Kerala High Court Sets Aside Rejection of Condonation Request: CBDT's Subsequent Circular Cannot Override Vested Rights Under Earlier Circular

Background and Context

A significant ruling has emerged from the Kerala High Court in the matter of Suresh Velu Ellathukalathil Vs PCIT, addressing a crucial question of fairness and legal entitlement when a newer CBDT circular reduces the time window available for seeking condonation of delay in filing Income Tax Returns — and in doing so, retrospectively extinguishes rights that were still available under a previously operative circular.

The case revolved around Assessment Year 2018-19, for which the assessee had admittedly not filed his Income Tax Return within the prescribed time. However, he operated on the reasonable belief that under CBDT Circular No. 9/2015, he was entitled to seek condonation of delay for a period extending up to six years. Acting on this understanding, he filed a formal application before the Commissioner of Income Tax on 19.03.2025, seeking condonation of delay so that his belated return could be accepted and processed.

The Commissioner's Rejection and the Circular in Question

The Commissioner of Income Tax rejected the assessee's application by way of an order dated 31.10.2025. Crucially, the rejection was not grounded in any examination of the merits of the assessee's case or the genuineness of the hardship claimed. Instead, the rejection rested entirely and exclusively on CBDT Circular No. 11/2024 dated 01.10.2024, which had superseded all earlier CBDT instructions, circulars, and guidelines and reduced the permissible period for condonation of delay from six years to five years.

Under this new circular, the window for seeking condonation in relation to AY 2018-19 would have closed on 31.03.2024 — several months before the assessee had actually filed his application. The Revenue's position was straightforward: since Circular No. 11/2024 had been issued in explicit supersession of all prior circulars including Circular No. 9/2015, the Commissioner had no discretion and had acted correctly in rejecting the application.

The matter was initially challenged by the assessee before a learned Single Judge by way of a Writ Petition, but the Single Judge upheld the Commissioner's order, again relying on Circular No. 11/2024 and finding no error in the rejection. This led the assessee to prefer a Letters Patent Appeal before the Division Bench of the Kerala High Court.

Arguments Advanced Before the Division Bench

Assessee's Contentions

The learned counsel appearing for the assessee argued with considerable force that: