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Facts
The assessee filed its return for AY 2022-23 declaring a total income. The CPC processed the return under Section 143(1) and proposed an adjustment (disallowance of employee bonus) of ₹5,28,15,631/-. The assessee had paid the bonus before the due date and thus did not disallow it. The CPC rejected the explanation and processed the return. A rectification request under Section 154 was also rejected.
Held
The Tribunal held that the assessee's delay in filing the appeal was due to a bona fide belief that the issue could be resolved in assessment proceedings and not due to negligence. It directed the CIT(A) to condone the delay and decide the issue on merit.
Key Issues
Whether the delay in filing an appeal against an intimation under Section 143(1) should be condoned when the assessee pursued other remedies and had a bona fide belief that the issue would be resolved in the assessment proceedings.
Sections Cited
143(1), 143(2), 154, 43B, 250, 234B, 234C
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Income Tax Appellate Tribunal, ‘A’ 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)-9, Mumbai dated 04/09/2024 in for the assessment year 2022-23.
The assessee has raised the following grounds of appeal:
“The grounds mentioned herein by the Appellant are independent and without prejudice to one another: A. General grounds: i. That on the facts and in circumstances of the case and in law, the order passed under section 250 of the Act dated September 04, 2024, by the Additional/ Joint Commissioner of Income Tax (Appeals) — 9, Mumbai ('Ld. CIT(A)') is prejudicial to the Appellant, bad in law and against the principles of natural justice, thus liable to be quashed. B. Rejection of petition for condonation of delay in filing appeal by Ld. CIT(A) [being Appeal no. ADDL/JCIT (A)-cg MIJMBAI/iooi9/2021-221: 9, 1. That on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in rejecting the petition for condonation of delay in filing appeal against the intimation issued under section 143(1) of the Act dated March 16, 2023 ('the Intimation'), despite the fact that the Appellant demonstrated sufficient cause for non- filing of the appeal within the prescribed period of limitation.
2. That on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in holding that there is no sufficient cause for delay in filing appeal even after acknowledging that the delay was attributable to the alternative remedies for relief being sought by the Appellant before the tax authorities' sub-ordinate to the Ld. CIT(A). .3. That on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the fact that the delay was on account of alternate remedies being pursued by the Appellant and not attributable to negligence or any malafide intention on the part of the Appellant. C. Appeal against intimation held inadmissible i. That on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in holding that the intimation under section 143(1) of the Act does not survive after a notice under section 143(2) of the Act is issued. D. Deduction under section 43B of the Act- INR 5,28,15,631 That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not allowing the Appellant's ground on deductibility of INR 5,28,15,631 under section 43B of the Act . which represented liabilities created during the year and paid on or before the due date of filing the return of income. D .
2. That on the facts and in circumstances of the case and in law, the Ld. CIT(A) erred in adjudicating on the grounds raised before the CIT(A) on claim of deduction under section 43B of the Act based on the disclosures made in the tax audit report, even though the appeal filed was not admitted for the delay. E. Consequential levy of interest under section 24B of the Act • i. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not allowing the Appellant's ground on erroneous interest of INR 14,39,520 being charged under section 234B of the Act in the intimation issued under section 143(1) of the Act. F. Incorrect levy of interest under section 234C of the Act i. That on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not allowing the Appellant's ground on erroneous interest of INR 6,71,283 being charged under section 234C of the Act in the intimation. The Appellant craves leave to add to and / or to alter, amend, rescind, modify the grounds herein above or produce further documents, facts, and evidence before or at the time of hearing of this appeal.”
The issue raised by the assessee is that – In the present case, the assessee, a private limited company, is engaged in the business of providing software development services and information technology-enabled services to its overseas group entities for a service fee.
During the year under consideration, the assessee filed its return of income on 30-11-2022, declaring a total income of ₹49,15,48,263.00 only. However, while processing the return under Section 143(1) of the Income Tax Act, the Centralized Processing Center (CPC) proposed a revised income of ₹54,43,63,894.00 only. This adjustment included a . disallowance of ₹ 5,28,15,631/- on account of the non-payment of employee bonus or commission as reported in the tax audit report.
In response to the CPC's proposal, the assessee submitted that the payable amount of ₹5,28,15,631/- had been paid on 28-10-2022. Accordingly, the assessee did not disallow this amount in its income tax return, as per the provisions of section 43B of the Act.
Despite the submission, the CPC, without considering the assessee's explanation, processed the return and computed the income at ₹54,43,63,894/-, as per its intimation dated 16-03-2023.
Subsequently, the assessee filed a rectification request under section 154 of the Act on 14-04-2023, requesting a reprocessing of the return to correct the erroneous disallowance of the bonus payable amounting to ₹5,28,15,631/- only. However, the CPC rejected this rectification request through its order dated 18-07-2023.
The aggrieved assessee filed an appeal before the ld. CIT(A) against the intimation under section 143(1) of the Act along with a request for condonation of a delay of 408 days. The assessee submitted a detailed reply justifying the delay up to the date of filing the appeal before the ld. CIT(A) which is available on page No. 8 of the ld. Appellate order.
Assessee, on the basis of above chart contended that it had been proactively followed the remedies against the adjustments made in the intimation issued under section 143(1) of the Income Tax Act. The . assessee further stated before the learned CIT(A) that, in the meantime, the case was selected for scrutiny, and a notice under Section 143(2) was received on June 2, 2023. However, the rejection order for rectification under Section 154 was passed later, on July 18, 2023. The assessee explained that it was under the bona fide belief that the adjustments made u/s 143(1) of the Act could be resolved during the assessment proceedings and, therefore, did not initially file an appeal against the intimation under section 143(1) of the Act.
9.1 Further, the assessee submitted that it was under the bona-fide belief that it cannot prefer an appeal against intimation u/s 143(1) of the Act.
9.2 At a later stage, the matter was brought to the attention of the company's consultant, who clarified that there was no certainty that the adjustments would be resolved during the assessment proceedings under section 143(3) of the Act. The consultant also informed the assessee that the option for filing an appeal before the learned CIT(A) was available. Based on consultant advice, the assessee proceeded to file an appeal before the learned CIT(A), accompanied by a request for the condonation of the delay.
9.3 However, the Ld. CIT(A) rejected the request of condonation of the assessee by observing that, as per the Hon’ble Supreme Court’s judgment in the case of CIT vs. Gujarat Electricity Board (260 ITR 84), any intimation issued under Section 143(1) of the Act does not survive once a notice under Section 143(2) of the Act has been issued. Furthermore, in the present case, the assessee, being a company well- . versed in income tax proceedings, including the filing of appeals against intimations or assessment orders, did not initially file an appeal against the intimation under Section 143(1) of the Act. Instead, it opted to pursue the alternative remedy of representing its case before the AO, CPC under Section 154 of the Act.
9.4 It is evident from the petition and the detailed chart provided by the assessee that the decision to file an appeal against the intimation under Section 143(1) of the Act was an afterthought. Additionally, the Learned CIT(A) relied on the various case laws in the context of Limitation Act where it was reiterated the importance of adhering to statutory limitation periods, which ensure legal certainty and fairness. While delays might occasionally seem unfair, courts cannot override statutory limits unless compelling reasons exist. The ruling emphasizes that although courts have the discretion to extend deadlines, such power must be exercised sparingly and only when strong justifications are presented. Hence, the ld. CIT-A dismissed the appeal of the assessee. Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
9.5 The learned AR before us filed a paper book running from pages 1 to 236 and contended that the assessee was pursuing the matter against the intimation passed under section 143(1) of the Act under the provisions of section 154 of the Act. Similarly, once, the case was selected under scrutiny, the assessee was under the bona-fide believe that the issue in dispute could have been addressed during the assessment proceedings. As such, the assessee was vigilant about the dispute on hand and therefore the assessee’s ground of appeal cannot . be rejected on technical ground on account of alleged negligent approach of the assessee. As such, the assessee has a strong case on merit and therefore the same should not be dismissed on account of alleged technical lapses.
On the other hand, the learned DR before us 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. In the present intimation under section 143(1) of the Act, wherein certain adjustment on account of disallowances of employee bonus was made in accordance with the provision section 43B of the Act. Against the order under section 143(1) of the Act the assessee filed appeal before the learned CIT(A) which was delayed by the 408 days. The learned CIT(A) did not condone the delay and accordingly dismissed the appeal of the assessee as time barred. The learned CIT(A) also dismissed the appeal of the assessee by holding that once the notice under section 143(2) of the Act issued, the intimation under section 143(1) of the Act does not survive, therefore no appeal can be sustained against the intimation which does not survive. Now the first issue before us is that the delay in filing of appeal should be condoned or not in the given facts and circumstances. In this connection, we have observed from the tabular chart furnished by the assessee available on page No. 3 of the paper book that the assessee is continuously putting efforts to seek the justice, by different alternate like by filing the response vide dated 26-12-2022 in response to proposal of adjustment u/s 143(1) of the Act, however the intimation u/s 143(1)
Page 8 of 10 vide dated 16-03-2022 was passed by the CPC without considering the response of the assessee.
11.1 Thereafter, the assessee on 14-04-2023 has filed the rectification request u/s 154 of the Act against such adjustment. The assessee also filed the rectification application before the jurisdictional officer vide dated 14-04-2023. But the same was also rejected by the CPC by passing rectification order u/s 154 of the Act vide dated 18-07-2023. Meantime, the case was selected under scrutiny on 02-06-2023, and the assessee believed that the matter of adjustment may be resolved during the assessment proceedings under section 143(3) of the Act.
11.2 Thus, from the action of the assessee, it is transpired that delay was neither deliberate nor intentional but arose from a bona fide belief that the adjustments could be resolved during the assessment proceedings. In holding so, we also draw support and guidance from the judgment of Hon’ble Gujarat High Court in case of Gujarat Electricity Board reported in 36 taxmann.com 340 where it was held that the principle of substantial justice must prevail over technicalities. The relevant finding of the Hon’ble Gujarat High Court is extracted as under: 5. We are conscious that there was considerable delay in filing the appeal before the Tribunal. However, theCourts have been viewing delay, particularly when the same is well explained, rather liberally. When thecause of substantial justice is pitted against technicalities, the Courts are largely reluctant to terminate legalproceedings on technical grounds. In the present case, there was sufficient explanation rendered by theassessee for preferring the appeal before the Tribunal after some delay. In our view, such delay ought to havebeen condoned.
11.3 From the preceding discussion, we note that the assessee has demonstrated a bona- fide belief and consistent efforts to resolve the issue and the assessee’s conduct does not reflect negligence or mala- .
Page 9 of 10 fide intent but rather a bona-fide attempt to resolve the issue through appropriate forums.
11.4 Further, coming to the principles laid down by the Hon’ble Supreme Court in the case of CIT vs. Gujarat Electricity Board reported in 260 ITR 84 on which the Ld. CIT(A) placed reliance, in this regard, we note that the facts involved in the case of CIT vs. Gujarat Electricity Board are distinguishable from the facts involved in the present case. As such in the case of CIT vs. Gujarat Electricity Board (supra) the question of law was that whether the intimation u/s 143(1) of the Act be issued after issuance of the notice under section 143(2) of the Act. The relevant question of law framed by the Hon’ble Supreme Court is extracted as under: The short question which arises in these appeals is whether it is open to the Revenue to issue intimation under section 143(1)(a) of the Income-tax Act, after notice for regular assessment has been issued under section 143(2) of the Income-tax Act, 1961 ?
11.5 The Hon’ble Supreme Court in the context of above stated question of law held that intimation under section 143(1) of the Act cannot be issued once notice for regular assessment under section 143(2) of the Act is issued. Hence, in our considered opinion the principle laid down by the Hon’ble Supreme Court in the above stated case cannot be applied in the present case of the assessee. In view of the above detailed discussion, we hereby direct the learned CIT(A) to condone the delay in filing pf appeal and decide the issue a fresh on merit. Hence, the ground of appeal of the assessee is hereby allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.