Professional negligence by a counsel is a valid reason to condone an appeal delay.
Issue
Should a delay in filing an appeal be condoned if the reason for the delay is the professional negligence or oversight of the taxpayer’s authorized representative?
Facts
- An assessee’s appeal before the First Appellate Authority was dismissed solely on the grounds of being filed beyond the prescribed time limit.
- In the application for condonation of delay, the assessee’s counsel filed a sworn affidavit explaining the reason for the delay. He stated that his office had received the assessment order, but it was subsequently misplaced by his staff. This staff member later left the service, and due to this professional lapse, the matter was not followed up properly, causing the appeal to be filed late.
Decision
The Tribunal ruled in favour of the assessee.
- It held that the explanation provided by the counsel, which amounted to a case of professional negligence on the part of his office, constituted a “sufficient cause” for the delay.
- The court accepted the principle that a litigant should generally not be made to suffer due to a bona fide mistake or negligence on the part of their chosen legal representative.
- The delay in filing the appeal was therefore condoned, and the appeal was admitted to be heard on its merits.
Key Takeways
- A Litigant Should Not Suffer for Counsel’s Fault: It is a well-established legal principle that a party that has acted in good faith by entrusting its case to a professional should not be penalized for a procedural default that is attributable to the fault or negligence of that professional.
- “Sufficient Cause” is Interpreted Liberally: The courts interpret the term “sufficient cause” for condoning a delay in a liberal and pragmatic manner, with the primary objective of advancing substantive justice. An affidavit from a professional admitting a lapse is generally considered strong and credible evidence.
- The Goal is a Decision on Merits: The purpose of limitation laws is not to shut out meritorious cases. When a delay is explained by a reasonable and bona fide cause, the courts will almost always condone it to ensure that the appeal is decided on its actual merits rather than being dismissed on a technicality.
A double addition due to a Tax Audit Report error needs fresh adjudication.
Issue
What is the appropriate legal remedy when a taxpayer is subjected to a double addition of the same income during the processing of their return under Section 143(1), where the addition is caused by an inadvertent error in the Tax Audit Report (TAR)?
Facts
- During the automated processing of the assessee’s return by the Centralized Processing Center (CPC), a significant addition was made to the income.
- The assessee explained that this addition was a clear case of double taxation. The amount had already been correctly included in the profit and loss account, but the CPC’s system added it back a second time.
- The root cause of this error was an inadvertent mistake in reporting by the tax auditor in a specific clause of the Tax Audit Report (Form 3CD).
- The court noted that while the primary fault was the auditor’s, the assessee also shared some responsibility because they had digitally signed and approved the incorrect TAR and had also failed to file a revised TAR to correct the mistake after it came to light.
Decision
The court remanded the matter back to the Assessing Officer for a fresh decision.
- It recognized that the addition was a direct result of “technical defects existing in the TAR itself.”
- To ensure that the assessee was not unfairly taxed twice on the same income due to a clear clerical error, the court set aside the addition and restored the matter to the file of the Assessing Officer for a fresh adjudication on the merits.
Key Takeways
- Substance Over Form: A taxpayer’s income must be computed based on the real substance of their financial transactions, not on a clear and demonstrable clerical or technical error that has occurred in a supporting document like a tax audit report.
- CPC’s Limitations: The processing by the CPC is system-oriented and automated. It can sometimes lead to incorrect adjustments when it mechanically acts on incorrect data that is fed into it. The courts will intervene to correct such unjust outcomes.
- The Duty to Mitigate: The court’s observation about the assessee’s own failure to revise the TAR is an important reminder. While the court provided relief, it also highlighted that taxpayers have a responsibility to be diligent and to take corrective steps (like filing a revised report) as soon as they become aware of an error.
- Remand is the Fair Remedy: When an addition has been made based on a clear and undisputed technical error, the fairest and most efficient remedy is to remand the case back to the original authority with a direction to re-examine the issue based on the correct facts.
IN THE ITAT ALLAHABAD BENCH
SPS Automobiles
v.
Income-tax Officer
Udayan Das Gupta, Judicial Member
and Nikhil Choudhary, Accountant Member
and Nikhil Choudhary, Accountant Member
IT Appeal No. 106 (All.) of 2024
[Assessment year 2021-22]
[Assessment year 2021-22]
SEPTEMBER 30, 2024
A. K. Singh, Sr. DR for the Respondent.
ORDER
Udayan Das Gupta, Judicial Member.- This appeal is preferred by the assessee against the order of the Ld JCIT-Appeal – 2, Jaipur, passed u/s 250 of the Act 61, dated 08/05/2024, which has emanated from the order of the CPC, Bangalore, dated 26/10/2022, passed u/s 143(1) of the Act 61.
2. There are six grounds of appeal presented by the assessee in memorandum of appeal which is elaborate in essay form, but in sum and substance, it relates to only two issues;
First there is objection by the assessee, that the appeal before the first appellate authority has been dismissed without adjudication on merits, on the ground that the appeal in form 35 has been filed belatedly and the assessee has not been able to show sufficient reasons or proper reasons for condoning the delay. The assesse has filed written submission to be considered for the hearing and the ld. DR is present for the hearing.
3. It is seen that on the issue relating to delay in filing form 35, the order u/s 143(1) is dated 26/10/2022, and as such the due date of filing form 35 was 25/11/2022 (within 30 days), but the same has been filed on 08/02/2024, belated by approximately 440 days (four hundred forty days). The Advocate of the assessee Mr Dinesh Mishra, (LLB), enrolled with Bar Council of UP, has filed a sworn affidavit, dated 14th Feb 2024, that he was the appointed lawyer dealing with the tax matters of the assessee firm, and was entrusted with the responsibility of filing this appeal before CIT (A), and his email id was recorded in income tax portal of the assessee. The intimation order u/s 143(1), of the Act was received by him but the same has been misplaced and forgotten by his staff who left the service and the same was not followed up properly, and he also admits that the assessee was not informed of the said default on his part, and after remembering the same, the appeal has been prepared and filed on 8th Feb 2024, which is belated by four hundred and forty days.
4. We find that the entire explanation of the Advocate Mr Dinesh Mishra, tantamount to professional negligence and any adverse order passed by this tribunal in the matter, will only effect the assesse, and not the counsel.
4.1 At this stage we refer to the observation of the Hon’ble Apex court in the case of Rafiq v. Munshilal AIR 1981 SC 1400, to be our guiding light in the present matter.
4.2 The relevant portion is reproduced:
“The Supreme Court in the matter of Rafiq and another (supra) has held that a litigant cannot be made to suffer injustice merely because of the default of his chosen Advocate by observing that :- “3. The disturbing feature of the case is that under our present adversary legal system where the parties generally appear through their advocates, the obligation of the parties is to select his advocate, brief him, pay the fees demanded by him and then trust the learned Advocate to do the rest of the things. The party may be a villager or may belong to a rural area and may have no knowledge of the court’s procedure. After engaging a lawyer, the party may remain supremely confident that the lawyer will look after his interest. At the time of the hearing of the appeal, the personal appearance of the party is not only not required but hardly useful. Therefore, the party having done everything in his power to effectively participate in the proceedings can rest assured that he has neither to go to the High Court to inquire as to what is happening in the High Court with regard to his appeal nor is he to act as a watchdog of the advocate that the latter appears in the matter when it is listed. It is no part of his job. Mr A.K. Sanghi stated that a practice has grown up in the High Court of Allahabad amongst the lawyers that they remain absent when they do not like a particular Bench. May be, we do not know, he is better informed in this matter. Ignorance in this behalf is our bliss. Even if we do not put our seal of imprimatur on the alleged practice by dismissing this matter which may discourage such a tendency, would it not bring justice delivery system into disrepute. What is the fault of the party who having done everything in his power expected of him would suffer because of the default of his advocate. If we reject this appeal, as Mr A.K. Sanghi invited us to do, the only one who would suffer would not be the lawyer who did not appear but the party whose interest he represented. The problem that agitates us is whether it is proper that the party should suffer for the inaction, deliberate omission, or misdemeanour of his agent. The answer obviously is in the negative. May be that the learned Advocate absented himself deliberately or intentionally. We have no material for ascertaining that aspect of the matter. We say nothing more on that aspect of the matter. However, we cannot be a party to an innocent party suffering injustice merely because his chosen advocate defaulted. Therefore, we allow this appeal, set aside the order of the High Court both dismissing the appeal and refusing to recall that order. We direct that the appeal be restored to its original number in the High Court and be disposed of according to law.”
4.3 Respectfully, being enlightened by the observation of the Hon’ble court, we condone the delay, in filing of this appeal before the first appellate authority, due to the default committed by his appointed lawyer.
5. The second issue relates to the addition of Rs. 54,17,992/- to the returned income of Rs.3,54,460/-, by the CPC, Bangalore, in assessment u/s 143(1) of the Act 61, on the basis of particulars contained in the tax audit report (TAR) uploaded in the on line portal in form 3 CB / CD, by the tax auditor, for the assessment year under appeal.
6. The brief facts are that the assessee is a partnership firm engaged in the business of automobile dealership (purchase and sale of tractors). Regular return has been filed along with uploaded copies of audited accounts and tax audit report, disclosing a total income of Rs. 3,54,460/-, complete in all respects, and the said return has been assessed by CPC, u/s 143(1) on a total income of Rs. 57,72,460/-, the summary of which is as under:
| Income | ||
| Heads | As per Return: ITR-5 | As per order u/s 143(1): |
| Business: | 68,844.00 | 54,86,836.00 |
| Other Source Income : | 2,85,619.00 | 2,85,619.00 |
| Total Income | 3,54,463.00 | 57,72,455.00 |
| Tax Payable | 1,06,338.00 | 17,31,738.00 |
7. It has been explained by the assessee by way of written submission (on record) that certain figures which are considered and are duly reflected in the credit of audited profit and loss account, and are already taken into account for arriving at the taxable profits of the assessee firm, has been added back by the system, (for the second time) while processing (assessing) the return u/s 143(1) of the Act 61, by CPC, Bangalore, on the basis of incorrect reporting of the tax auditor, in TAR, in clause No 16(d) of Form 3 CD.
The summary of the same are as follows:
| Commission | 4,66,301.00 |
| Interest Income | 2,85,619.00 |
| Any other Income | 35,23,731.00 |
| Any other Income | 11,42,342.00 |
| 54,17,993.00 |
8. The claim of the assessee is that the above figures are duly reflected in audited profit and loss account (credit) and are recorded in regular books of accounts, and has already been considered for the purpose of arriving at the ultimate taxable profits, as returned by the assessee.
9. The tax auditor has wrongly mentioned the above figure in clause 16(d) of the audit particulars in form 3CD, which is actually meant for “Amounts not credited to the profit and loss account “
10. In the instant case the since the amounts are already credited to the profit and loss account for the year under appeal, the correct reporting of the tax auditor in the said column should have been NIL or Zero.
11. As such on account of this inadvertent error on the part of the tax auditor resulting in incorrect reporting in the TAR, the said amount has been doubly taxed, because processing under section 143(1) is system oriented and the same is programmed to automatically identify and process the data reported in TAR.
12. The Ld. DR, in course of hearing relied on the order of the first appellate authority but was also of the opinion that the amount already disclosed in audited accounts has been doubly added back due to wrong reporting.
13. We have heard the arguments of the Ld. DR and considered the written submission of the assessee and materials on record, and we are of the opinion that on account of inadvertent error in reporting by the tax auditor in form 3 CD this addition has been made while framing the assessment order u/s 143(1) by CPC, Bangalore, which is system oriented.
14. At the same time we also put it on record that, apart from the tax auditor, there was error on the part of the assessee also, because the assessee has approved the uploaded TAR, by his digital signature, at a subsequent date, thereby validating the contents of the TAR, (uploaded by the CA).
15. Moreover, when this error has already come to light, it was incumbent on the part of the assessee and his auditor, to have revised the TAR, by filing a revised report, at a subsequent date, which has also not been done in the instant case.
16. Technically, this matter should go back to the first appellate authority to take a decision on merits of the case, but considering the technical defects existing in the TAR itself, we are of the opinion that the matter needs verification by the assessing officer at the ground level with respect to the audited accounts uploaded for the year under appeal, in consultation with the figures contained in the return in ITR – 5, supported by books of accounts vis a vis the contents of the TAR existing in the portal, and all these enquiry and verification can only be done by the AO.
17. As such in the interest of justice, and to avoid unnecessary litigation, we think fit to remand the matter back to the files of the AO, for fresh adjudication on merits of the case in light of our discussion contained in this order, after allowing adequate opportunity of hearing to the assessee.
18. In the result, the appeal of the assessee bearing ITA No.106/Alld/2024 is allowed for statistical purposes.