The ITAT Nagpur has set a significant precedent by condoning a delay of over four years in filing income tax appeals, holding that bonafide reliance on erroneous legal advice constitutes sufficient cause under the law. This decision reinforces the principle that technicalities must not override substantial justice when the taxpayer acts in good faith.
Background & Facts
The Dispute
The assessee, Sanjay Shankarrao Jadhao, filed four appeals before the Income Tax Appellate Tribunal (ITAT) Nagpur, challenging orders of the Commissioner of Income Tax (Appeals) dated 03.04.2025 for assessment years 2018-19 to 2021-22. The core dispute centered on the disallowance of deduction claimed under Section 80IA of the Income Tax Act, 1961, relating to income from wind power generation business carried out under the trade name M/s. Jadhav Icons. The Assessing Officer (AO) made an adjustment of Rs. 29,62,590/- in the intimation issued under Section 143(1), denying the deduction on the ground that there was no positive income under the head 'business and profession' in the respective assessment years.
Key Facts
- The assessee commenced wind power generation activities in the financial year 2005-06 and claimed deduction under Section 80IA for A.Y. 2018-19 to 2021-22.
- Intimation under Section 143(1) for A.Y. 2018-19 was issued on 01.03.2019, disallowing the deduction and making an adjustment of Rs. 29,62,590/-.
- No appeal was filed against this intimation, based on advice from a tax consultant that the claim was not viable due to absence of positive business income.
- Similar non-filing of appeals occurred for A.Y. 2019-20, 2020-21, and 2021-22, following the same advice.
- In A.Y. 2021-22, a demand was raised by adjusting prior year refunds, prompting the assessee to consult new counsel in the second week of February 2024.
- On legal advice received in February 2024, the assessee discovered that the issue was squarely covered by the Supreme Court’s decision in CIT v. Reliance Energy Limited [441 ITR 346 (SC)], which held that Section 80IA deduction is available even if the business income is offset by other losses, provided the eligible undertaking exists.
- Appeals for all four assessment years were filed on 21.02.2024, resulting in a delay of 1789 days for A.Y. 2018-19 and lesser delays for subsequent years.
- The assessee filed applications for condonation of delay before the CIT(A), which were rejected on technical grounds.
Procedural History
- 01.03.2019: Intimation under Section 143(1) issued for A.Y. 2018-19, disallowing Section 80IA deduction.
- 21.02.2024: First appeal filed before CIT(A) for A.Y. 2018-19 (delay: 1789 days); appeals for subsequent years filed on same date.
- 03.04.2025: CIT(A) dismissed all four appeals summarily for non-condonation of delay, without adjudicating merits.
- 24.02.2026: Physical hearing before ITAT Nagpur.
- 24.03.2026: ITAT Nagpur pronounced order.
The Parties' Positions
For the Assessee
The assessee contended that the delay was not deliberate or mala fide, but arose from genuine reliance on incorrect advice from a tax consultant. He submitted that the legal position was clarified only after the Supreme Court’s ruling in Reliance Energy Limited, and that the intimation under Section 143(1) did not even compute a variance, indicating the adjustment was procedurally flawed. He relied on multiple precedents including Vijay Vishin Meghani v. DCIT, Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi, and Anil Kumar Nehru to establish that bonafide reliance on professional advice constitutes sufficient cause for condonation.
For the Revenue
The Senior Departmental Representative conceded that delay may be condoned and the matter restored to the CIT(A), but did not file a written synopsis despite being granted liberty to do so.
Relief Sought
The assessee sought:
- Condonation of delay in filing appeals for all four assessment years.
- Restoration of appeals to the file of the CIT(A) for adjudication on merits.
- Consideration of the Supreme Court’s decision in CIT v. Reliance Energy Limited [441 ITR 346 (SC)] while deciding the claim under Section 80IA.
- Opportunity to file fresh submissions to substantiate eligibility for deduction.
The Legal Issue
The central question was whether delay in filing an appeal under Section 250 of the Income Tax Act can be condoned when the assessee acted in bonafide reliance on incorrect legal advice from a tax consultant, particularly where the underlying legal position was later clarified by the Supreme Court.
Arguments Presented
For the Appellant/Petitioner
The assessee’s counsel argued that the delay of 1789 days was not due to negligence or mala fide intent, but stemmed from a genuine misunderstanding of the law by a professional consultant. He cited Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi [AIR 1979 SC 166], where the Supreme Court held that a litigant acting on professional legal advice, even if erroneous, has a valid cause for condonation. He further relied on Vijay Vishin Meghani v. DCIT [2017] 86 taxmann.com 98 (Bombay), where the Bombay High Court held that the Tribunal erred in refusing condonation based on wrong advice. He emphasized that the intimation under Section 143(1) did not compute any variance, indicating the adjustment was ultra vires the scope of the provision. He also cited Jaikishan Samitrai Ganwani (Pune Tribunal) where delays of over 1200 days were condoned on similar grounds.
For the Respondent/State
The Revenue did not contest the legal principles cited by the assessee. The Senior Departmental Representative acknowledged the possibility of condonation and offered no written rebuttal, effectively conceding the issue on procedural grounds.
The Court's Analysis
The ITAT observed that the delay of 1789 days was substantial, but the circumstances surrounding it were exceptional. The Tribunal noted that the assessee had not acted with negligence or indifference; rather, he had relied on professional advice, which turned out to be incorrect. The Court emphasized that the intimation under Section 143(1) did not contain any computation of variance, suggesting the adjustment was made without proper application of mind, and thus, the assessee had reasonable grounds to believe the matter was not appealable.
"Legal advice tendered by professional and the litigant acting upon it, one way or other could be a sufficient cause to seek condonation of delay."
The Tribunal relied on the Supreme Court’s decision in Concord of India Insurance Co. Ltd. v. Smt. Nirmala Devi, affirming that the law must not penalize a taxpayer for acting in good faith on professional counsel. It further cited Vijay Vishin Meghani, where the High Court held that refusal to condone delay under such circumstances is unjust. The Tribunal also invoked the well-established principle in limitation law that when technical considerations clash with substantial justice, the latter must prevail.
The Court found that the assessee’s conduct was entirely bonafide, and the delay was only rectified upon obtaining correct legal advice after the Supreme Court’s ruling in Reliance Energy Limited. The CIT(A) had dismissed the appeals without adjudicating any ground on merits, which the Tribunal found legally untenable. The ITAT held that the matter must be restored to the CIT(A) for fresh adjudication, with the AO required to consider the binding precedent and afford the assessee a fair opportunity to substantiate his claim under Section 80IA.
The Verdict
The ITAT Nagpur allowed all four appeals for statistical purposes. The delay in filing appeals for all assessment years was condoned. The orders of the CIT(A) dated 03.04.2025 were set aside. The appeals were restored to the file of the CIT(A) for fresh adjudication on merits, with directions to consider the Supreme Court’s decision in CIT v. Reliance Energy Limited [441 ITR 346 (SC)]. The CIT(A) was directed to afford the assessee a fair opportunity to file fresh submissions to substantiate his claim under Section 80IA.
What This Means For Similar Cases
Wrong Legal Advice Can Justify Delay Condonation
- Practitioners must now argue that reliance on professional tax advice, even if erroneous, constitutes sufficient cause under Section 250 for condonation of delay.
- The burden shifts to the Revenue to prove mala fide intent or gross negligence; mere delay is not fatal.
- Taxpayers who act in good faith and correct their position upon obtaining accurate legal advice are protected under the doctrine of substantial justice.
Section 143(1) Adjustments Require Scrutiny
- Adjustments under Section 143(1) must be computed and communicated with clarity; non-computation of variance may indicate procedural invalidity.
- Taxpayers may challenge disallowances under Section 80IA even if the intimation does not explicitly state a variance, provided the legal position is clarified by higher courts.
- AO’s must not make mechanical adjustments without applying the law as interpreted by the Supreme Court.
Precedent-Based Appeals Are Now Viable
- When a higher court clarifies a legal position, taxpayers may file belated appeals if they were previously misled by incorrect advice.
- Tribunals are now more likely to restore cases to lower authorities for merits-based adjudication when the legal landscape has shifted.
- Practitioners should document all legal advice received and retain records of consultations to substantiate bonafide reliance in future delay applications.
