ITR Not Filed Before Due Date? High Court Grants Major Relief on TDS Refund Claim

The petitioner, who is an individual, had not submitted income-tax returns before the assessment year 2022–23 since there was no taxable income. The land of the petitioner at Hazira Village was taken over under the Land Acquisition Act, and the compensation amounting to Rs. 62,66,967 was received in terms of a settlement agreement dated 16/02/2022. Tax was deducted at the source of Rs. 6,66,667 under Section 194LA by the acquiring company, which was shown in Form 26AS on 05/06/2022. But no TDS certificate was given, and the petitioner was not aware of such a deduction.

Thereafter, on employment and while registering his PAN for the first time on 26/02/2024, the petitioner realised the deduction and attempted to file a return for AY 2022-23 to get a refund of the deducted tax. Since the due date had expired, an application for condonation of delay under Section 119(2)(b) was filed before the Principal Commissioner on 29/02/2024. The authority sought clarification on 14/06/2024; the petitioner filed a detailed reply with documents on 08/07/2024. However, without affording an opportunity of hearing, the application was rejected on 30/07/2024. The petitioner challenged the rejection, contending that he was prevented by genuine hardship and that the authority erred by entering into the merits of the compensation transaction instead of considering delay condonation. It was also submitted that the order was passed in breach of natural justice.

Issue Raised: Whether the rejection of the condonation of delay under Section 119(2)(b) without hearing and without appreciating genuine hardship was justified.

HC’s Ruling: The Court held that the petitioner did not have any taxable income until AY 2022-23 and became aware of TDS only after registration of his PAN. It was observed that the Principal Commissioner did not limit the investigation to the question of actual hardship but entered into the merits of the award and compensation, and was against the purpose of Section 119(2)(b). The Court invoked judicial precedents, such as R. Seshammal, noting that the provision authorises authorities to deliver justice by pardoning delays to prevent hardship and cannot be interpreted in a narrow sense.

Presuming violation of natural justice, the Court held that the petitioner should have been given an opportunity to be heard and his bona fide reason taken into consideration before passing any negative order. Thus, the petitions were allowed. The Court directed that the petitioner may file a fresh condonation application, which the respondent shall consider afresh in light of the Court’s observations within twelve weeks of such filing. The Rule was made absolute to that extent, with no order as to costs.

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