Audit Delay Is Genuine Hardship: High Court Condones Late ITR Filing, Urges Liberal Approach

The Reserve Bank Employees Co-operative Credit Society Ltd., governed by the Odisha Co-operative Societies Act, was legally required to undergo a statutory audit only through auditors appointed by the Auditor-General of Co-operative Societies (AGCS), Odisha. For AYs 2018-19 to 2022-23, the AGCS failed to appoint auditors despite repeated requests, citing shortage of audit staff.

The audits were eventually completed only in early 2024, resulting in delayed filing of income-tax returns. The society sought condonation of delay under Section 119(2)(b), which was rejected by the Principal Chief Commissioner by labelling the society a “regular non-filer”, without examining the statutory impediment. The rejection was challenged before the High Court.

Main Issue: Whether the delay in filing returns caused solely due to non-appointment of statutory auditors by the State constitutes “genuine hardship” warranting condonation under Section 119(2)(b) of the Income-tax Act.

HC’s Ruling: The Hon’ble High Court allowed the writ petition and set aside the rejection order. The Court held that “genuine hardship” under Section 119(2)(b) must receive a liberal and justice-oriented interpretation. It found that the delay was due to the failure of the statutory authority to appoint auditors and not to any fault of the petitioner.

The Court observed that refusal to condone the delay would cause serious prejudice by denying society its legitimate right to claim deductions, including under Section 80P, despite duly audited accounts. The authority’s approach of mechanically branding the society as a habitual defaulter was held to be arbitrary and contrary to law.

Therefore, the Court directed the Income-tax Department to permit filing of returns and audit reports for the relevant years, while granting liberty to examine the claims on merits in accordance with law.

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