MANSI FINANCE CHENNAI LIMITED,CHENNAI vs. THE ACIT, CC-4(1), CHENNAI

The ld. Counsel for the assessee has submitted that the assessee was under bonafide belief that the appeals preferred before the ld. CIT(A)

On the other hand, the ld. DR has submitted that both the appeals filed by the assessee are barred by limitation as there is huge delay of 1275 days in filing the appeals before the Tribunal since there was no reasonable cause for the delay explained in the affidavit filed in support of petition for condonation of delay.

We have heard both the sides and carefully gone through the affidavit filed by the assessee. In the affidavit for condonation of delay in filing the appeals, the assessee submits that the accountant dealing the tax matter went on long leave and did not report for duty for almost 2 months and therefore, the service of the incumbent was terminated w.e.f. 10.10.2017, i.e., from the date of leave. It was also submitted that the management of the company was under bonafide belief and impression that the above appeals are pending for adjudication.

In this case, the assessee has filed its return of income on 26.09.2012 for the assessment year 2012-13 admitting total income of ₹.71,79,200/- and the assessment under section 143(3) of the Income Tax Act, 1961 [“Act” in short] was completed on 30.03.2015 determining the assessed income of the assessee at ₹.77,91,865/-. Thereafter, the assessee preferred further appeal before the ld. CIT(A) and the ld. CIT(A) has confirmed the additions by dismissing the appeals of the assessee for both the assessment years. However, the assessee company was under bonafide belief that appeals preferred before the ld. CIT(A) are pending for adjudication for the reason that no notice of tax demanded after conclusion of the appellate order was issued by the Department to the assessee after confirmation of disallowances made by the Assessing Officer as contended by the ld. Counsel.

While considering a delay in filing the appeal, the Apex Court in the case of Collector, Land Acquisition v. MST. Katiji and Ors. (167 ITR 471) laid down six principles. For the purpose of convenience, the principles laid down by the Apex Court are reproduced hereunder: (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 non-deliberate 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.

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 for injustice being done because of non deliberate delay. It is not the case of the Revenue that the appeals were filed deliberately with delay. Therefore, we have to prefer substantial justice rather than technicality in deciding the issue. As observed by Apex Court, if the application of the assessee for condoning the delay is rejected, it would amount to legalise injustice on technical ground when the Tribunal is capable of removing injustice and to do justice. Therefore, this Tribunal is bound to remove the injustice by condoning the delay on technicalities. Under the scheme of Constitution, the Government cannot retain even a single pie of the individual citizen as tax, when it is not authorised by an authority of law. Therefore, if we refuse to condone the delay, that would amounts to cause injustice to the applicant. Therefore, in our opinion, by preferring the substantial justice, the delay is liable to be condoned.

So far as the contention of the ld. DR that both the appeals filed by the assessee are barred by limitation as there is huge delay in filing the appeals before the Tribunal is concerned, there is no question of any excessive or inordinate delay when the reason stated by the assessee was a reasonable cause for not filing the appeals. We have to see the cause for the delay. When there was a reasonable cause, the period of delay may not be relevant factor. In fact, the Hon’ble Jurisdictional High Court in the case of CIT vs. K.S.P. Shanmugavel Nadai and Ors. (153 ITR 596) considered the condonation of delay and held that there was sufficient and reasonable cause on the part of the assessee for not filing the appeal within the period of limitation. Accordingly, the Hon’ble Madras High Court condoned nearly 21 years of delay in filing the appeal. When compared to 21 years, 1275 days cannot be considered to be inordinate or excessive.

The Madras High Court in the case of Sreenivas Charitable Trust v. DCIT 280 ITR 357 (Mad) held that no hard and fast rule can be laid down in the matter of condonation of delay and the Court should adopt a pragmatic approach and the Court should exercise their discretion on the facts of each case keeping in mind that in construing the expression "sufficient cause" the principle of advancing substantial justice is of prime importance and the expression "sufficient cause" should receive a liberal construction. Therefore, this Judgment of the Madras High Court (supra) clearly says that in order to advance substantial justice which is of prime importance, the expression "sufficient cause" should receive a liberal construction.

Non-filing of affidavit in opposition to an application for condonation of delay, the Hon’ble Calcutta High Court concluded that the averments in the application remained unrebutted, which was duly affirmed by the Hon’ble Supreme Court in the case of Mrs. Sandhya Rani Sarkar vs. Smt. Sudha Rani Debi (AIR 1978 SC 537). In the present case, the Revenue has not filed any counter-affidavit opposing the applications of the assessee for condonation of delay in filing the appeals before the Tribunal.

In the judgment rendered by the Supreme Court in the case of Esha Bhattacharjee vs. Managing Committee of Raghunathpur Nafa Academy & others (Civil Appeal Nos. 8183 - 8184 of 2013), the Supreme Court has referred to some of the decisions rendered by Hon'ble Courts on the principles to be followed while adjudicating the issue of condonation of delay. For the sake of convenience, some of the judgments are extracted as follows: a) In Collector, Land Acquisition, Anantnag and another v. Mst. Katiji and others (supra), a two-Judge Bench observed that the legislature has conferred power to condone delay by enacting Section 5 of the Indian Limitation Act of 1963 in order to enable the courts to do substantial justice to parties by disposing of matters on merits. The expression "sufficient cause" employed by the legislature is adequately elastic to enable the courts to apply the law in a meaningful manner which subserves the ends of justice, for that is the life-purpose for the existence of the institution of courts. The learned Judges emphasized on adoption of a liberal approach while dealing with the applications for condonation of delay as ordinarily a litigant does not stand to benefit by lodging an appeal late and refusal to condone delay can result in a meritorious matter being thrown out at the very threshold and the cause of justice being defeated. It was stressed that there should not be a pedantic approach but the doctrine that is to be kept in mind is that the matter has to be dealt with in a rational commonsense pragmatic manner and cause of substantial justice deserves to be preferred over the technical considerations. It was also ruled that there is no presumption that delay is occasioned deliberately or on account of culpable negligence and that the courts are not supposed to legalise injustice on technical grounds as it is the duty of the court to remove injustice. In the said case the Division Bench observed that the State which represents the collective cause of the community does not deserve a litigant-non grata status and the courts are required to be informed with the spirit and philosophy of the provision in the course of interpretation of the expression "sufficient cause". (b) In G. Ramegowda, Major and others v. Special Land Acquisition Officer, Bangalore (1988)(2 SCC 142), Venkatachaliah, J. (as his Lordship then was), speaking for the Court, has opined thus: "The contours of the area of discretion of the courts in the matter of condonation of delays in filing appeals are set out in a number of pronouncements of this Court. See : Ramlal, Motilal and Chhotelal v. Rewa Coalfield Ltd.(1962)(2 SCR 762); Shakuntala Devi Jain v. Kuntal Kumari(1969)(1 SCR 1006); Concord of India Insurance Co. Ltd. V. Nirmala Devi(1979)(3 SCR 694); Lala Mata Din v. A. Narayanan(1970)(2 SCR 90); Collector, Land Acquisition v. Katiji etc. There is, it is true, no general principle saving the party from all mistakes of its counsel. If there is negligence, deliberate or gross inaction or lack of bona fide on the part of the party or its counsel there is no reason why the opposite side should be exposed to a time-barred appeal. Each case will have to be considered on the particularities of its own special facts. However, the expression 'sufficient cause' in Section 5 must receive a liberal construction so as to advance substantial justice and generally delays in preferring appeals are required to be condoned in the the interest of justice where no gross negligence or deliberate inaction or lack of bona fides is imputable to the party seeking condonation of the delay.".... (c) In this context, we may refer with profit to the authority in Oriental Aroma Chemical Industries Limited v. Gujarat Industrial Development Corporation and another (2010)(5 SCC 459), where a two-Judge Bench of this Court has observed that the law of limitation is founded on public policy. The legislature does not prescribe limitation with the object of destroying the rights of the parties but to ensure that they do not resort to dilatory tactics and seek remedy without delay. The idea is that every legal remedy must be kept alive for a period fixed by the legislature. To put it differently, the law of limitation prescribes a period within which legal remedy can be availed for redress of the legal injury. At the same time, the courts are bestowed with the power to condone the delay, if sufficient cause is shown for not availing the remedy within the stipulated time. Thereafter, the learned Judges proceeded to state that this Court has justifiably advocated adoption of liberal approach in condoning the delay of short duration and a stricter approach where the delay is inordinate. (d) In Improvement Trust, Ludhiana v. Ujagar Singh and others(2010)(6 SCC 786), it has been held that while considering an application for condonation of delay no straitjacket formula is prescribed to come to the conclusion if sufficient and good grounds have been made out or not. It has been further stated therein that each case has to be weighed from its facts and the circumstances in which the party acts and behaves."

The principles that emanate from the above said decisions are that in the matter of condonation of delay in filing appeals beyond the limitation period, the courts are empowered to condone the delay, provided the litigant is able to demonstrate that there was "sufficient cause" in preferring appeal beyond the limitation period. The Courts have also held that the expression "sufficient cause" should receive liberal construction so as to advance substantial justice. Hence, the question of condonation of delay is a factual matter and the result would depend upon the facts of the case and the cause shown by the assessee for the delay. It has also been opined that generally delays in preferring appeals are required to be condoned in the interest of justice, where no gross negligence or deliberate inaction or lack of bona fides is imputable to the party seeking condonation of the delay. In view of the foregoing, we are of the view that the assessee has shown sufficient cause for the delay in filing the appeals before the Tribunal.

Similar plea raised in the Affidavit by the assessee was also subject matter in appeal before the Hon’ble Supreme Court in the case of Senior Bhosale Etate (HUF) v. ACIT in Civil Appeals Nos. 6671- 6676 of 2010 and 6677-6690 of 2010 vide order dated 07.11.2019, the Hon’ble Apex Court has observed and held as under: “...................Application No.CAT 14 of 2009 in Wealth Tax Appeal St. No.19944 of 2008, whereby it had dismissed the said civil application(s) praying for condonation of delay in filing the concerned appeal(s) against the common order dated 29.12.2003 passed by the Income Tax Appellate Authority being barred by 1754 days. The appellant(s) had asserted that they had no knowledge about passing of order dated 29.12.-2003, until they were confronted with the auction notices in June 2008 issued by the competent authority. Soon thereafter, the appellant(s) filed appeal(s) accompanied by the subject application(s) on 19.07.2008. Notably, the respondent(s) did not expressly refute the stand taken by the appellant(s) that they had no knowledge about passing of order dated 29.12.2003 until June, 2008. Unless that fact was to be refuted, the question of disbelieving the stand taken by the appellant (s) on affidavit, cannot arise and for which reason, the High Court should have shown indulgence to the appellant (s) by condoning the delay in filing the concerned appeal(s). This aspect has been glossed over by the High Court. Accordingly, these appeals are allowed. We set aside the impugned order of the High Court and relegate the parties before the High Court, by allowing the civil application(s) filed by the appellant(s) for condonation of delay in filing the concerned appeal. As a result , the concerned appeal (s) shall stand restored to the file of the High Court and be proceeded in accordance with law.”

In view of the numerous judicial pronouncements as referred hereinabove, we are of the considered opinion that the delay in filing the appeals deserves to be condoned in this case and accordingly, we condone the delay in filing these two appeals.

On merits, the only effective ground raised in both the appeals relate to confirmation of disallowance made under section 14A of the Act over and above the exempt income earned.

The assessee company has earned income which is not chargeable to tax under the Income Tax Act. However, the assessee has not admitted any expenditure for earning the dividend income, which is exempted. Accordingly, the Assessing Officer invoked the provisions of section 14A of the Act r.w. Rule 8D and determined the expenditure at ₹.5,79,173/- for the assessment year 2012-13 and ₹.6,19,916/- and brought to tax. On appeal, the ld. CIT(A) confirmed the disallowance made under section 14A of the Act for both the assessment years.

On being aggrieved, the assessee is in appeal before the Tribunal for both the assessment years. By relying upon various case law including the decision of the Hon’ble Jurisdictional High Court in the case of PCIT v. Envestor Venture Ltd. [2021] 431 ITR 221 (Mad), the ld. Counsel for the assessee has submitted that the disallowance under section 14A of the Act cannot be in excess of the exempted income of the relevant assessment years.

On the other hand, the ld. DR supported the orders of authorities below.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. In this case, the assessee has earned exempt income of ₹.77,482/- in the assessment year 2012-13. However, the Assessing Officer quantified the disallowance of ₹.5,79,173/- under Rule 8D for the purpose of earning the exempted income and brought to tax. Similarly, the Assessing Officer has quantified the disallowance of ₹.6,19,916/- under Rule 8D for earning the exempted income of ₹.63,903/-. On appeal, the ld. CIT(A) has confirmed the disallowance for both the assessment years.

The contention of the assessee is that the disallowance made under section 14A of the Act should not be in excess of the exempted income of the relevant assessment years. Similar issue was subject matter in appeal before the Hon’ble Jurisdictional High Court in the case of PCIT v. Envestor Venture Ltd. (supra), while affirming the order of the Tribunal, the Hon’ble High Court has observed and held as under: “The disallowance, under section 14A of the Income-tax Act, 1961 read with rule 8D of the Income-tax Rules, 1962 of the expenditure incurred to earn exempted income has to be computed in accordance with rule 8D of the Rules, which in essence stipulates that the expenditure directly relatable to the earning of such exempted income, can alone be disallowed under section 14A of the Act. The assessing authority has to mandatorily record his satisfaction that the proportionate disallowance of expenditure under section 14A of the Act as made by the assessee is not satisfactory and therefore, the same is liable to be rejected for such cogent reasons as specified and thereafter, the computation method under rule 8D can be invoked to compute the quantum of disallowance. It is well-settled that the Rules cannot go beyond the main parent provision. Therefore, what has been provided as computation method in rule 8D cannot go beyond the roof limit of section 14A itself under any circumstances. Held, that the Tribunal was right in restricting the disallowance under section 14A of the Act to the extent of exempt income earned during the previous year relevant to the assessment year 2015-16.”

By referring to various case law including the decision in the case of Joint Investments Private Ltd. v. CIT [2015] 372 ITR 694 (Delhi), the decision in the case of Maxopp Investment Ltd. v. CIT [2018] 402 ITR 640 (SC), the Hon’ble Jurisdictional High Court has held that the disallowance under section 14A of the Act should be restricted to the extent of exempt income earned during the previous year. In view of the above legal position, we set aside the order of the ld. CIT(A) on this issue and direct the Assessing Officer to restrict the disallowance under section 14A of the Act to the extent of exempt income earned by the assessee during the previous year. Accordingly, the ground raised by the assessee is allowed for both the assessment years.

In the result, both the appeals filed by the assessee are allowed. Order pronounced on the 06th July, 2022 in Chennai.