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Facts
The assessee filed an appeal against an order that was delayed by 784 days. The Assessing Officer (AO) had disallowed the entire PF contribution and interest expenses. The CIT(A) dismissed the appeal as not maintainable due to the delay.
Held
The Tribunal held that while the COVID-19 exclusion period did not revive the time-barred appeal, the delay could be condoned under Section 249(3) of the Act based on the peculiar facts and the interest of justice, considering the assessee had an arguable case on merits.
Key Issues
Whether the delay in filing the appeal before the CIT(A) should be condoned considering the facts and circumstances, and whether the disallowances made by the AO were justified.
Sections Cited
43B, 249(3), 250(6)
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Income Tax Appellate Tribunal, ‘SMC’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI KESHAV DUBEY
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the Addl/JCIT(A)-11, Mumbai vide order dated 24/01/2025 in DIN No. ITBA/APL/S/250/2024-25/1072527193(1) for the assessment year 2017- 18.
The first issue raised by the assessee is that the learned CIT(A) erred in not condoning the delay in filing of appeal.
The relevant facts are that the assessee is an individual and engaged in the business of supplying manpower. The assessee for the year under consideration declared an income of Rs. 3,24,450/- only. The return of income of the assessee for the year under consideration was selected for scrutiny under CASS. During the assessment proceedings, the AO observed that assessee has claimed wages and salary expenses of Rs. 21,56,611/- and claimed expenditure on account of PF contribution at Rs. 6,86,517/- only. The AO noted that as per Rule 87 of the Income Tax Rule the employee’s contribution to fund in respect of particular employee shall not exceed 27% of his salary as reduced by any contribution to any provident fund. Further, the employer contribution to PF exceeding 12% of salary is deemed to be the income of the employee. Hence, the AO vide show cause notice purposed to disallow deduction on PF contribution for the amount exceeding 12% of salary and wages which was computed at Rs. 427724 (Rs. 686517 – 12% of 21,56,611/-). However, the AO in the absence of reply from the assessee disallowed the entire amount of PF contribution for Rs. 6,86,517/- only.
Likewise, the AO also found that the assessee claimed interest expenses on loan for Rs. 97,328/- only. However, in the absence of documentary evidence disallowed the same. Hence, the AO finalized the assessment by making above addition vide order dated 19th January 2019.
The aggrieved assessee preferred an appeal before the learned CIT(A) which was filed as on 10th February 2022, thereby the appeal was delayed by 784 days. The assessee in Form-35 claimed that applying the .
Page 3 of 8 ratio of the ruling of Hon’ble Supreme Court dated 27th April 2021 in Miscellaneous Application No. 665/2021 in Suo Motu Writ Petition (C) No. 3/2020, the delay is only for 304 days. The assessee further stated the reason for delay is explained in affidavit.
However, the learned CIT(A) found that no such affidavit was furnished by the assessee explaining the reason for delay of 304 days in filing of appeal despite being provided the opportunity vide notice dated 09-01-2025. Therefore, the learned CITA(A) in the absence of sufficient cause for delay and supporting evidence of such cause dismissed the appeal of the assessee as not maintainable on account of delay.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned AR before us first addressed the issue of condonation of delay. He submitted that the ld. CIT(A) dismissed the appeal in limine by wrongly holding that there was a delay of 304 days in filing the appeal. The ld. AR explained that both the assessee and the ld. CIT(A) overlooked the binding directions of the Hon’ble Supreme Court in its order dated 10-01-2022 in M.A. No. 21 of 2022, reported in 134 Taxman.com 307. In that order, the Hon’ble Court restored its earlier order dated 23-03-2020 and directed that the period from 15-03-2020 to 28-02-2022 be excluded for computing the limitation period, with an additional allowance of 90 days thereafter. In cases where the remaining limitation period was longer than 90 days, the longer period was to apply. The AR contended that if this exclusion period is applied, the appeal filed on 10-02-2022 is well within time, and therefore the . dismissal of the appeal by the ld. CIT(A) on the ground of delay is unsustainable.
8.1. The learned AR further stated that affidavit explaining the delay in filing of appeal was filed by the assessee contending that assessee was not well educated about income tax laws and not in the habit of checking e-mail regularly. The assessee in affidavit stated that she only used e-mail once or twice in a year. Therefore, she was unaware about the income tax notice issued for assessment and order served through e- mail.
8.2. On the merits of the case, the AR submitted that the AO issued a show-cause notice proposing a disallowance of ₹4,27,724/- towards PF contribution under section 43B of the Act, but in the final assessment order disallowed the entire PF contribution of ₹6,86,517/- only. This action goes beyond the scope of the show-cause notice and is not permissible in law. The ld. AR pointed out that the actual employer’s contribution is ₹3,62,190/-, which is less than 27% of the salary, and therefore no disallowance is warranted as per Rule 87 of the Income Tax Rules. He further submitted that section 43B of the Act allows deduction on actual payment of statutory liabilities, and in this case, the entire PF contribution was paid before the year-end, with no outstanding liability in the balance sheet. Thus, the disallowance is contrary to both facts and law.
8.3. The AR also argued that the disallowance of interest on a bank loan of ₹97,328/- is unjustified. The loan was taken for business purposes to meet salary and other business expenses by mortgaging the . assessee’s personal property, and the interest was duly debited to the profit and loss account. The AO disallowed this amount solely because the assessee did not reply to the show-cause notice, which is not a valid ground when the expenditure is genuine and for business purposes. The ld. AR therefore urged that, in the interest of justice, the order of the AO be set aside and the matter be restored for de novo assessment so that the assessee may properly present his case on merits.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessment order was passed on 19-11- 2019. Further from form 35 it is noted that the assessment order was served as on 19-11-2019 itself. Considering the above fact, the assessee was required to file appeal before the learned CIT-A within 30 days i.e. before 19th December 2019. The assessee filed appeal before the ld. CIT(A) on 10-02-2022, and the ld. CIT(A) dismissed it in limine for delay, noting absence of a proper affidavit explaining the delay.
10.1 First, coming to the issue of limitation. It is noted that the time to appeal against the assessment order had, on plain reckoning, expired well before 15-03-2020. The series of COVID-19 extension orders of the Hon’ble Supreme Court (beginning 23-03-2020 and lastly clarified on 10- 01-2022) exclude 15-03-2020 to 28-02-2022 for computing limitation, but they do not, by themselves, revive a time-barred remedy that had already expired before 15-03-2020. Therefore, the assessee cannot .
Page 6 of 8 succeed merely by relying on the exclusion period. However, the statute independently empowers the first appellate authority to condone delay on “sufficient cause” under section 249(3) of the Act. The law on condonation is well settled and the expression “sufficient cause” must receive a liberal, justice-oriented construction. The Hon’ble Court have held that the length of delay is not decisive, and substantial justice should prevail over technicalities. In this regard it is pertinent to refer the judgment of Hon’ble supreme in case of Collector, Land Acquisition v. Mst. Katiji reported in [1987] 167 ITR 471 where following principles were laid down: (1) Ordinarily, a litigant does not stand to benefit by lodging an appeal late. (2) Refusing to condone delay can result in a meritorious matter being thrown 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. (3) 'Every day's delay must be explained' does not mean that a pedantic approach should be made. Why not every hour's delay, every second's delay? The doctrine must be applied in a rational, commonsense and pragmatic manner. (4) When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a nondeliberate delay. (5) There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact, he runs a serious risk. (6) It must be grasped that the judiciary is respected not on account of its power to legalise injustice on technical grounds but because it is capable of removing injustice and is expected to do so.
10.2 On facts, it is seen that the assessee is a small individual taxpayer and engaged in manpower supply. She, in the affidavit explained that, she has limited familiarity with income-tax procedure and rarely use of e- mail through which the statutory communications and the order were served. Considering the overall circumstances, we find no allegation of . mala fides or deliberate inaction. More importantly, declining condonation has caused real prejudice because the assessee has an arguable case on merits. It is pertinent to note that the show-cause proposed disallowance of ₹4,27,724/- out of PF contribution, but the assessment finally disallowed the entire amount of PF contribution of Rs. ₹6,86,517/- travelling beyond the proposal. The assessee also says that the whole PF contribution stood paid by year-end was at Rs. 3,62,190 only, and interest of ₹97,328 was for business purposes. These are specific, verifiable claims. Therefore, denying an appellate hearing in such circumstances defeats the object of the appeal provisions.
10.3 We also note that section 250(6) of the Act obliges the learned CIT(A) to pass a speaking order stating points for determination and reasons. A cryptic dismissal for delay, without a judicious evaluation of the explanation and the strength of the merits, is not a proper exercise of discretion under section 249(3) of the Act. In tax matters, the goal is to determine the correct taxable income, procedural doors should not be shut when a plausible case exists and no prejudice will be caused to the Revenue by one more opportunity. The Hon’ble Supreme Court precedents cited above guide us to adopt a pragmatic approach and advance substantial justice.
10.4 Accordingly, while holding that the COVID-19 exclusion per se does not rescue the limitation in this case, we condone the delay under section 249(3) of the Act in the peculiar facts and in the interest of justice. Hence, the impugned order of the ld. CIT(A) is set aside. Given the assessee’s plea that there was no effective opportunity at the assessment stage and that the final disallowance travelled beyond the . show-cause, we restore the matter to the file of the AO for a de novo assessment. The AO shall issue a proper show-cause notice, grant adequate opportunity, verify the assessee’s payments toward the PF contribution and the business-purpose of interest, and pass a reasoned order in accordance with law. Hence, the ground of appeal of the assessee is allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.