Madras HC Declines to condone 2139-Day Delay Caused by Negligence

Siva Industries and Holdings Ltd. Vs ACIT (Madras High Court)

Madras High Court has dismissed a petition filed by Siva Industries and Holdings Ltd. (SIHL) seeking condonation of a 2139-day delay in filing an appeal against the Income Tax Appellate Tribunal (ITAT) order related to the assessment year 2010-11. The court found the reasons provided by the petitioner to be unconvincing and lacking bonafide, ultimately ruling that negligence was the primary cause of the delay. The case underscores the judiciary’s strict stance on procedural delays, particularly in tax matters.

SIHL contended that it became aware of the ITAT’s erroneous dismissal of its appeal as a repetitive case only upon receiving another ITAT order in August 2022. Additionally, it claimed that an oversight by the litigation officer and financial distress due to insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) contributed to the delay. However, the court noted contradictions in these claims, pointing out that SIHL had already attempted to challenge the ITAT order through a miscellaneous petition in 2017, demonstrating prior awareness of the issue.

In rejecting the petition, the High Court relied on judicial precedents emphasizing that condonation of delay requires proof of diligence and genuine difficulties. The court cited Basawaraj v. Special Land Acquisition Officer (2013) 14 SCC 81, which held that “sufficient cause” must be genuine and not a mere pretext to cover negligence. The court also referred to Ajay Dabre v. Pyare Ram 2023 SCC Online SC 92, which reiterated that inordinate delays without valid reasons should not be condoned.

The ruling highlights the judiciary’s reluctance to condone excessive delays in tax litigation unless compelling reasons are demonstrated. The decision reaffirms that procedural compliance is crucial and that taxpayers must exercise due diligence in pursuing their legal remedies. SIHL’s failure to act promptly, despite multiple opportunities, led to the rejection of its appeal, reinforcing the principle that courts will not entertain delays arising from negligence.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

Heard both sides and persued the materials available on record including the counter affidavit filed by the respondent / Department.

2.  The present civil miscellaneous petition has been filed to condone the delay of 2139 days in filing the Tax Case Appeal against the order of the Income Tax Appellate Tribunal, Chennai ‘D’ Bench in ITA 687/MDS/2015 dated 07.10.2016 for the Assessment Year 2010-2011.

3. Opposing the condone delay petition, the respondent / Department filed a counter affidavit dated 22.06.2023, stating that the explanation putforth by the petitioner cannot be accepted as the assessee company had filed several appeals in the past and is very much aware of the procedures involved in filing of appeals and the said reason is not tenable. It is also stated in the counter affidavit that of 2139 days in filing the appeal is enormous and the assessee had not come forward with valid explaination and hence, the petition to condone the delay is liable to be dismissed.

4. We have perused the affidavit filed in support of the petition to condone the delay, wherein, two reasons have been set out, viz.,

i) That the petitioner came to know that the Tribunal erred in dismissing the appeal in ITA 687/MDS/2015 as being repetitive, only on receipt of the order of Income Tax Appellate Tribunal (in short “ITAT”) dated 12.08.2022, involving the same issue for other years.

ii) That the officer assigned with the litigation work while forwarding the common order dated 07.10.2016 had inadvertendly left out T.A.No.687/Mds/2015 misunderstanding it to be repetitive appeal, while challenging other orders in I.T.A.Nos.1039/Mds/2014,2108/Mds/2012 and 884/Mds/2015. Thereafter, the petitioner faced severe financial crisis which led to proceedings being initiated under Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC”) before National Company Law Tribunal (hereinafter referred to as “NCLT”) which was carried by way of appeal to the Hon’ble Supreme Court and the petitioner thus lost attention of the fact that ITA 687/MDS/2015 also needs to be challenged. That apart, it was submitted that a number of employees had left the petitioner organisation and the petitioner was thus unable to follow the case.

5. Before we proceed to deal with the reasons stated in support of this petition to condone the delay, it may be relevant rather necessary to have a look at the history of the litigation. The petitioner viz., M/s. Siva Ventures Limited (hereinafter referred to as “SVL”) merged with M/s. Siva Industries and Holdings Limited (hereinafter refered to as “SIHL”) (formely known as Sterling Infotech Limited) on 13.09.2013 w.e.f. 01.04.2011. The petitioner filed its original return of income for the Assessment year 2010-2011 on 28.09.2009 along with details of International Transactions entered with Associate Enterprises (hereinafter referred to as “AE”). The petitioner’s return was selected for scrutiny and notice under Section 143 (2) of the Income Tax Act, 1961 (hereinafter referred to as “IT Act”) came to be issued. Thereafter, the respondent referred the case to Transfer Pricing Officer for computing the Arm’s Length Price in respect of International transactions. An order dated 29.01.2014 came to be passed under Section 92 CA(3) of the IT Act by  the  Transfer  Pricing Officer suggesting  Transfer  Pricing Adjustments on International Transactions. The petitioner appeared before the Assessing Officer/Respondent and a draft assessment order came to be passed under Section 143(3) read with Section 144C(13) read with Section 92CA(3) of the IT Act, which inter alia included disallowance of the petitioner’s claim under Section 14A of the IT Act. The petitioner preferred an appeal before the Dispute Resolution Panel (in short “DRP”) on 08.04.2014, raising objections against the above draft assessment order. The DRP vide order dated 27.07.2014 made the following additions / disallowances viz.,

(a) Disallowed the deduction under Section 14A of IT Act,

(b) Transfer pricing adjustment in respect of investments in OFCD’s issued by the AEs,

(c) Disallowed the business expenditure on the ground that it was not used to the activities related to the business.

5.1 The above directions of the DRP was given effect to vide order dated 30.12.2014 and the order of assessment under Section 143(3) read with Section 144C(13) read with Section 92CA(3) of the IT Act, came to be passed making the following additions /disallowances:

(a) Transfer Price Addition,

(b) Disallowance of Business Expenditure,

(c) Disallowance under Section 14A of the IT Act.

6. Aggrieved by the above order, the petitioner filed an appeal before the ITAT on 01.04.2015. The Tribunal clubbed all the appeals filed by the petitioner / revenue as well as the cross objections filed by the petitioner. The following table may be useful in this regard:

7. All the above appeals / cross objections were heard together and were disposed of, vide common order dated 07.10.2016. The Tribunal found that the claim of the assessee/ petitioner under Section 14A of the IT Act was untenable, while the Tribunal also examined the claim made by the assessee in respect of cross border/international transactions. Importantly, the Tribunal dismissed the appeal filed by the petitioner in ITA No. 687/Mds./2015 for the Assessment Year 2010- 2011 on the premise that the same is repetitive in nature. The relevant portion of the impugned order is extraced below:

“16.1. Further, ITA No. 587/Mds./15 is a repetitive appeal for assessment year 2010-2011 by the assessee. Hence, it is dismissed.”

 8. It is this order of the tribunal, which is challenged by the assessee with a delay of 2139 days. Though we had set out briefly in the earlier portions of this order, the reasons adduced in support of the petition to condone the delay, it may be relevant to extract the same as contained in the affidavit, before we deal with the same and it reads thus:

“10… Thereafter, the financial creditors started threatening to file an Insolvency Petition if their dues are not paid and the Petitioner was busy meeting the creditors and negotiating time with them and was arranging for funds as the company was in under deep financial crisis.

 11. In these circumstances most of the employees had left the organization as the company could not afford to give them a salary hike and promotion. Hence, the Petitioner could not follow the case…..

………..

14… Thereafter, the Petitioner was in receipt order of ITAT dated 12.08.2022 and consulted a legal practitioner, it was only then the Petitioner came to know that the subject appeal is not a repetitive one and that the Hon’ble ITAT had dealt only on the issue of Section 14A disallowance and not with respect to other grounds as per the Hon’ble High Court Order. It was only at this time that the issue brought to the light of the petitioner and hence there is a delay of 2139 days in filing this tax case appeal.”

 9. We find that both the above reasons are hardly convincing rather we find that the reasons lack bonafide. Both the grounds are mutually destructive. We say so, for the reason that while at paragraphs 10 and 11, it is stated that the petitioner was unable to challenge the order dated 07.10.2016 in view of an alleged inadvertance by the Officer handling the litigation and also being caught up in resolving the financial crisis which had resulted in the proceedings being initiated under the IBC before the NCLT which was carried all the way upto the Hon’ble Supreme Court, however, at Paragraph 14 of the affidavit extracted supra, it is stated that the petitioner realized that the dismissal of the appeal in ITA No.687/Mds/2015 as being repetitive, was incorrect only upon receipt of the order dated 12.08.2022. Now, if the second reason is to be taken to reflect the true state of affairs, the reason of inadvertence and insolvency proceedings being the reason for the delay would fail. The question of inadvertence or being occupied with resolving the financial crisis and the resultant Insolvency Proceedings would not arise, if the petitioner was unaware until 12.08.2022 of the error committed by the Tribunal in dismissing ITA No.687/Mds/2015 on the ground of being a repetitive 8/16 appeal.

10. We also find that the attempt to suggest that the delay is only in view of the fact that the petitioner came to know that the subject appeal i.e., ITA No.687/Mds/2015 is not repetitive, is again factually incorrect inasmuch as the petitioner had on receipt of the impugned order dated 07.10.2016 filed a miscellenous petition as early as on 08.03.2017 wherein, the order disposing/dismissing ITA No.687/Mds/2015 was sought to be restored. The following portions of the application filed before the ITAT in support of the above miscellaneous petition are relevant and thus extracted below:

“5. The appeals of SIHL were heard and disposed on the same date, while the other cases were adjourned. In this regard, it must be noted that the issues in ITA.No.687/2015, facts of the case, grounds, etc., are completely different from SIHL and the same was inadvertently disposed of as repetitive appeal for Assessment Year 2010-11, along with the appeals of SIHL.

6. For the above reasons and positions of law, it is very humbly prayed that this Miscellaneous Petition under Section 254(2) of the Act may kindly be admitted and adjudicated upon, to suitably and favourably amend the impugned order under consideration in the case of petitioner under Section 254(1) of the

7. Further, as the facts and issues in SVL’s appeals are similar for the three Assessment Years and legal grounds emanate from the appeal in No.687 of 2015, we humbly request your Honours to post the hearing for ITA.No.687 of 2015 on March, 2017 along with the other appeals of SVL.”

 The above extracts would leave no room for any doubt that the petitioner was fully aware and conscious of the fact that the dismissal of the appeal in ITA 9/16 No.687/Mds/2015 as being repetitive, was erroneous and sought to redress the grievance by filing the above miscelleneous petition, which was rejected by the Tribunal in view of the inability of the petitioner to clarify that the dismissal of ITA No.687/Mds/2015 as reptitive is erroneous. The petitioner having challenged the order of dismissal of ITA No.687/Mds/2015 by a Miscellaneous Petition which was dismissed, ought to have pursued the challenge, moreso, when the common order for the other years was carried in appeals before this Court in TCA Nos.777 to 779 of 2017 dated 24.11.2020. We find that the inordinate delay in filing the present Tax Case Appeal is neither due to paucity of time in view of the financial crisis and the proceedings under the IBC nor due to lack of knowledge of the error in dismissal of the appeal as being repetitive, but due to negligence.

11. Secondly and importantly, we find that the reasons adduced are preposterous and lack bonafide inasmuch as the submission of the petitioner that it came to know that the dismissal of ITA 687/Mds/2015 as repetitive, is incorrect and untrue for the reasons setout at paragraphs 5 to 7 of the affidavit filed in support of the Miscellaneous Petition, filed before the ITAT to reopen ITA No.687/Mds/2015 dated  07.10.2016  would  clearly reveal that  the  petitioner realised the error and after taking steps to redress the error/grievance by filing a miscellaneous petition before the Tribunal to restore, did not pursue it any further on its rejection.

12. Having found that the reasons adduced are untrue and lacking bonafide we do not intend to exercise our discretion to condone the delay for it is trite law that while examining whether there was “sufficient cause” for the delay, the Courts would consider if the petitioner had been diligent and acted bonafide. We find that there is an inordinate delay of 2139 days and the reasons adduced are not convincing rather show that the petitioner was negligent, lethargic and casual in availing the remedy of appeal. More importantly, we are not convinced with the bonafide of the petitioner who had raised grounds which apart from being untrue, are mutually destructive and thus unacceptable.

13. Before we part, we intend to refer to the following decisions which lay down the guidelines to be borne in mind by a Court while considering a request to condone the delay:

i. Basawaraj Land Acquisition Officer, (2013) 14 SCC 81:

“9. Sufficient cause is the cause for which the defendant could not be blamed for his absence. The meaning of the word “sufficient” is “adequate” or “enough”, inasmuch as may be necessary to answer the purpose intended. Therefore, the word “sufficient” embraces no more than that which provides a platitude, which when the act done suffices to accomplish the purpose intended in the facts and circumstances existing in a case, duly examined from the viewpoint of a reasonable standard of a cautious man. In this context, “sufficient cause” means that the party should not have acted in a negligent manner or there was a want of bona fide on its part in view of the facts and circumstances of a case or it cannot be alleged that the party has “not acted diligently” or “remained inactive”. However, the facts and circumstances of each case must afford sufficient ground to enable the court concerned to exercise discretion for the reason that whenever the court exercises discretion, it has to be exercised judiciously. The applicant must satisfy the court that he was prevented by any “sufficient cause” from prosecuting his case, and unless a satisfactory explanation is furnished, the court should not allow the application for condonation of delay. The court has to examine whether the mistake is bona fide or was merely a device to cover an ulterior purpose. (See Manindra Land and Building Corpn. Ltd. v. Bhutnath Banerjee [AIR 1964 SC 1336] , Mata Din v. A. Narayanan [(1969) 2 SCC 770 ] , Parimal v. Veena [(2011) 3 SCC 545 ] and Maniben Devraj Shah v. Municipal Corpn. of Brihan Mumbai [(2012) 5 SCC 157 ] .)”

 ii. Ajay Dabre Vs Pyare Ram 2023 SCC Online SC 92:

 “13. This Court in the case of Basawaraj v. Special Land Acquisition Officer while rejecting an application for condonation of delay for lack of sufficient cause has concluded in Paragraph 15 as follows:

 “15. The law on the issue can be summarised to the effect that where a case has been presented in the court beyond limitation, the applicant has to explain the court as to what was the “sufficient cause” which means an adequate and enough reason which prevented him to approach the court within limitation. In case a party is found to be negligent, or for want of bona fide on his part in the facts and circumstances of the case, or found to have not acted diligently or remained inactive, there cannot be a justified ground to condone the delay. No court could be justified in condoning such an inordinate delay by imposing any condition whatsoever. The application is to be decided only within the parameters laid down by this Court in regard to the condonation of delay. In case there was no sufficient cause to prevent a litigant to approach the court on time condoning the delay without any justification, putting any condition whatsoever, amounts to passing an order in violation of the statutory provisions and it tantamounts to showing utter disregard to the legislature.”

14. Therefore, we are of the considered opinion that the High Court did not commit any mistake in dismissing the delay condonation application of the present appellant.”

14. Yet another reason which would prompt us to observe that the miscellaneous petition lacks bonafide, apart from the fact that the reasons set out in the affidavit do not convince us, is that the present miscellaneous petition is apparently filed with a view to take advantage of the order of the Tribunal made pursuant to the order of this Court in the case of M/s.Marg Ltd. V. CIT in T.C.A. Nos.41 to 43 of 2017 dated 30.09.2020, resulting in the claim of the petitioner under Section 14A of the IT Act, being accepted in terms of the above decision of this Court. Having succeeded for the other assessment years, the petitioner is now attempting to resurrect the appeal after almost 5 ½ years, which we would think, does not deserve any consideration.

15. Applying the law laid down by the Hon’ble Apex Court to the facts of the present case, we find that the petitioner was not vigilant rather negligent and there is lack of bonafide even in explaining the delay. The petitioner had failed to demonstrate that there was “sufficient cause” for the delay of 2139 days in filing the Tax Case Appeal and thus the petition is liable to be dismissed.

16. For all the reasons, the Civil Miscellaneous Petition stands dismissed. No Costs. Consequently, the Tax Case Appeal is rejected at SR stage itself.