M/S MERIDIAN PROMOTERS (P) lTD., vs. DEPUTY COMMISSIONER OF INCOME TAX

THE HON’BLE SRI JUSTICE M.SEETHARAMA MURTI And THE HON’BLE MS JUSTICE J. UMA DEVI

ITTA No.157 of 2019 JUDGMENT [Per Hon’ble Sri Justice M. Seetharama Murti]

This appeal, under Section 260A of the Income Tax Act, 1961, is directed against the order, dated 26.12.2018, in ITA.no.449/VIZ/2017, passed by the Income Tax Appellate Tribunal, Visakhapatnam “SMC” Bench, Visakhapatnam.

We have heard the submissions of Sri Bendi Raviteja, learned counsel, appearing for the appellant; and, of Ms. M. Kiranmayee, learned standing counsel appearing for the respondent. We have perused the material record.

The facts, which lead to the filing of this appeal, are as follows: The appellant is company engaged in the business of construction works. It filed its original return of income for the assessment year 2008-09, on 07.10.2008. The case was taken up for scrutiny. Notice under Section 143(2) of the Income Tax Act, 1961 [‘the Act’, for short] was first issued. Subsequently, notice under Section 142(1) of the Act was issued. Ultimately, the respondent had disallowed Rs.37,23,478/- inter alia for the reason that the appellant had not produced sufficient information and/or the information produced by the appellant is not acceptable. When the appellant submitted the vouchers for the said amount claimed by the appellant, the respondent rejected the same assigning a reason that the vouchers are self made vouchers and/or are defective in nature. The total demand payable by the appellant was determined at Rs.15,48,816/-. The computation of the same has been reflected in the assessment order, dated 30.12.2010, passed by the respondent. Aggrieved of the same, the appellant preferred an appeal before the Commissioner of Income Tax (Appeal) in ITA.no.0782/CC-2,Vizag/CIT(A)-

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2 I/20-11. However, the said appeal was dismissed confirming the order of the respondent. Aggrieved thereof, the appellant filed an appeal before the Income Tax Appellate Tribunal [‘Tribunal’, for short] in ITA.no.449/Viz/2017 with a delay of 1632 days. The appellant also filed an application, supported by an affidavit, for condonation of the delay explaining therein the reasons for the delay. The Tribunal by the order, dated 26.12.2018, which is impugned in this appeal dismissed the appellant’s appeal on the ground of delay without going into the merits of the matter. Therefore, the appellant - assessee has no opportunity to establish his case on merits. Aggrieved thereof, the present appeal is filed. In the grounds of appeal, the following substantial questions of law are raised: 1. Whether on the facts and circumstances of the case, the Hon’ble Tribunal was right in law in dismissing the appeal on technical ground by not condoning the delay, which was due to genuine causes beyond the control of the appellant? 2. Whether on the facts and circumstances of the case, the Hon’ble Tribunal was right in law in passing an order without considering the merits of the case? 3. Whether on the facts and circumstances of the case, the Tribunal was right in law in not adjudicating the disallowance made by the CIT(A), a sum of RS.37,23,478/- towards sub-contract charges and labor charges cumulatively? On the above substantial questions of law, which are involved, we have heard the submissions of learned counsel for the appellant and learned standing counsel appearing for the respondent. The short but important question, which incidentally falls for consideration, is – ‘whether sufficient cause is shown for condonation of delay?’

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3 The case of the appellant in support of the request for condonation of delay as stated in the application filed before the Tribunal is this: The Managing Director of the appellant company had some serious medical issues like frequent presence of giddiness. He suffered from abnormal situation requiring dependence on fellow persons for daily chores. He suffered loss of balance. He required serious medical attention from time to time. He was treated for vertigo. Regular check-ups and necessary tests were undergone by him from time to time, particularly during the period from 27.08.2012 to 17.05.2013. However, he could not recover even after the medical measures that were undergone periodically. Hence, he could not attend to his daily routine as well as other affairs, which include office management. Further, the accountant of the appellant company by name B. Nageswara Rao was involved in a major accident, on 27.08.2012. He was admitted into a hospital. He underwent a critical surgery. The fractures of the bones of the right arm were corrected by fixing temporary implants. He was discharged from the hospital, on 03.09.2012. He was advised to take bed rest for six months. Due to non availability of the above two key personnel, who are in-charge of the matters relating to the appellant company, the order, which was passed on 28.11.2012, went un-noticed. Later, in the month of June, 2017, when the appellant received a call from the IT department on the outstanding arrears resulting from the impugned assessment, the relevant file with the CIT(A) order was traced. Thereafter, the present appeal was filed before the Tribunal, on 27.07.2017, without causing any further delay. The delay of 1635 days had occasioned in filing the appeal before the Tribunal for the aforestated reasons. Be it noted that no counter was filed by the respondent before the Tribunal. However, the departmental representative opposed for condonation of the extra ordinary delay.

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4 The grounds urged in this appeal and the contentions raised by the appellant, in brief, are as follows: The order of the Tribunal is contrary to the facts & circumstances of the case, the principles of natural justice and the law laid down by the Supreme Court of India. The Tribunal failed to appreciate the circumstances which resulted in the delay in filing the appeal and hence, failed to condone the delay in filing the appeal. The Tribunal failed to appreciate the merits of the case and the Tribunal has not given an opportunity of being heard before passing an order. The Tribunal ought to have considered that disallowance of 25% of the sub contract charges (being Rs.1,29,36,056/-) amounting to Rs.32,34,014/- is not right in law. The Tribunal ought to have considered that the disallowance of 25% of the labor chares is not right in law. There was no gross negligence on the part of the assessee. There was no mala fide intention on the part of the assessee in not preferring the appeal within the period of limitation. When substantial justice and technical consideration are pitted against each other, the cause of substantial justice deserves to be preferred and no injustice can be done because of non deliberate delay. Further, it is a cardinal principle of law that normally by and large the appeals are required to be decided on merits rather than dismissing the same on technical grounds like delay etcetera unless there was gross negligence on the part of the assessee or there was any mala fide intention on the part of the assessee in not preferring the appeal within the period of limitation or in the filing of the appeal belatedly. In support of the above said submissions, learned counsel for the petitioner relied upon the decision in Akhil Kureshi and Ms. Harsha Devani [(2013) 36 taxmann.com].

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5 Per contra, learned standing counsel appearing for the respondent, while supporting the successive orders including that of the Tribunal, had contended as follows: ‘The order of assessment is passed having regard to the facts and law. The contentions of the appellant are devoid of merit. The condonation of delay is a matter of discretion of the Court. One cannot claim it as a right. Only on sufficient cause being shown, the delay is condonable. The delay in filing the appeal is a long delay of 1635 days. In the facts & circumstances of the case, the explanation offered for condonation of said delay cannot be said to be justified. The Tribunal rightly held that there is no proximity between the period of delay and the medical certificates filed by the assessee and that the assessee has not explained the extraordinary delay of 1635 days by explaining the reasons and that the assessee failed to show sufficient cause for condonation of delay in filing the appeal. During the 1635 days of period, the appellant carried on its business without any interruptions. Such a long delay cannot be viewed leniently. The reasons offered for the delay are not rational and justifiable.’ Before proceeding further, it is apt to refer to the following settled legal position. “The statutory provision mandates that while considering the applications for condonation of delay, the applicants are required to show sufficient cause for condonation of such delay. Condonation of delay is a matter of discretion of the Court. The words ‘sufficient cause’ under Section 5 of the Limitation Act should receive liberation construction so as to achieve substantial justice. However, while condoning the delay, the Court should not forget the opposite party altogether. A liberal approach is to be adopted on considering the application for condonation of delay on the ground of sufficient cause under Section 5 of the Limitation Act. The concept of such a liberal approach cannot be equated with doing injustice to the other party. The Court cannot condone delay in a case, where the Court concludes that there is no justification for the delay. The discretion has to be exercised within the

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6 reasonable bounds known to the law. Whims or fancies, prejudices or predilections could not form the basis for exercising the discretionary power. When the delay is directly a result of negligence or default or inaction of a party, such delay cannot be condoned on mere asking of that party. Length of delay is no matter and the acceptability of the explanation is the only criterion. If there is no acceptable explanation, sometimes a delay of shorter length may also be uncondonable whereas in certain other times, the delay of a very long range can be condoned provided sufficient cause is shown.” “The expression ‘sufficient cause’ is a cause for which the defendant could not be blamed. [vide the decision of the Supreme Court in Parimal v. Veena1]. In this decision, it was also held as follows: ‘However, the facts and circumstances of each case must afford sufficient ground to enable the Court concerned to exercise discretion for the reason that whenever the Court exercises discretion, it has to be exercised judiciously.” Dealing with the issue, as to whether the cause shown is a sufficient cause for condonation of delay, it is necessary to restate the explanation for the delay which is as follows: - ‘The Managing Director of the appellant company had some serious medical issues like frequent presence of giddiness. He suffered from abnormal situation requiring dependence on fellow persons for daily chores. He suffered loss of balance. He required serious medical attention from time to time. He was treated for vertigo. Regular check-ups and necessary tests were undergone by him from time to time, particularly during the period from 27.08.2012 to 17.05.2013. However, he could not recover even after the medical measures undergone periodically. Hence, he could not attend to his daily routine as well as other affairs, which include office management. Further, the accountant of the appellant company by name B. Nageswara Rao was involved in a major accident, on 27.08.2012. He was admitted into a hospital. He underwent a critical surgery. The fractures of the bones of the right arm were corrected by fixing temporary implants. He was discharged from the hospital, on 03.09.2012. He was advised to take bed

1 AIR 2011 SUPREME COURT 1150

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7 rest for six months. Due to non availability of the above two key personnel, who are in-charge of the matters relating to the appellant company, the order, which was passed on 28.11.2012, went un-noticed. Later, in the month of June, 2017, when the appellant received a call from the IT department on the outstanding arrears resulting from the impugned assessment, the relevant file with the CIT(A) order was traced. Thereafter, the present appeal was filed before the Tribunal, on 27.07.2017, without causing any further delay. The delay of 1635 days had occasioned in filing the appeal before the Tribunal for the aforestated reasons.’ Before the Tribunal, no counter is filed by the revenue. The principal submission of the appellant is that sufficient cause was shown for condonation of the delay and that the appellant has got fair chance of success in the appeal and that in that view of the matter, refusal of condonation of delay resulted in a meritorious matter being thrown out at a very threshold and justice is denied. We have given earnest consideration to the facts & submissions. In our considered view, in the light of the contentions of the appellant that the reasons for the delay are beyond the control of the appellant and that the said reasons for the delay are on account of ill health of the Managing Director of the appellant company and the accountant’s involvement in a major accident and that for the said reasons the Managing Director was not aware of the order of the learned Commissioner of Income Tax (Appeals) and that he came to know about the same in the month of June, 2017, when he received a phone call from the IT officer about pending arrears on account of the decision passed by the Commissioner of Income Tax Appeals, we are satisfied that the above said explanation can be accepted as sufficient cause for condonation of delay. If the explanation is accepted and an opportunity is provided to have the cause

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8 in the proposed appeal decided on merits, the highest that would happen is that the cause would be decided on its merit after hearing the parties. In that view of the matter, it cannot be said that if the delay is condoned after accepting the explanation as a sufficient cause, prejudice would be caused to the revenue/respondent herein. While considering the applications for condonation of delay, what is to be seen is whether the interest of the revenue will stand protected, even while recognizing the right of the assesse to exercise the statutory remedies available to the assesse and the statutory right of appeal cannot be made redundant by dismissing the application for condonation of delay and rejecting the appeal on technical grounds. In our considered view when substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred, as held by the Supreme Court in Collector, Land Acquisition, Anantnag v. Mst. Katiji2. In the light of the above discussions, we find that this is a fit case for condonation of delay and affording an opportunity to the appellant to have the intended appeal decided on its merit by the Tribunal. Hence, we hold that the impugned order is liable to be set aside. In our view condoning the delay sub- serves the ends of justice. In the result, the Appeal is allowed and the order, dated 26.12.2018, passed in ITA No.449/VIZ/2017 is set aside and the Application for condonation of delay in filing the said appeal is allowed; and, as a sequel the delay in filing the appeal before the Tribunal is condoned with a direction to the Tribunal to now take up the appeal for hearing and disposal on its merit as per the procedure established by law, however, uninfluenced by the observations, if any, made in this order.

2 AIR 1987 SC 1353

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9 There shall be no order as to costs. Miscellaneous petitions pending, if any, shall stand closed.

_____________________ M. SEETHARAMA MURTI, J

____________ J. UMA DEVI, J 18.10.2019 Vjl

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10 THE HON’BLE SRI JUSTICE M.SEETHARAMA MURTI And THE HON’BLE MS JUSTICE J. UMA DEVI

ITTA No.157 of 2019 [Per Hon’ble Sri Justice M. Seetharama Murti]

18.10.2019

Vjl