Karnataka High Court Upholds Delay Condonation Under Section 119(2)(b): Competent Authority Recognized as Successor in Interest in IMA Ponzi Scam Case
Case Overview
Case: CBDT Vs Competent Authority For M/s IMA and Others Scam Cases
Court: Karnataka High Court
Nature of Proceedings: Review Petition filed by the Department against an earlier order dated 09.04.2025
The Karnataka High Court recently adjudicated a review petition initiated by the Income Tax Department against its own prior ruling in W.P.No.24896/2024. The review resulted in a partial modification of the original order — not on substantive grounds, but to incorporate a clarification regarding the legal character of the respondent. The core relief of delay condonation granted under Section 119(2)(b) of the Income Tax Act, 1961 was left undisturbed.
Background: The Original Order Dated 09.04.2025
What Was Challenged in the Writ Petition?
The respondent — a Competent Authority appointed for the purpose of recovering funds from fraudulent financial establishments, including entities running Ponzi and other deceptive schemes — had approached the Karnataka High Court by filing a writ petition. The grievance arose from an order dated 02.07.2024, through which the Revenue had rejected an application filed under Section 119(2)(b) of the Income Tax Act, 1961 seeking condonation of delay in filing income tax returns.
The delays in question were substantial:
- 1444 days in respect of the filing of income tax returns for Assessment Year 2016-17
- 714 days in respect of the filing of income tax returns for Assessment Year 2018-19
Grounds Urged by the Competent Authority
The respondent/Competent Authority placed the following contentions before the Court:
- The Competent Authority had been entrusted with the statutory function of recovering money from establishments that were operating Ponzi schemes and other fraudulent arrangements, and redistributing those recoveries to the victims.
- Filing of income tax returns was contingent on accurately quantifying the amounts recovered from such establishments.
- Due to significant discrepancies in the valuation of exact recoveries, the Competent Authority was compelled to file revised returns belatedly.
- The delay was attributable to bona fide reasons, unavoidable circumstances, and sufficient cause, thereby constituting genuine hardship within the meaning of Circular No. 9/2015 dated 09.06.2015 issued by the CBDT.
- Consequently, the rejection of the condonation application was legally unsustainable and warranted judicial interference.
Revenue's Stand
The Revenue supported the impugned order and urged that the petition lacked merit and deserved dismissal. No elaborate counter-reasoning was recorded beyond this position.