Tax Authority Must Consider 'Genuine Hardship' to Condone Filing Delays: Orissa High Court

The Orissa High Court has reiterated that tax authorities must exercise their power to condone a delay in filing income tax returns to address "genuine hardship" and not reject such requests mechanically.

A Division Bench comprising Chief Justice Harish Tandon and Justice Murahari Sri Raman set aside an order of the Principal Chief Commissioner of Income Tax (PCCIT), Odisha Region, which had refused to condone the delay in filing income tax returns by The Reserve Bank Employees Co-operative Credit Society Limited. The Court noted that the tax authority failed to properly exercise discretion under the Income Tax Act while dealing with the society's plea of “genuine hardship” arising from delays in statutory audit beyond its control.

In the case at hand, the society, which provides credit facilities to employees of the Reserve Bank of India, had approached the High Court challenging the PCCIT's order dated 13 June 2024. The tax authority had declined to accept the delay in filing returns and audit reports, treating the society as a habitual non-filer.

The society contended that it was unable to file its returns within the prescribed time because its accounts were not audited on time. Under the Odisha Co-operative Societies Act, statutory audits of co-operative societies can only be conducted by auditors authorised by the Auditor-General of Co-operative Societies. Due to an acute shortage of such auditors, the audits for the relevant assessment years were delayed despite repeated requests by the society.

Examining the order, the Bench observed that the PCCIT had placed undue emphasis on the society's past conduct and failed to confine the inquiry to the assessment years in question. The Court noted that under the Odisha Co-operative Societies Act, statutory audits can be conducted only by auditors authorised by the Auditor-General of Co-operative Societies, and that the petitioner had repeatedly sought appointment of such auditors. The record showed that the audits for the relevant years were completed only on January 25, 2024, well after the due dates for filing returns—a factual position that was not disputed by the income tax department.

The High Court also took note of circulars issued in July and August 2023 by the Central Board of Direct Taxes (CBDT) and the Ministry of Cooperation, which acknowledged widespread delays in statutory audits of co-operative societies and permitted tax authorities to condone delays where returns could not be filed for reasons beyond the assessee's control.

In this context, the judges emphasised that Section 119(2)(b) of the Income Tax Act empowers tax authorities to condone delays to mitigate genuine hardship and enable taxpayers to claim lawful deductions and benefits. It held that the society had established genuine hardship, and that refusing condonation would unjustly deprive it of deductions available to co-operative societies. It said:

“...in the present case, the petitioner has made out a case disclosing “genuine hardship” constituting “sufficient cause” for condonation of delay. So far as the merits of the claim of the petitioner for condonation of delay in concerned, this Court finds that though the petitioner is bound to get its accounts audited under Section 62 of the OCS Act, the delay in completion of audit by the auditor appointed under the Act is not attributable to the petitioner.”

Accordingly, the High Court issued a writ of mandamus, quashing the PCCIT's order and directed the tax authority to allow the petitioner to file its income tax returns along with the audit reports for the relevant assessment years. The Court clarified that although the delay stood condoned, the Income Tax Department would be at liberty to verify the correctness of the claims made in the returns through appropriate proceedings in accordance with law.

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