Sea Side Hotel Private Limited Vs ITO (ITAT Mumbai)
Mistaken Belief About 20% Tax Payment Explains Appeal Delay: ITAT Grants Hearing on Merits
The Controversy
The Mumbai ITAT condoned a 115-day delay in filing an appeal where a hotel company explained that pandemic-related financial distress, coupled with an honest misunderstanding about a supposed 20% payment requirement, had prevented timely filing.
The company believed that it could not institute a valid appeal until it paid 20% of the disputed tax liability. It therefore waited until funds could be arranged, made the payment and filed the appeal on the same day.
Accepting the explanation as bona fide, the Tribunal restored the appeal to the CIT(A) for adjudication on merits. However, the assessee’s separate challenge to reassessment jurisdiction was withdrawn and dismissed.
Addition Based on Alleged Accommodation Entry
The assessee had filed its return declaring a loss of ₹15,95,250.
The Assessing Officer received information that the company had received ₹8,50,000 from RNG Finlease Private Limited, described in the assessment proceedings as a shell company managed and controlled by Shri Naval Kishore Jalan.
A search conducted in Jalan’s case on 21 May 2018 reportedly revealed accommodation-entry activities. His statements referred to transactions involving bogus investments in unquoted shares and bogus long-term capital gains.
During reassessment, the assessee was required to substantiate its transaction with RNG Finlease. According to the assessment order, it failed to explain the receipt satisfactorily. The Assessing Officer consequently added ₹8,50,000 under section 68, completing reassessment under section 147 read with section 144B on 25 March 2022.
The assessee disputed the addition, contending that the receipts were explained and already included in its turnover. It also complained about reliance on unsubstantiated information and the absence of an opportunity to cross-examine the person whose statement was relied upon.
CIT(A) Dismissed the Appeal at the Threshold
The appeal before the CIT(A) was filed 115 days late.
The company attributed the delay to the COVID-19 pandemic and the resulting disruption. The CIT(A), however, did not find sufficient cause and dismissed the appeal in limine, without adjudicating the substantive grounds.
Before the Tribunal, the assessee furnished an affidavit from its director, Shri Ashok Thakur, explaining the circumstances in greater detail.
The affidavit stated that the company operated in the hospitality sector and had completely halted business operations from March 2020 to March 2022 because of national and international travel restrictions.
The prolonged shutdown caused severe financial hardship. The company referred to accumulated carried-forward losses of ₹1,04,67,471 as of March 2021 to explain its financial position.
Honest Misconception Compounded Financial Hardship
The management explained that it had mistakenly understood section 249(4) as requiring payment of 20% of the disputed tax before an appeal could even be filed.
On that understanding, it tried to gather the necessary funds before approaching the appellate authority. The delay was attributed to the time required to arrange those resources during the financial crisis.
The company emphasised that, immediately upon arranging the money, it paid ₹1,21,380 and electronically filed the appeal on that very day.
This sequence was relied upon to demonstrate that the company intended to pursue its appeal and that the delay was neither deliberate nor an attempt to gain an advantage.
Tribunal Adopted a Pragmatic Approach
The Tribunal accepted that the delay arose from COVID-related difficulties and found the explanation justifiable and bona fide.
It observed that “sufficient cause” under section 249(3) should receive a liberal and pragmatic interpretation to advance substantial justice, particularly where the assessee’s conduct does not disclose mala fides or deliberate negligence.
The Tribunal relied on Collector, Land Acquisition v. Mst. Katiji and Others, 167 ITR 471 (SC), emphasising the approach favouring adjudication where sufficient cause explains delayed filing.
It accordingly condoned the 115-day delay and granted the assessee another opportunity to substantiate its substantive grounds.
Merits Restored; Jurisdiction Ground Withdrawn
The Tribunal restored the appeal to the CIT(A) for de novo consideration, requiring a proper and adequate opportunity of hearing. The Revenue did not oppose restoration.
The company was directed to comply with notices and furnish the information sought during the renewed proceedings.
Separately, it withdrew its ground challenging the jurisdiction and legal validity of reassessment. That ground was dismissed as withdrawn. The Tribunal therefore did not decide the objections concerning the reopening threshold or sanction.
The appeal was partly allowed, with the surviving grounds restored for consideration. The Tribunal expressly preserved the CIT(A)’s independence to decide the merits.
Author’s Comments
The decision demonstrates how an honest procedural misunderstanding, supported by financial circumstances and subsequent conduct, can explain delayed filing. The payment and appeal on the same day provided concrete support for the company’s explanation.
However, the order accepted the mistaken belief as a reason for condonation; it did not endorse that belief as a legal requirement.
Equally, condonation did not establish that the ₹8.50 lakh receipt was explained, nor did it invalidate the reassessment. Those distinctions matter when reporting the decision: the company secured a hearing on the surviving merits, while its jurisdictional challenge stood withdrawn.
Cases Discussed
- Collector, Land Acquisition, Anantnag & Anr. Vs Mst. Katiji & Ors. (Supreme Court) — (1987) 167 ITR 471 (SC); (1987) 2 SCC 107. Relied upon for liberal and pragmatic construction of sufficient cause when deciding whether a delayed appeal should be admitted.
FULL TEXT OF THE ORIGINAL ORDER OF ITAT MUMBAI
The instant appeal arising from the appellate order dated 17.04.2026 is preferred by the Assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 147 r.w.s. 144B of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 25.03.2022 for the Assessment Year [A.Y.] 2015-16.
2. The grounds of appeal are as under:-
1. On the facts and circumstances of the case and in law, the Ld. CIT (A), NFAC erred in law and on facts in ignoring the difficulties and bonafide reasons for delay in filing appeal petition. The Ld. CIT(A), NFAC erred in dismissing the appeal petition of the Appellant on the sole ground of lack of sufficient cause for delay in filing the appeal.
2. Whereas, the Ld. CIT (A), NFAC erred in law and on facts in assuming jurisdiction in conducting the reassessment proceedings WHERE the alleged amount escaping assessment was only Rs 8.50 lakhs. The Ld. CIT(A) also failed to appreciate the fact that he Learned AO had obtained the approval/sanction of the Range Head thereby rendering the entire proceedings as invalid and void-ab-initio.
3. On the facts and circumstances of the case and in law, the Ld. CIT (A), NFAC erred in law and on facts in confirming the addition of Rs. 8,50,000 u/s. 68 of the Income Tax Act, 1961 alleged as unexplained cash credits in the Asst. Order u/s. 147 r.w.s 144B of the Act dated 25.03.2022 without appreciating the fact that the receipts stood explained and were declared as a part of its turnover.
4. On the facts and circumstances of the case and in law, the Ld. CIT (A), NFAC erred in law and on facts The AO has passed an order by forming an opinion on unsubstantiated information which has not been confirmed by the appellant as well as no opportunity given to appellant to cross examine such allegations made against them based on alleged statement of an unknown person.
3. The assessee has filed return of income declaring total income of (-) Rs.15,95,250/-. As per information available with the AO, during the year under consideration, the assessee received a sum of Rs.8,50,000/- from a shell company, M/s RNG Finlease Pvt. Ltd. managed and controlled by one Shri Naval Kishore Jalan in whose case, a search & Seizure operation was conducted on 21.05.2018. As a result of search, it was learnt that he was engaged in providing accommodation entry. In his statements, he admitted that he was engaged in providing accommodation entriesi.e. bogus investment in unquoted share, providing bogus LTGC etc.to various beneficiaries. It was found that the assessee had received a sum of Rs.8,50,000/- from RNG Finlease Pvt. Ltd. During the course of reassessment proceedings u/s 148 of the Act, the assessee was required to furnish the details of transactions done with it. However, it could not substantiate the amount of Rs.8,50,000/- received from the said concern. Accordingly, this sum was added back to total income treating it as unexplained cash credits u/s 68 of the Act.
4. The subsequent appeal filed before the ld.CIT(A) was delayed by 115 days. The reasons for such delay attributed to covid pandemicand consequent lock down were not found sufficient by him, who dismissed the appeal in limine.
5. Before us, an affidavit of Sri. Ashok Thakur, Director has been filed stating that the said delay before the first appellate authority was unintentional, non-deliberate, and due to “sufficient cause” arising from severe financial distress and a bona fide misconception of law. The asseessee company operates in the hospitality segment and was forced to completely halt all business operations from March 2020 until March 2022 due to severe global and national COVID-19 travel restrictions. Due to the prolonged shutdown, the company faced extreme financial hardship, accumulating a carried-forward loss of Rs. (1,04,67,471) as of March 2021.The management was under an erroneous but honest assumption that making an ad-hoc statutory payment of 20% of the disputed tax liability was a mandatory prerequisite under Section 249(4) of the Act to even file or prefer a valid appeal petition. The delay occurred solely due to the time required by the pandemic-stressed management to pool together the necessary financial resources to make this 20% payment. The bona fide and diligent intention of the assessee is demonstrated by the fact that the moment the funds were successfully arranged, a payment of Rs. 1,21,380/- was promptly remitted and the first appeal was immediately filed electronically on that very same day. If the delay is not condoned, the assessee would suffer irreparable loss and injury, as an arbitrary addition would be sustained without adjudication on true merits. It is, therefore, prayed that the delay in filing the appeal be condoned and permit the matter to be decided on its legal and factual merits.
6. We have duly considered the above facts and find that the appeal was filed belated due covid and related issues. It is well-settled settled that the expression “sufficient cause” employed in section 249(3) of the Act must receive a liberal and pragmatic construction so as to advance substantial justice, particularly where no mala fide or deliberate negligence is attributable to the assessee. It appears that in the instant case, there was justifiable and bonafide reasons for the delay. In this connection reliance could be placed on the landmark decision of hon’ble Supreme Court which inter alia held in Collector, Land Acquisition v Mst. Katiji And Others- 167 ITR 471 (SC) that “ordinarily, a litigant does not stand to benefit by lodging an appeal late……..Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated….Any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, may be admitted after the prescribed period if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period…. A litigant does not stand to benefit by resorting to delay. In f act, he runs serious risk. Accordingly, we condone the above delay.
6.1 Since the delay stands condoned, in our considered view, the ends of justice would be best served by affording the assessee one more opportunity to substantiate its grounds on merits. Considering all the relevant facts of the case, we are of the view that following the principles of natural justice, it would be fair and judicious to allow a last opportunity of hearing to the assessee to explain the matter before authorities below in the interests of justice. During the hearing, the Bench proposed for restoration of the matter to the ld.CIT(A) for a de novo consideration. The Revenue did not oppose this plea. Thus, in the in the interest of justice, we deem it appropriate to send back the appeal for fresh consideration. The ld. CIT(A) shall give proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice in the set aside remand proceedings for de novo adjudication of the appeal. Needless to state, the assessee will comply with notices and make available any details as deemed fit and sought by the appellate authority. Therefore, ground nos. 1, 3 and 4 are allowed for statistical purpose.
7. It may be stated here that the assessee before us, has requested for withdrawal of ground no.2 challenging the jurisdiction and legal validity of the reassessment proceedings under Section 147 of the Act. The ld.DR did not have any objection to it. Accordingly, the said ground having been withdrawn is dismissed.
8. Before parting with the subject, we would like to make it clear that setting aside the appeal for de novo consideration by us ,should not be construed in any manner affecting the merits of the case for which the ld.CIT(A) is duly empowered to take an independent decision in accordance with the provisions of law.
9. In the result, appeal filed by the assessee is partly allowed.
Order pronounced in the open court on 08/10/2026.
