Delay in Loss Return Condoned as CIRP and Fire Incident Constitute "Genuine Hardship".

Delay in Loss Return Condoned as CIRP and Fire Incident Constitute “Genuine Hardship”.

Issue

Whether the Central Board of Direct Taxes (CBDT) can refuse to condone a delay in filing a loss return, when the delay was caused by extraordinary events beyond the original management’s control, such as a factory fire, and the subsequent initiation of the Corporate Insolvency Resolution Process (CIRP), which suspended the management’s powers?

Facts

The assessee, a public limited company, needed to file its return for AY 2020-21 to claim the carry-forward of business losses and unabsorbed depreciation.
The company experienced a major fire at its manufacturing facility, which led to a severe financial crunch.
Consequently, the company was admitted into the Corporate Insolvency Resolution Process (CIRP), and its Board of Directors was suspended.
The Interim Resolution Professional (IRP) appointed during this period (which also coincided with the Covid-19 pandemic) failed to prepare the books of accounts or file the income tax return.
After a Resolution Plan was approved by the NCLT, a new management (the Resolution Applicant) took control.
This new management immediately discovered the non-filing, got the accounts audited, and filed the return, along with an application under Section 119(2)(b) to condone the delay.
The CBDT rejected this condonation application.

Decision

The High Court quashed and set aside the CBDT’s rejection order and condoned the delay.
It held that the new management acted promptly as soon as it took control.
The court found that not condoning the delay would cause “genuine hardship” to the revived company.
Critically, it ruled that denying the carry-forward of losses would frustrate the very purpose of the NCLT-approved resolution plan, which is designed to give the company a fresh start and make it viable.

Key Takeaways

Insolvency is a “Sufficient Cause”: The initiation of CIRP and the suspension of the original management are extraordinary circumstances that constitute a “genuine hardship” and a sufficient cause for condoning delays.
IRP’s Failure Not Assessee’s Fault: The new management (Resolution Applicant) cannot be penalized for the failures of the IRP, who was in control during the default period.
Purpose of IBC Overrides Procedural Delays: The High Court’s decision gives primacy to the objective of the Insolvency and Bankruptcy Code (IBC), which is the revival of a corporate debtor. Allowing a procedural tax lapse to destroy the financial viability of the revived company would defeat the purpose of the resolution plan.
“Genuine Hardship” Test: The court applied the “genuine hardship” test liberally, recognizing that the circumstances were entirely beyond the assessee’s control.

HIGH COURT OF GUJARAT

Sysco Industries Ltd.

Chairman, Central Board of Direct Taxes

BHARGAV D. KARIA and Pranav Trivedi, JJ.

R/SPECIAL CIVIL APPL. NO. 5190 of 2024

OCTOBER 7, 2025

Vijay H Patel for the Petitioner. Karan G Sanghani and Varun K.Patel for the Respondent.

JUDGMENT

Pranav Trivedi, J.- Heard learned advocate Mr. Vijay H. Patel for the petitioner and learned Senior Standing Counsel Mr. Varun K. Patel for the respondent.

2. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Varun K. Patel waives service of notice of rule on behalf of the respondent.

3. Having regard to the controversy involved which is in a narrow compass, with the consent of the learned advocates for the parties, the matter is taken up for hearing.

4. By this petition under Article 226 of the Constitution of India, the petitioner challenges the order dated 20.11.2023 passed by the respondent under Section 119(2) (b) of the Income Tax Act, 1961 (For Short “the Act”) for condonation of delay in filing the return of income for the Assessment Year 2020-21 and further permit to carry forward the business loss of Rs.2,85,07,369/- and unabsorbed depreciation of Rs.1,10,04,254/-.

5. The brief facts leading to filing of the present petition are as under :-

5.1. The petitioner is a Public Limited Company incorporated under the provisions of the Companies Act, 1956 is inter alia engaged in the business of manufacturing of packaging material and service provider company. The petitioner filed its return of income for Assessment Year 2019-20 and Assessment Year 2020-21 on 26.10.2019 claiming carried forward business loss and unabsorbed depreciation of Rs.26,38,44,793/- and Rs.1,95,20,048/- respectively.

5.2. It was the case of the petitioner that due to the fire that occurred in the manufacturing facility of the Company, which resulted into huge financial as well as certain financial crunch to the petitioner. It is the case of the petitioner that after the incident of fire in the office of the petitioner during the year under consideration, the operational creditor of the Company i.e. M/s. Excel Tubes and Cones Limited preferred an application under Section 9 of the Insolvency and Bankruptcy Code 2016 (for short “the Code, 2016”) against the petitioner for initiation of Corporate Insolvency Resolution Process being Company Petition (IB) No. 241 of 2018 before the National Law Tribunal, Ahmedabad (for short “NCLT”). However, the NCLT admitted the said application vide order dated 19.02.2020 and the entire management of the petitioner Company vested with IRP.

5.3. It was the case of the petitioner Company that being aggrieved by the order dated 19.02.2020, the petitioner Company preferred an appeal before the NCLT, Delhi being Appeal No. 464 of 2020. The NCLT, Delhi quashed and set aside the order passed by the NCLT, Ahmedabad and restored the management by way of order dated 23.09.2024.

5.4. It was the case of the petitioner that in view of the ongoing Covid-19 pandemic in the Country, the management was not able to control the affairs of the petitioner Company and many of the employees of the Company had left and substantial disruption was caused in its operations and therefore, the Company could not prepare the books of accounts and file return of income for the Assessment Year 2020-21.

5.5. It was the case of the petitioner that during Covid-19 pandemic period, another Financial Creditor of the petitioner preferred an application under Section 7 of the Code, 2016 being Company Petition (IB) No. 62 of 2021. However, NCLT, Ahmedabad by order dated 08.09.2021 allowed the application whereby again the management of Board of Director was suspended and Corporate Insolvency Resolution Process came to be initiated.

5.6. Thereafter that during the Corporate Insolvency Resolution Process period, it was pointed out that the statutory duty of the Resolution Professional was to prepare books of accounts and file the return of income. However the same could not be done by the IRP and therefore Resolution Plan was passed by the Committee of Creditor and the matter came to be placed before NCLT for approval under Section 30(6) of the Code, 2016. Thereafter, once again the management was made incharge of the petitioner Company on 01.07.2022.

5.7. It was the case of the petitioner that due to surge in Covid-19 cases and suspension of Board of Directors by NCLT and reduction in the employees and disruption in operation in operation and management, the petitioner was not able to prepare the books of accounts for the Financial Year 2019-20 and Financial Year 2020-21 and as the books of accounts could not be prepared, the assessee was not able to get the books of accounts audited even by the extended due date for filing of return for the Assessment Year 2020-21. Therefore, non-filing of the return of income within the due date under Section 139(1) of the Act was due to genuine hardship caused to the petitioner Company.

5.8. It was the case of the petitioner that no sooner the resolution applicant took over the management, the petitioner preferred an application under Section 119(2) of the Act praying to condone the delay caused in filing the return of income for Assessment Year 2020-21 and Assessment Year 2021-22 on 23.08.2022. It is the case of the petitioner that the petitioner participated in the Corporate Insolvency Resolution Process of the Corporate Debtor by submitting a resolution plan and on 01.07.2022 had taken over one of the petitioner Company. In view of such factual aspect, the financial statement of the petitioner was prepared on 01.11.2022. It was the case of the petitioner that the entire duty of the resolution professional was to maintain the books of accounts and the same being not maintained, there was genuine hardship caused to the petitioner in filing the return of income for the years under consideration.

6. The elaborated factual matrix was presented before the respondent authorities. However, by way of impugned order dated 20.11.2023, the respondent rejected the application preferred by the petitioner under Section 119(2)(b) of the Act, which is impugned in the present writ petition.

7. Learned advocate Mr. Vijay Patel for the petitioner submitted that the respondent authorities have failed to consider the vital aspect of the matter, more particularly, the hardship which the petitioner would be facing as losses are not allowed to be carried forward since the resolution professional could not maintain the books of account which led to filing in income tax return. It was incumbent upon the resolution professional to file the income tax return and the NCLT having approved the resolution plan, the new management of the petitioner company carried out audit for the Assessment Year 2020-21.

7.1. It was further contended that the respondent has failed to consider the various decisions on the the aspect of hardships in relation to condonation of delay and the petitioner prays for allowing the petition.

8. Per contra, learned Senior Standing Counsel Mr. Varun K. Patel for the respondent has supported the findings given by the respondent. It was further submitted that when the new management was restored, the situation could have been controlled and the petitioner had sufficient time and resources to complete the filing of return for the year 2021 and the due date of filing of return was extended till 15.02.2021 and therefore, the claim of delay to Covid pandemic is not adequate.

8.1. It was further submitted that even for the Assessment Year 2021-22, the due date was extended till 15.03.2022 and therefore, there was no genuine hardship for the petitioner in filing the return.

9. Having heard learned advocates for the respective parties and perused the impugned order as well as annexures appended with the petition, two issues are required to be decided i.e. (i) whether the respondent authority has correctly applied the term “genuine hardship” in the facts of the case ? and (ii) whether the resolution plan approved by the NCLT, Ahmedabad provides for any set off or carry forward of the losses of the erstwhile company ?

10. As far as the issue with regard to genuine hardship as covered by various judgments of the Hon’ble Apex Court is concerned, it is required to be noted that in the case of Shailesh Vitthalbhai Patel v. Chief Commissioner of Income Tax [2022] 451 ITR 504 (Gujarat), there was delay of 23 days in filing the return for relevant Assessment Year by the assessee wherein the application for condonation of delay was rejected by the Chief Commissioner under section 119(2)(b) refusing to condone the delay wherein, it was held by this Court that in the matter of condonation of delay where the condonation was to be permitted to avoid genuine hardship, liberal rather than technical approach is expected from the authorities and thus, the impugned order passed by the Chief Commissioner refusing to condone the delay was quashed and set aside. In the present case, it is required to be noted that it is only after the approval of the resolution plan that the present petitioner company came into picture as regards to the management and control over the erstwhile company and having found that the audit was not carried out and the returns were also required to be filed so as to carry forward the losses, the petitioner company immediately got accounts audited and filed the returns.

11. However, in the present case, the books of account not being audited by the IRP it has to be observed that even GST registration came to be cancelled for non-filing of the return for continued period from 23.02.2021 when the new management preferred an appeal under Section 107 of the Code, 2017 and by way of order dated 29.11.2022 the registration of the petitioner was restored under the provisions of the CGST Act.

12. The petitioner company has all the right to carry forward losses if any of the previous year and the respondent authority in failing to allow, would disregard the entire resolution plan which is binding upon them also and as such, this Court has not gone into the aspect whether losses are available or not, but was only concerned with regard to genuine hardship that may be caused to the petitioner. If the delay is not condoned in the facts and circumstances of the present case, more particularly, when we do not find any lapse on the part of the petitioner in filing the return of the concerned Assessment Year, very purpose of resolution plan as approved by the NCLT, Ahmedabad would be frustrated and not condoning the delay would amount to genuine hardship.

13. In the result, the present petition succeeds and the same is accordingly allowed. The impugned order dated 20.11.2023 at Annexure-A to the petition passed by the respondent No.1 -CBDT rejecting an application for condonation of delay filed under section 119(2)(b) of the Act for the Assessment Years 2020-21 and 2021-2022 by the petitioner (Annexure-G collectively) are hereby quashed and set aside. The delay occurred in filing the income tax return for the years 2020-21 and 2021-22 is hereby condoned. The respondent authority to complete the assessment of the petitioner company in accordance with law.

14. Rule is made absolute to the aforesaid extent with no order as to costs.