The Delhi High Court dismissed a writ petition filed by a technology company seeking a pardon for the delay in filing its income tax return for FY20. The Central Board of Direct Taxes (CBDT) had declined to use its authority under section 119 of the Income-Tax Act to condone this delay, and the High Court found no grounds to challenge this decision.
This ruling is being widely discussed among tax professionals, including IT officials. One significant consequence of failing to file timely returns is the loss of the ability to carry forward losses, typically available over the subsequent eight years, along with other tax benefits. A government representative commented that this order would discourage taxpayers from negligently delaying compliance with statutory provisions.
Senior standing counsel for the I-T department and one of the advocates involved in the case, said, “Genuine hardship is the cornerstone for exercising this discretion by the CBDT. The taxpayer’s claims, such as the delay being due to the fallout of Covid, being a one-time aberration, or financial crisis, were found to be factually incorrect and unsustainable by the High Court.”
Several taxpayers affected by the pandemic found it challenging to file their I-T returns and pay their dues. For FY20, the CBDT had extended the deadline for filing I-T returns to February 15, 2021, for large taxpayers requiring a tax audit, and to January 10, 2021, for others. Nevertheless, some taxpayers continued to seek condonation for delays beyond these extended deadlines.
The High Court observed that authorities had considered various factors when Lava International requested condonation. The company had until February 15, 2021, to file its I-T return, but despite having its financials signed on July 31, 2020, it only filed the return on March 30, 2021. This indicated negligence.
Additionally, it was noted that the company had a history of filing belated I-T returns, and the delay for FY 2019-20 was not a single occurrence. In response to a show cause notice, the company attributed the delay to a financial and cash crunch. However, its financial statements for the period showed a profit of Rs 24.8 crore and a cash flow of Rs 12.3 crore, indicating no financial hardship.
The High Court concluded that the “power of condonation under section 119(2) can be exercised to address extraordinary circumstances only, which would have led to delays in statutory compliance. This power cannot be exercised routinely.”