High Court: CBDT Must Condone Delay Caused by Software Glitch; Mechanical Rejection Set Aside

The petitioner challenged an order passed under Section 119(2)(b) of the Income Tax Act, whereby the Central Board of Direct Taxes (CBDT) rejected his request to condone the delay in filing a revised return for Assessment Year 2021-22. The petitioner explained that his Chartered Accountant used KDK software to prepare the JSON file for uploading on the income tax portal. Due to a compatibility issue between the KDK software and the Income Tax Department’s JSON utility, a long-term capital loss of Rs. 63,95,753 on the sale of immovable property was not transmitted into the uploaded return, even though other figures were correctly reflected. This omission came to light only during the finalisation of the tax audit for AY 2022-23, completed on 29.09.2022, after which the petitioner immediately sought condonation under Section 119(2)(b).

The Chartered Accountant filed an affidavit dated 06.11.2023, admitting that the capital loss was not captured due to a technical issue while uploading the JSON file. Still, CBDT rejected the condonation application.

Issue Raised: Whether CBDT was justified in refusing to condone the delay under Section 119(2)(b) despite the petitioner demonstrating a software-related error and genuine hardship in filing the revised return for AY 2021-22.

HC’s Ruling: The Gujarat High Court held that the petitioner’s explanation was supported by the Chartered Accountant’s affidavit, and there was no reason to doubt the technical glitch that caused the long-term capital loss to be omitted from the uploaded return. The Court explained that Section 119(2)(b) must be interpreted liberally to advance substantial justice, particularly where the assessee gains no advantage from delay and stands to suffer financial prejudice if condonation is denied.

The Court ruled that CBDT ought to have condoned the delay instead of rejecting the application mechanically. Thus, the impugned order was quashed and set aside. The matter was remanded to CBDT to pass a fresh order condoning the delay and completing the exercise within twelve weeks.

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