Rajgrin Infralink's delay condonation plea allowed by Gujarat HC despite pending appeal

The Gujarat High Court has ruled that a taxpayer’s application for condonation of delay in filing an income tax return can be examined on its merits even after an assessment order has been passed and an appeal against it is pending before the Commissioner of Income Tax (Appeals). The bench quashed the order rejecting the application of Rajgrin Infralink LLP, which sought condonation of a 25-day delay for Assessment Year 2020-21.

The case highlights the interplay between the statutory mechanism for condonation under Section 119(2)(b) of the Income Tax Act and the appellate process. The court’s decision removes a procedural barrier that could have prevented taxpayers from obtaining relief when genuine hardship—such as the COVID-19 pandemic—caused a delay in filing.

Background of the case

Rajgrin Infralink LLP was required to file its income tax return for Assessment Year 2020-21 by October 31, 2020, under Section 139(1) of the Act. However, the return was filed on March 25, 2021—a delay of 25 days. The petitioner attributed the delay to the COVID-19 outbreak, a widely accepted ground for condonation during that period.

Section 119(2)(b) of the Income Tax Act empowers the Central Board of Direct Taxes (CBDT) to condone delays in filing returns or making claims where failure to do so would cause genuine hardship to the assessee. This provision is distinct from the appellate remedy available under Section 246A and is intended to provide a parallel, non-adversarial avenue for relief.

The assessment and appeal

The return filed by Rajgrin Infralink was selected for scrutiny. The Assessing Officer passed an assessment order on September 29, 2022 under Section 143(3) read with Section 144B, which governs faceless assessments. In that order, the officer disallowed a deduction of ₹19,30,28,003 claimed under Section 80-IBA—a provision that offers tax benefits for eligible housing projects—on the sole ground that the return was filed late.

The petitioner challenged the assessment before the Commissioner of Income Tax (Appeals). The appeal covered both the Section 80-IBA disallowance and a separate disallowance of ₹19,19,37,063 relating to under-recognition of revenue. While that appeal was pending, Rajgrin Infralink filed an application on August 17, 2023 under Section 119(2)(b) seeking condonation of the delay in filing the return. The CBDT—through the delegated authority—rejected the application on October 27, 2023 without considering the merits.

The revenue’s objection

The Revenue opposed the writ petition before the Gujarat High Court, arguing that since an assessment order had already been passed and the petitioner had challenged it before the Commissioner (Appeals), the condonation application could not be entertained. The Revenue contended that the pending appeal rendered the condonation request infructuous.

The bench, comprising Justice A.S. Supehia and Justice Vaibhavi D. Nanavati, specifically asked the Revenue whether the Commissioner (Appeals) had the power to condone the delay in filing the return. The Revenue fairly acknowledged that it did not. The court recorded that the power rested exclusively with the CBDT under Section 119(2)(b).

Court’s reasoning

The High Court rejected the Revenue’s objection, holding that the existence of an assessment order and a pending appeal did not preclude examination of the condonation application. The court observed:

“We do not subscribe to the objection raised by the Revenue since it is an admitted position that the Commissioner of Income-tax (Appeals) does not have the power in condoning the delay and the remedy invoked by the petitioner by filing an application under Section 119(2)(b) of the Act reconciles with the statutory scheme of the Act.”

The bench emphasised that the two remedies—appeal and condonation—operate in different spheres. The appellate authority can only decide the correctness of the assessment on the basis of the return as filed; it cannot cure the defect of late filing. The condonation power, on the other hand, addresses the very threshold issue of whether the return should be treated as validly filed.

The court also took note of its earlier judgment involving the same petitioner for Assessment Year 2021-22. In that case, the court had set aside a similar rejection after considering the COVID-19 circumstances and directed the authorities to reconsider the application. The earlier delay was only 13 days. The Revenue argued that the earlier judgment could not assist the petitioner because an assessment order had already been passed and an appeal was pending. The bench rejected that distinction, reiterating that the appellate authority lacked the power to condone the delay, and the petitioner had therefore approached the only authority empowered to grant such relief.

Directions issued

The Gujarat High Court quashed the October 27, 2023 order rejecting the petitioner’s application and set it aside in terms of its earlier judgment. The court directed the Commissioner (Appeals) to examine the disallowance of the ₹19,30,28,003 deduction claimed under Section 80-IBA on its merits and pass an appropriate order in accordance with law. This effectively means that once the delay is condoned, the return will be treated as filed on time, and the assessment order can be reconsidered on its substantive merits.

Legal implications

The decision clarifies that the power to condone delay under Section 119(2)(b) is independent of the assessment and appellate process. Taxpayers who face genuine hardship—such as natural disasters, illness, or administrative disruptions—need not fear that the mere pendency of an appeal will bar them from seeking condonation. The ruling also underscores that the CBDT and its delegates cannot refuse to consider a condonation application simply because an assessment order has been passed.

For the legal community, the judgment serves as a reminder that the remedy under Section 119(2)(b) is a separate, statutory mechanism that must be exercised in its own right. Practitioners advising clients on late-filed returns should consider filing a condonation application even after an assessment order is passed, provided the delay is due to genuine hardship and the appeal does not cover the delay issue.

Impact on tax litigation

The ruling may encourage more taxpayers to seek condonation of delay in filing returns, especially for assessment years affected by the pandemic. It also prevents the Revenue from using the pendency of an appeal as a shield to avoid considering hardship claims. The judgment is likely to be cited in similar cases across other High Courts, given the clarity it provides on the scope of Section 119(2)(b) and its relationship with appellate proceedings.

The Gujarat High Court’s approach aligns with the principle that procedural rules should not operate as traps for the unwary, particularly when the delay is minimal and attributable to extraordinary circumstances. The decision reinforces the judiciary’s willingness to ensure that substantive tax benefits are not denied purely on technical grounds.

Conclusion

The Gujarat High Court’s judgment in the Rajgrin Infralink case is a significant step in harmonising the statutory framework for condonation of delay with the appellate process. By holding that a pending appeal does not bar consideration of a condonation application under Section 119(2)(b), the court has opened a viable path for taxpayers to cure filing defects and have their claims decided on merits. The ruling underscores the importance of the CBDT’s power to prevent genuine hardship and ensures that taxpayers are not left without a remedy when procedural timelines are missed due to no fault of their own.