The Income Tax Appellate Tribunal, Mumbai, has reaffirmed that substantial justice must prevail over technical defaults in tax appeals, particularly when delays arise from extraordinary circumstances like the Covid-19 pandemic and non-receipt of assessment orders. In a significant ruling, the Tribunal set aside the dismissal of an appeal filed 796 days late, directing the Commissioner (Appeals) to adjudicate the matter on merits.
Background & Facts
The Dispute
The appellant, Sharda Marketing, a partnership firm engaged in marketing, filed its return of income for Assessment Year 2017-18 declaring a total income of Rs. 3,200. The case was selected for scrutiny under Section 143(2) of the Income Tax Act, 1961, and the assessment was completed under Section 144 on 23.12.2019, determining total income at Rs. 4,93,32,567. The additions were made on account of cessation of liability under Section 41(1), disallowance of expenses, and excess remuneration to partners.
Key Facts
- The assessee did not receive the assessment order dated 23.12.2019 due to alleged non-delivery.
- The accountant handling the firm’s tax compliance passed away during the peak Covid-19 period.
- The assessee became aware of the assessment only when penalty proceedings were initiated.
- A copy of the assessment order was obtained only after the penalty notice.
- The appeal was filed on 25.02.2022, resulting in a delay of 796 days from the due date of 21.01.2020.
- The delay period included the entire duration of the Covid-19 pandemic, during which limitation periods were statutorily suspended.
Procedural History
- 23.12.2019: Assessment completed under Section 144 by the Assessing Officer.
- 21.01.2020: Deadline for filing appeal before Commissioner (Appeals).
- 25.02.2022: Appeal filed before Commissioner (Appeals) - delay of 796 days.
- 17.09.2025: Commissioner (Appeals) dismissed the appeal in limine for non-condonation of delay under Section 249(3).
- 09.04.2026: Hearing before ITAT Mumbai.
- 20.04.2026: ITAT Mumbai pronounced order setting aside the Commissioner (Appeals) order.
Relief Sought
The assessee sought condonation of the 796-day delay in filing the appeal and restoration of the matter to the Commissioner (Appeals) for adjudication on merits, arguing that the assessment under Section 144 denied it a fair opportunity to present its case.
The Legal Issue
The central question was whether the delay of 796 days in filing an appeal before the Commissioner (Appeals) under Section 249(3) of the Income Tax Act, 1961, could be condoned when the delay occurred partly during the Covid-19 period, the assessment was completed under Section 144 without proper opportunity, and the explanation for delay was plausible and not mala fide.
Arguments Presented
For the Appellant
The authorized representative contended that the delay was neither intentional nor due to negligence. The non-receipt of the assessment order, coupled with the sudden demise of the accountant during the Covid-19 lockdown, constituted unavoidable circumstances. The appellant relied on the Supreme Court’s order in In Re: Cognizance for Extension of Limitation, Suo Motu Writ Petition (C) No. 3 of 2020, which excluded the period of lockdown from limitation computation. It was further argued that since the assessment was made under Section 144, the assessee had no meaningful opportunity to present its case before the Assessing Officer, making dismissal on technical grounds unjust.
For the Respondent
The Departmental Representative supported the Commissioner (Appeals)’s order, asserting that a delay of 796 days was inordinate and that the explanation offered was vague and insufficient to establish sufficient cause under Section 249(3). It was submitted that the assessee had not filed any counter-affidavit or documentary proof to substantiate its claims, and that the Commissioner (Appeals) had rightly applied the law.
The Court's Analysis
The Tribunal examined the nature of the delay, the circumstances surrounding it, and the applicable judicial precedents. It noted that a substantial portion of the 796-day delay fell within the period when the Supreme Court had suspended limitation periods due to the pandemic. The exclusion of this period significantly reduced the effective delay.
"The expression 'sufficient cause' appearing in section 249(3) of the Act should receive a liberal construction so as to advance substantial justice."
The Tribunal emphasized that the assessment was completed under Section 144, which implies the assessee had not participated meaningfully in the proceedings. This deprived the assessee of a fair opportunity at the first stage, making the dismissal of the appeal at the appellate stage on technical grounds doubly unjust.
The Tribunal relied on Collector, Land Acquisition v. Mst. Katiji (167 ITR 471), which holds that when substantial justice and technicalities conflict, justice must prevail. It also cited N. Balakrishnan v. M. Krishnamurthy (1998) 7 SCC 123, affirming that the length of delay is not decisive - the acceptability of the explanation is.
"Unless the cause of delay is not expressly refuted, the stand taken by the appellant cannot be disbelieved."
The Tribunal observed that the Department had not filed any counter-affidavit to rebut the assessee’s explanation. The explanation - non-receipt of order, death of accountant during lockdown, and discovery through penalty proceedings - was deemed plausible and bona fide. The Tribunal concluded that dismissing the appeal without adjudicating substantial additions of over Rs. 4.9 crore was contrary to the principles of natural justice.
The Verdict
The appeal was allowed. The Tribunal set aside the order of the Commissioner (Appeals) dated 17.09.2025, condoned the delay of 796 days, and restored the appeal to the file of the Commissioner (Appeals) with a direction to adjudicate the matter on merits. The assessee was directed to cooperate fully and not seek unnecessary adjournments. The appeal was allowed for statistical purposes.
What This Means For Similar Cases
Delay During Covid Is Not Automatically Inordinate
- Practitioners must now argue that the period of lockdown (March 2020 to June 2021) is statutorily excluded from limitation computation under In Re: Cognizance for Extension of Limitation.
- Any delay falling within this period must be subtracted before assessing whether the remaining delay is inordinate.
- Merely citing Covid as a reason is insufficient - the link between the disruption and the delay must be clearly established.
Section 144 Assessments Demand Greater Scrutiny
- Appeals arising from Section 144 assessments cannot be dismissed on technical grounds without examining the fairness of the original proceedings.
- The absence of opportunity before the Assessing Officer elevates the importance of appellate redressal.
- Tribunals are now more likely to condone delays where the assessment was ex parte and substantial additions were made.
Burden of Rebuttal Lies with the Revenue
- If the Department does not file a counter-affidavit or provide evidence contradicting the assessee’s explanation, the Tribunal may accept the explanation as credible.
- Silence from the revenue cannot be construed as tacit acceptance, but it significantly weakens the case against condonation.
- Practitioners should always request the revenue to file a counter-affidavit and highlight its absence in submissions.
