Madras High Court: Delay in Filing ITR Cannot Deny Income Tax Refund

Facts and Issue of the Case

In the case of Santhana Krishnan vs. Commissioner of Income Tax (International Taxation) (before the Madras High Court) the facts are as follows. The petitioner, a non-resident Indian resident in the United States, sold an immovable property in India during the financial year 2022-23 and duly deducted and remitted tax to the Income Tax Department. However, the petitioner failed to file his return of income by the due date prescribed under section 139 of the Income Tax Act, 1961. Because the return was not filed on time, the petitioner became prima facie ineligible to claim a refund of the tax remitted, amounting to ₹42,54,640. The petitioner then filed an application on 27 June 2024 under section 119(2)(b) of the Income Tax Act seeking condonation of the delay in filing the return, relying on the then-existing circular issued by the CBDT. The Commissioner rejected the condonation application — relying on CBDT Circular No.11/2024 (dated 1 Oct 2024) which prescribed conditions that an assessee must show reasonable cause for delay and genuine hardship in order to be eligible for such condonation. The issue before the High Court was whether the Commissioner could rely on the CBDT circular to deny the refund when the assessee was otherwise eligible for refund but had delayed filing due to a reasonable cause. In other words: does a procedural delay in filing a return automatically disqualify an assessee from getting a refund even if the underlying tax remittance and eligibility criteria are otherwise fulfilled?

Observation by the Court / Tribunal

The Madras High Court observed that at the time when the petitioner filed the condonation application (27 June 2024), the prevailing circular was actually CBDT Circular No.9/2015 (dated 9 June 2015). Despite that, the Court went on to emphasize a key point: irrespective of whether Circular No. 9/2015 or Circular No.11/2024 applied, the delay in filing the return under section 119(2)(b) ought to be condoned if the petitioner is otherwise entitled to a refund. The Court held that the circular issued by the CBDT cannot override or curtail the substantive right of an assessee to a refund under the Income Tax Act simply because of delay in filing. In doing so, the Court directed the Assessing Officer to accept the return of income and proceed with assessment, after condoning the delay; the petitioner was also directed to manually file the return within 45 days and a cost of ₹25,000 was imposed on the petitioner (donation to a cancer institute) given the delay. The Court’s reasoning emphasized that the procedural default (i.e., late filing) may be condoned under section 119, and the statutory right to refund cannot be whittled down by an administrative circular alone. The Court allowed the writ petition and issued consequential directions.

Law Applicable

The primary legal provisions invoked are:

• Section 139 of the Income Tax Act, which prescribes the due date for filing returns of income and consequences of delay. In this case, the petitioner had missed the due date, which ordinarily would mean he could not file beyond the time unless permitted.
• Section 119(2)(b) of the Act, which empowers the CBDT or an officer authorised by it (in this case the Commissioner) to condone any delay in compliance of a procedural requirement under the Act, if it is satisfied that there was reasonable cause or the assessee suffered hardship. The CBDT issued circulars – Circular No. 9/2015 and later No. 11/2024 – which set out conditions and guidelines for condoning delays and dealing with refund claims when returns are filed late. However, the Court emphasised that such circulars are administrative in nature and cannot override or curtail the statutory rights conferred by the Act. In effect, while the circular can lay down administrative norms, it cannot deny or restrict the substantive right to refund if the statute and facts merit the same. Thus, the applicable law is that while the due date and procedure must be complied with, the power of condonation under section 119(2)(b) exists, and once the assessee is otherwise eligible for refund, the legislative right cannot be impermissibly restricted by executive instructions alone.

Conclusion by the Court / Tribunal

In its conclusion the Madras High Court held that the Commissioner’s reliance on the CBDT circular to deny refund simply because of delayed filing was not legally sustainable. The Court directed the Assessing Officer to accept the petitioner’s return, condone the delay under section 119(2)(b), and proceed with assessment and refund. The conclusion thus reinforces the principle that an assessee’s entitlement to refund cannot be denied solely on account of procedural delay if the delay is capable of being condoned and all other eligibility criteria are satisfied. The circular cannot act as a barrier to the statutory right. The Court also emphasised that the condition of “reasonable cause” and “genuine hardship” must in each case be examined, not ruled out automatically by a blanket circular. Hence, the decision provides clarity for taxpayers: where a return is filed late but a genuine cause is shown and refund is otherwise due, the delay may be condoned and refund must not be denied arbitrarily. The case therefore signals that taxpayers should not assume that late filing automatically kills their refund claim — they should promptly apply under section 119 for condonation, furnish reasons, and press their substantive claim.

In practical terms, for any taxpayer facing a refund claim but delayed in filing their return, this judgment serves as beneficial precedent. It highlights that administrative circulars cannot act as absolute bars, and the statute’s protective provisions (like section 119) must be given effect. It is also a reminder to tax officers that the power of condonation should be exercised in a fair and reasoned manner rather than mechanically rejecting claims based on delay alone.