2025 (2) TMI 653 - HC - Income Tax

Disallowance of expenses - assessee has not filed the IT returns and the audit report within the due date - HELD THAT - Reports were filed on 14.02.2021 and the due date for filing the reports u/s 139 and audit report was on 30.09.2020 and the above due dates were extended due to Covid according to TOLA Act till 31.03.2021. In the present case the reports as well as the audit reports were filed on 14.02.2021. Therefore the returns were filed on time in accordance with the provisions of Section 139 of the Income Tax. By citing the reasons of delay without considering the notification issued by the Central Board of Direct Taxes (CBDT) for extending time limitation for filing of report and returns before 31.03.2022 the impugned order came to be passed by disallowing the expenses and consequential demand was also made against the petitioner. Hence the impugned order is set aside and a direction is given to the respondent to remove the consequential demand against the petitioner and open the E portal for uploading the reports if any.

Summary

The issues presented and considered in the judgment are as follows:1. Whether the impugned order disallowing expenses and issuing a consequential demand against the petitioner for the Assessment Year 2020-21 is valid.2. Whether the petitioner's failure to file IT returns and audit reports within the due date due to the COVID-19 pandemic justifies the disallowance of expenses and consequential demand.Issue-wise detailed analysis:Issue 1:Relevant legal framework and precedents:- Section 139 of the Income Tax Act- The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA Act)Court's interpretation and reasoning:- The petitioner failed to file IT returns and audit reports within the due date citing the COVID-19 pandemic as the reason.- The respondent disallowed expenses and issued a consequential demand against the petitioner.- The respondent referred to the provisions of Section 12A(1)(b) of the Income Tax Act regarding the filing of audit reports.- The government extended time limits for filing reports and returns due to the pandemic.Key evidence and findings:- The reports and audit reports were filed on 14.02.2021.- The due dates for filing reports were extended till 31.03.2021 due to COVID-19.Application of law to facts:- The court found that the reports were filed on time according to the extended due dates.- The impugned order disallowing expenses and consequential demand was based on reasons of delay without considering the notification extending time limitations.Conclusions:- The impugned order disallowing expenses and issuing a consequential demand against the petitioner was set aside.- The respondent was directed to remove the consequential demand and open the E portal for uploading reports.Significant holdings:- "Therefore, the returns were filed on time in accordance with the provisions of Section 139 of the Income Tax."- The impugned order disallowing expenses and consequential demand was set aside.Core principles established:- Compliance with extended due dates due to COVID-19 pandemic is considered valid for filing reports and returns.- Failure to consider government notifications extending time limitations may result in the reversal of decisions disallowing expenses.Final determinations on each issue:- The impugned order disallowing expenses and consequential demand was set aside.- The petitioner's filing of reports within the extended due dates was considered valid.Overall, the court found in favor of the petitioner, setting aside the impugned order and directing the respondent to remove the consequential demand against the petitioner.