Delay in Filing Income Tax Return? Court Says Genuine Losses Can Still Be Carried Forward

Facts & Issue of the Case

In the case of Balaji Landmarks LLP (formerly) v. Central Board of Direct Taxes (Bombay High Court), the assesses challenged an Order dated 7 August 2024 rejecting its application for condonation of delay under section 119(2)(b) of the Income‑tax Act, 1961 (“the Act”) for the Assessment Year (A.Y.) 2018-19. The key facts were as follows:

• For A.Y. 2018-19, the due date for filing a return of income under section 139(1) read with section 139(3) was 31 October 2018.
• The LLP, however, filed a belated return on 30 March 2019 under section 139(4), which is allowed beyond the due date but still within the longer time-limit.
• On 15 June 2023 the assessee filed an application under section 119(2)(b) (in light of Circular No. 9/2015) for condonation of delay of about 5 months.
• The assessee’s argument was that in that year it had incurred a genuine business loss and that, unless the return was treated as valid for the due date, the loss could not be carried forward under section 72 of the Act (or section 80) to set off against future profits.
• The Revenue (CBIT/Assessing Officer) refused the condonation application on the ground that the assessee did not exercise due diligence, had ample time, the delay was caused by lack of supervision, and hence this did not amount to genuine hardship.

Thus, the issue before the Bombay High Court was whether the delay in filing the return could be condoned (under section 119(2)(b)) given the circumstances, and whether the assessee would suffer “grave hardship” if the delay was not condoned because genuine losses would then be disallowed and could not be carried forward.

Observation by the Court/Tribunal

The Bombay High Court undertook the following reasoning and made key observations:

• The Court found merit in the assessee’s contention that there would be grave hardship if the delay was not condoned, since the LLP had incurred a business loss in A.Y. 2018-19 and if the return was not treated as timely for purposes of section 72, the carry-forward of loss would be lost.
• The Court noted that the delay was not due to any willful neglect or fault of the assessee, but rather due to “inadequate advice” by its Chartered Accountant, which fact stood admitted in an affidavit.
• The Court referred to settled law that when an assessee acts on the advice of a professional (such as a CA) in good faith, that can constitute a reasonable cause for delay which may support condonation.
• The Court further observed that the Revenue’s concern about prejudice (if condonation were granted) was addressed by section 153(1B) of the Act, which provides that where a return is furnished in consequence of an order under section 119(2)(b), assessment may be made at any time before the expiry of twelve months from the end of the financial year in which the return was furnished.
• On the facts, the Court accepted the assessee’s explanation for the delay (that the CA was grappling with complex issues regarding compensation in the form of transferable development rights (TDR) in a compulsory acquisition scenario, for which legal opinions were sought).
  Therefore, the Court concluded that the condonation application deserved to be allowed: the impugned order of 7 August 2024 was quashed and set aside, the delay in filing the A.Y. 2018-19 return was condoned, and the return filed on 30 March 2019 would be treated as a return filed in accordance with section 153(1B) of the Act.

Law Applicable

Key legal provisions and principles that govern this situation are:

• Section 139(1) of the Income-tax Act sets the due date for filing returns of income for various categories of assessees.
• Section 139(3) provides that if an assessee has incurred a loss in a business or profession or is eligible to claim carry-forward and set-off of loss, then the return must be filed on or before the due date under section 139(1).
• Section 139(4) allows filing of a belated return after the due date but by a later specified date (often one year or the extended period). Filing under section 139(4) means the return is valid for most purposes but the question of loss carry-forward may depend on compliance with the due date under section 139(3).
• Section 72 of the Act provides for carry-forward and set-off of business losses and unabsorbed depreciation. Importantly, in order to carry forward a loss under section 72, the return must have been filed under section 139(3) (i.e., on or before the due date) and the loss must be claimed in that return. (Similar logic applies to section 80 dealing with certain losses etc.)
• Section 119(2)(b) grants the Board the power to condone delay in certain applications or proceedings under the Act if sufficient cause is shown. In this case the application was filed with the Board (or delegated authority) to condone the delay in filing the return.
• Section 153(1B) was quoted by the Court — it provides that “Notwithstanding anything in sub-section (1), where a return is furnished in consequence of an order under clause (b) of sub-section (2) of section 119, an order of assessment under section 143 or section 144 may be made at any time before the expiry of twelve months from the end of the financial year in which such return was furnished.” This ensures that granting condonation does not unduly prejudice the Revenue because assessment time-limitation still applies.
• The jurisprudence is that condonation of delay is an exercise of discretion: the assessee must show “sufficient cause” for the delay and often must show that if delay is not condoned, it will suffer hardship or serious prejudice. The Court in this case emphasised the hardship dimension (i.e., loss of ability to carry forward losses).
• The principle that acting on professional advice can be a valid ground for “sufficient cause” was accepted — when the CA gave advice and the assessee followed it in good faith, this may be a reasonable cause for delay. The Court held the assessee should not be penalised for belated advice by its CA.

Conclusion by the Court

In conclusion, the Bombay High Court held that on the specific facts:

• The delay in filing the return for A.Y. 2018-19 (by about 5 months) was condoned under section 119(2)(b).
• Because the return was filed with the condonation, the return would be treated as a valid return under section 153(1B) and thus the assessee would not lose the entitlement to carry forward the genuine business loss incurred in that year.
• The Court acknowledged that the assessee would suffer grave hardship if the delay was not condoned — namely losing the ability to carry forward losses — and that hardship weighed in favour of condonation.
• The Court also found that the assessee acted bona fide, relied on professional advice, the delay was not wilful or negligent, and the legal issue (compensation in the form of TDR in the context of compulsory acquisition) was complex and required legal opinion. These facts made the case suitable for condonation.
• The Court therefore quashed and set aside the impugned order of the Revenue and directed the return filed on 30 March 2019 to be treated as timely (for carry-forward loss purposes) once condonation was granted.
• The Court kept all rights and contentions open for both sides (i.e., the Revenue can still examine the correctness of the claimed losses), but the key relief to the assessee was that the procedural bar (due date) would not deprive it of carry-forward rights.

Take-away for Layman & Tax Practitioners:

• If you incur a business loss and intend to carry it forward under the Income-tax Act, timely filing of your return (by the due date) is critical under section 139(3).
• If you miss the due date but file a belated return under section 139(4), you may lose the right to carry forward losses — unless you apply for and obtain condonation of delay under section 119(2)(b).
• Condonation is discretionary, but if you can show “sufficient cause” (for example, reliance on professional advice, complex legal issues) and hardship (such as loss carry-forward being lost), courts may grant it.
• The Revenue’s ability to assess the return is safeguarded by section 153(1B) when condonation is granted.
• Always ensure you monitor deadlines, but if you run into genuine difficulty or rely on professional advice, keep evidence (e.g., CA affidavits, legal opinion, reasons for delay) to support a condonation application.

In the Balaji Landmarks case, the Court recognized the real hardship the LLP would face (loss of carry-forward rights) and accepted that the delay was not through neglect but due to complex professional advice being sought. That reasoning may serve as precedent for similar cases where taxpayers face procedural delay but claim genuine losses and seek carry-forward.