Unawareness of TDS is a Valid Reason to Condone ITR Filing Delay.

Issue

Can an application for condonation of delay in filing an income tax return be rejected when the taxpayer was genuinely unaware of the Tax Deducted at Source (TDS) on an award for land acquisition, especially when the tax authority decides the application without granting a hearing and by delving into the merits of the transaction itself?

Facts

The assessee’s land was acquired, and he received a compensation award in 2022.
TDS was deducted on this award under Section 194LA, but the assessee was unaware of this deduction.
Having no other taxable income, the assessee had never filed an income tax return before.
In 2024, upon gaining employment and registering his PAN on the income tax portal for the first time, the assessee discovered the TDS reflected in his Form 26AS.
He promptly filed an application under Section 119(2)(b) to condone the delay and permit him to file the return for AY 2022-23 to claim the TDS refund.
The Principal Commissioner rejected this application without providing a personal hearing and by questioning the genuineness and quantum of the land acquisition award.

Decision

The High Court ruled in favour of the assessee.
It held that the assessee had a genuine and sufficient reason for the delay, as it was undisputed that he was not aware of the TDS deduction until he accessed his Form 26AS for the first time.
The court found that the Principal Commissioner had erred by going into the merits of the transaction (the land acquisition award) instead of confining his inquiry to the reasons for the delay in filing the return.
The Principal Commissioner was directed to condone the delay and allow the assessee to file the return.

Key Takeaways

Lack of Awareness is a Sufficient Cause: A taxpayer’s genuine lack of knowledge about a TDS deduction can constitute a reasonable cause for condoning a delay in filing an ITR, particularly for individuals not previously in the tax system.
Scope of Condonation Inquiry is Limited: The authority deciding a condonation application should focus solely on whether the reasons for the delay are genuine and sufficient. They should not prejudge or examine the merits of the claim that will be made in the tax return.
Natural Justice is Mandatory: Passing an order without giving the assessee an opportunity to be heard is a violation of the principles of natural justice and can be a ground for setting aside the order.

HIGH COURT OF GUJARAT

Navinbhai Bhagubhai Patel

Union of India

BHARGAV D. KARIA and Pranav Trivedi, JJ.

R/SPECIAL CIVIL APPLICATION NO. 10486 of 2025 and others

OCTOBER 7, 2025

Tushar Hemani, Sr. Adv. and Naitik N. Shah for the Petitioner. Karan G. Sanghani and Ms. Vyoma K. Jhaveri for the Respondent.

JUDGMENT

Pranav Trivedi, J.- Heard learned Senior Counsel Mr. Tushar Hemani for learned advocate Mr. Naitik Shah for the petitioner, learned advocate Ms. Vyoma Jhaveri for the respondent No.1 and learned Senior Standing Counsel Mr.Karan Sanghani for the respondent No.2.

2. Rule, returnable forthwith. Learned advocate Ms. Vyoma Jhaveri waives service of notice of rule for and on behalf of respondent No.1 and learned Senior Standing Counsel Mr.Karan Sanghani waives service of notice of rule for and on behalf of the respondent No.2.

3. Considering the controversy involved which is in narrow compass, the matters are heard finally with the consent of the learned advocates of the respective parties. As all the matters have common issue, SCA No. 10486 of 2025 is being considered as lead matter for recording the facts.

4. By way of this petition, the petitioner has challenged the order dated 30.7.2024 passed by the Principal Commissioner of Income Tax, Surat-1 (hereinafter referred to as ‘the respondent’) while exercising jurisdiction under Section 119(2)(b) of the Income Tax Act, 1961 (for short ‘the Act’) rejecting the application dated 29.2.2024 filed by the petitioner to condone the delay and for permitting to file the return of income for the Assessment Year 2022-23.

5. The brief facts of the case are that the petitioner is an individual and had no taxable business income till the year 2022-23. Therefore, he was not required to file Income Tax Return till A.Y. 2022-23, as per the provision of Section 139(2) of the Act.

5.1 It is the case of the petitioner that his land bearing Survey No. 20/1 situated at Hazira Village, Surat was acquired under the provision of Land Acquisition Act, 1894. The Land Acquisition Officer had issued a regular award on 21.1.2009. The petitioner had not accepted the said award and initiated legal proceedings before this Court seeking additional compensation. Consequently, a settlement agreement was executed between the petitioner and acquiring bodies on 16.2.2022 resulting the petitioner receiving a compensation to the tune of Rs.62,66,967/-. On account of the compensation amount, the acquiring company Ancelor Mittal Nippon Steel India Limited also deducted tax at source to the tune of Rs.6,66,667/- under the provisions of Section 194LA of the Act. This was duly reflected in Form 26AS on 5.6.2022. The acquiring company, however, failed to give Tax Deduction at Source (TDS) Certificate in Form 16A to the petitioner and never informed the petitioner about the deduction of tax at source.

5.2 It is the case of the petitioner that the petitioner started working at AMNS SHARED SERVICES LIMITED in the Financial Year 2023-24 and because of his new job, he required service of Chartered Accountant to file return of income. On 26.2.2024, the Chartered Accountant of the petitioner registered the petitioner’s Permanent Account Number (PAN) for the first time on Income Tax Website. It was at this stage the petitioner found out that Tax Deduction at Source was showing up in their tax statement (Form 26AS). In view of this juxtaposition, the petitioner requested the relevant tax authority seeking permission to file his Income Tax return with delay condonation application invoking Section 119(2)(b) of the Act.

5.3 Consequent to the application preferred by the petitioner, the respondent issued a letter to the petitioner on 14.6.2024 requesting documentation and clarification concerning the filing of the Income Tax Return under Section 119(2)(b) of the Act for the A.Y 2022-23. Pursuant to the intimation by the respondent, the petitioner requested for adjournment on 14.6.2024. It is the case of the petitioner that he duly submitted a reply along with requisite documents on 8.7.2024. However, without providing any opportunity of being heard, the respondent passed impugned order under Section 119(2)(b) of the Act on 30.7.2024 rejecting the request of the petitioner to condone the delay in filing the Income Tax Return for A.Y. 2022-23.

5.4 It was the case of the petitioner that the respondent has examined the matter on merits and ignored the fact that the petitioner was prevented by genuine hardship. It was duly explained in the application for condonation of delay. Despite such fact, the respondent authorities asked for further facts with regard to genuineness of the transaction of the receipt of the compensation by the petitioner. On such facts, the order passed by the respondent under Section 119(2)(b) of the Act is impugned in the present petition.

6. Learned Senior Counsel Mr. Tushar Hemani submitted that the the Respondent No.2 failed to consider the facts of the case that the petitioner filed his return of income for the first time for the Assessment year 2022-23 claiming that the compensation received against the land acquisition is in capital receipt in nature and claiming of refund for TDS deducted by the Arcelor Mittal Nippon Steel India Limited U/s 194LA of the Act for Rs. 6,67,667/- and prior to filing this return the Petitioner did not file any return for any assessment year.

6.1 Mr. Hemani further submitted that the rejection Order issued by Respondent No.2 contravenes the principles of natural justice, as it was passed without affording the petitioner an opportunity to be heard prior to the issuance of said adverse order. The Provisions of the section 119(2)(b) states that,

“The board may, if it consider it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorise any income tax authority, not being a commissioner of (appeals) to admit an application or claim for any exemption, deduction, refund or any other relief under this act after the expiry of the period specified by or under this act for making such application or claim and deal with the same on merits in accordance with law.”

Hence, the section gives the power to income tax authority to admit any application or claim for any exemption, deduction, refund, or any other relief under the Act after expiry of period specified and deal with the same on merits. However, the petitioner has not been provided any opportunity of being heard to substantiate its reason for delay and justify his genuine hardship, hence, the order passed U/s 119(2)(b) of the Act is liable to be quashed.

6.2 Learned Senior Counsel further submitted that the respondent No.2 failed to consider the facts and genuine hardship of petitioner that the petitioner was not assessed to tax upto Assessment Year 2022-23 and for the relevant year after deduction of TDS, he was under bona fide belief that the return of income was not required to be filed, as the entire income which has been received is considered to be capital receipt and no income tax was chargeable. After realizing mistake, the Petitioner filed his return voluntarily claiming refund of TDS on 29/02/2024, prior to the issuance of any notices under section 142/148 of the Act. Therefore, the order passed by the Respondent No. 2 deserves to be quashed and set aside.

7. Per contra, learned Senior Standing Counsel Mr. Karan Sanghani relying on the affidavit-in-reply filed by the respondent submitted that the powers under Section 119(2) (b) of the Act has been exercised diligently and judiciously after considering the material available on record. There is no flaw in the decision making process as well as no violation of the principles of natural justice and, therefore, the petition is misconceived and is required to be dismissed. It was further submitted that provisions of Section 119(2)(b) of the Act clearly mandates that grounds for condonation of delay demonstrate genuine hardship. The petitioner’s claim of not filing a return due to perceived non-taxable income does not align with the established criteria for “genuine hardship” as envisioned by the legislative intent. The petitioner was afforded ample opportunity to present his case through communication dated 18.6.2024. The communication explicitly requested the submission of necessary details, documents and supporting evidence in support of his claim of genuine hardship and rationale for not filing the return, computation of total income and relevant documents justifying his eligibility. As the petitioner during the Section 119(2)(b) proceedings, failed to furnish any cogent reason establishing genuine hardship, the authority correctly rejected the application. On the basis of such submissions, Mr. Sanghani has requested to dismiss the present writ petition.

8. Having heard learned advocates for the respective parties and having perused the material on record, it is not in dispute that the petitioner was not having any taxable income till A.Y. 2022-23. Subsequent to the land acquisition award, the petitioner was not aware about the Tax Deduction at Source, only being employed in the very same year and on acquiring Permanent Account Number, the petitioner came to be aware about tax deducted at source. It is also not in dispute that the petitioner was not heard and the respondent had gone into merits of the genuineness of the transaction and the quantum of award. The issue of genuine hardship has come up for consideration in numerous judgments before the Hon’ble Apex Court and before this Court. The term ‘genuine’ means not fake or counterfeit, real, not pretending (not bogus or merely a ruse).However, ‘genuine hardship’ means genuine difficulty. In the instant case, the respondent was required to consider the facts of the case by condoning the delay and allowing the petitioner to file Income-tax return for the A.Y 2022-23. The provisions of Section 119(2)(b) of the Act are meant for redressal of the grievance and hardships caused to the petitioner as held by the Hon’ble Madras High Court in case of R. Seshammal v. ITO [1999] 237 ITR 185 as under:

“This is hardly the manner in which the State is expected to deal with the citizens, who under anxiety to comply with all the requirements of the Act pay monies as advance tax to the State, even though the monies were not actually required to be paid by them and thereafter seek refund of the monies so paid by mistake after the proceedings under the Act are dropped by the authorities concerned. The State is not entitled to plead the hypertechnical plea of limitation in such a situation to avoid return of the amounts. Section 119 of the Act vests ample power in the Board to render justice in such a situation. The Board has acted arbitrarily in rejecting the petitioner’s request for refund.

9. Considering the above facts as well as the settled legal position, the petitions succeed and accordingly allowed. The petitioner shall make a fresh Application for condonation of delay and the respondent may consider such Application in light of the observations made in this Order within a period of twelve weeks from the date of filing of such Application by the petitioner. Rule is made absolute to the aforesaid extent. No orders as to cost.