Kerala High Court allows delayed ITAT appeal where assessee trusted professional advisors

Background and central question

The decision in Mallelil Industries Pvt. Ltd. Vs PCIT (Kerala High Court) examines whether an inordinate delay of 676 days in presenting an appeal before the Income Tax Appellate Tribunal (ITAT) can be condoned when the assessee attributes the lapse to reliance on earlier auditors and a bona fide belief that the appeal had already been filed.

The Kerala High Court was called upon to evaluate:

  • Whether the explanation based on auditor withdrawal and change of consultants, supported mainly by an affidavit, constituted “sufficient cause” for condonation of delay; and
  • Whether the ITAT erred in holding that the assessee’s explanation lacked bona fides merely because there was no corroborative documentary evidence.

Brief facts and chronology

Receipt of first appellate order and delay

  1. The assessee received the order of the Commissioner (Appeals) on 24.08.2022.
  2. An appeal was intended to be filed before the ITAT against this order.
  3. However, the appeal eventually reached the ITAT with a delay of 676 days beyond the prescribed limitation period.
  4. Along with the belated appeal, the assessee filed a condonation petition, supported by an affidavit, explaining the reasons for the delay.

Explanation offered by the assessee

In the condonation application, the assessee set out a detailed narrative explaining why the statutory deadline was missed:

  • The assessee had engaged professional tax auditors and other advisors and was depending upon them to attend to appellate proceedings.
  • There was a change in audit firms:
    • The earlier auditors had withdrawn from the audit assignment.
    • A new audit firm was appointed to take over the work, particularly for the financial year 2017-18.
  • The assessee asserted that it bona fide believed that its former auditors and consultants had taken all necessary steps, including filing of the appeal before the ITAT against the order of the Commissioner (Appeals).
  • It was only later discovered that no appeal had, in fact, been filed by the earlier professionals.
  • Upon gaining knowledge of this situation, the assessee promptly acted through a new tax consultant, who then filed the delayed appeal along with the condonation application.

The supporting affidavit set out:

  • The names of the earlier and new audit firms;
  • The fact of withdrawal by the first firm; and
  • The circumstances that led to the mistaken but bona fide understanding that the appeal stood filed.

ITAT’s view and rejection of condonation

The ITAT, Cochin Bench, did not accept the request for condonation of the 676-day delay in filing ITA No. 787/COCH/2024. Its key findings were:

  • The explanation hinged almost entirely on the affidavit and oral assertions of the assessee, without any corroborative documentary proof supporting the alleged sequence of events.
  • The Tribunal concluded that the explanation was not bona fide, considering the long period of inaction and absence of evidence beyond bare averments.
  • Consequently, the ITAT dismissed the appeal as barred by limitation, without going into the merits of the issues raised against the order of the Commissioner (Appeals).

This led the assessee to approach the Kerala High Court challenging the refusal to condone the delay.

Arguments before the Kerala High Court

Submissions on behalf of the assessee

Counsel for the assessee contended: