

3.

THE SECRETARY, CENTRAL BOARD OF DIRECT TAXES. CENTRAL SECRETARIAT, NORTH BLOCK, NEW DELHI - 110001 REPRESENTED BY ADDITIONAL/ JOINT/DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX/ INCOME-TAX OFFICER NATIONAL FACELESS ASSESSMENT CENTRE …RESPONDENTS (BY SMT. E.I. SANMATHI, ADVOCATE A/W SRI. NIRMAL MATHEW, ADVOCATE)

THIS WP IS FILED UNDER ARTICLES 226 & 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH BY AN ORDER, WRIT OR DIRECTION IN THE NATURE OF CERTIORARI, ORDER DATED:28.02.2026 PASSED BY THE 1ST RESPONDENT UNDER SECTION U/S 119(2)(B) OF THE ACT FOR THE ASSESSMENT YEAR 2018-19, BEARING DIN NO. ITBA/COM/F/17/ 2025-26/1086689703(1)IN ANNEXURE-G AS UNLAWFUL AND ILLEGAL ALONG WITH THE ATTENDANT ACTIONS. (B) ISSUE AN APPROPRIATE WRIT, ORDER OR DIRECTION IN NATURE OF MANDAMUS DIRECTING THE 3RD RESPONDENT TO COMPLETE THE

REASSESSMENT PROCEEDINGS INITIATED UNDER SECTION 148 OF THE ACT FOR ASSESSMENT YEAR 2018-19, BY PASSING A SPEAKING ASSESSMENT ORDER WITHIN SUCH TIME AS THIS HON'BLE COURT MAY FIX, GIVING DUE CREDIT FOR TAX DEDUCTED AT SOURCE AS REFLECTED IN FORM 26AS, AND DIRECT THE 3RD RESPONDENT TO GRANT THE REFUND OF RS.13,51,240/- TOGETHER WITH INTEREST AS PER THE PROVISIONS OF THE ACT.

THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE B M SHYAM PRASAD

ORAL ORDER The petitioner's grievance is with the first respondent's order dated 28.02.2026 [Annexure-G], and the first respondent has rejected the petitioner's application under Section 119 (2) (b) of the Income Tax Act, 1961 [for short, ‘the IT Act’] to condone the delay in filing the returns for the assessment year 2018-2019. Inarguably, the petitioner had to file Returns for this assessment year by 31.10.2018 and

the petitioner has filed returns on 30.04.2022. The petitioner has filed the application for condonation on 31.05.2025. The first respondent has reasoned thus rejecting petitioner's application for condonation of delay.

“The submission made by the assessee in his application have been perused and considered along with the factual report and recommendations from Jurisdictional Assessing Officer and the Range Head. The claim filed by the assessee does not fall within the parameters contemplated u/s. 1119 (2)(b) of the Income Tax Act and does not fulfil the conditions laid down in Board’s Circular No.11/2024 in F.No.312/63/2023-OT dated 01.10.2024.”

2.

Sri Prasanna N.Urala, the learned counsel for the petitioner, argues for interference with the first respondent's impugned order dated 28.02.2026 asserting the following.

[a] The petitioner is a Public Enterprise which has stopped its operations in November 2015 resulting retrenchment and subsequent disputes with the workmen on retrenchment. [b] The petitioner's Books of Accounts are audited by the Comptroller and Auditor General of India [CAG], and the petitioner's Books of Account for these and the other years are not audited by the CAG because of the dispute. [c] After the petitioner is served with the notice under Section 148A Act, petitioner has finalized draft figure subject to audit. [d] With the issuance of notice under Section 148 of the Act on 05.04.2022, the petitioner has filed its returns on 11.03.2022.

3.

Sri Prasanna K. Urala submits that the first respondent should have considered the question of condonation not only in these circumstances but also the fact that the petitioner, because the reassessment proceedings have remained inconclusive, has filed a grievance with Centralized Public Grievance Redress and Monitoring System on 12.12.2024 with a request for refund of the TDS deducted as the petitioner would be entitled to such refund in the light of the losses suffered in excess of Rs.290/- Crores during the assessment year.

4.

The Grievance Cell has rejected the petitioner's request for refund observing that if returns are filed after issuance of Show Cause Notice under Section 148 of the IT Act, the assessee would not be entitled to refund as held by the Bombay High Court in its judgment in Sudhakar S. A.Shanbhag v.

Income-tax Officer1. Sri E. I. Sanmathi, who is assisted by Sri. Nirmal Mathew, the learned standing counsels for the respondents, is heard on whether this Court must interfere.

5.

Sri E. I. Sanmathi and Sri. Nirmal Mathew point out that the first respondent has rejected the petitioner's application for refund opining that the petitioner's application would not be within the parameters of the Circular in No.11/2024 dated 01.10.2024, and in elaboration, the learned standing counsels state that:  because the application for condonation of delay is filed five years from the date of last date for filing of the returns [31.10.2018], the petitioner's application could not have been considered,  the petitioner had to establish a reasonable cause and genuine hardship in view of the

1 [2000] 241 ITR 865

amendment with incorporation Section 139(9A) of the IT Act and the Circular No.11/2024, and  though the petitioner has referred to the closure of operations, the retrenchment, the controversy and the fact that CAG has not audited its books, no material is produced for the first respondent to have deduced reasonable and sufficient cause is shown.

6.

In the light of these circumstances and submissions, the question for consideration is whether this Court must interfere with the impugned Order dated 28.02.2026 to restore the proceedings to the first respondent with liberty to the petitioner to produce documents. This Court is of the opinion that the answer to the question must be in favour of the petitioner because the petitioner relies upon a set of circumstances which can be established by

documents and those documents can be produced with the first respondent.

7.

Significantly, if documents do demonstrate that there was closure of operations or retrenchments leading to disputes, that its Books of Accounts were not audited by the CAG and that the returns are filed on tentative figures, the first respondent will have to examine these circumstances to answer whether the petitioner satisfies the twin test under paragraph 4(i) of the Circular which reads as under: “4. In view of amendment in Section 139(9A) of the Act via Finance Act, 2024, the powers acceptance/rejection application within monetary limits delegated to the authorities in case of such claims will be subject to following conditions: i. At the time of considering the case under Section 119(2)(b) of the Act, it shall be ensured that assessee was prevented by reasonable cause from filing the

return of income within the due date and that the case is of genuine hardship on merits.” In the light of the afore, the following: ORDER [A] The petition is allowed-in-part and the first respondent's order dated 28.02.2026 [Annexure-G] is quashed restoring proceedings to the first respondent for due consideration with liberty to the petitioner to produce documents by 30.09.2026. [B] The first respondent shall consider the documents filed in the light of this Court's observations as aforesaid to examine whether the twin test under paragraph 4 (i) Circular No.11/2024 dated 01.10.2024 are satisfied.

[C] The petitioner, without further notice, shall appear before the first respondent on 31.09.2026 at 03.00 pm.

SD/- (B M SHYAM PRASAD) JUDGE

SA List No.: 2 Sl No.: 5

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