Kolkata ITAT Condones 59-Month Filing Delay: Pending Section 154 Rectification Application Qualifies as Sufficient Cause

Case Overview

Background and Factual Matrix

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) delivered a significant ruling in the matter of Mahendra Kumar Sanwalka Vs ITO, holding that an assessee's bona fide pursuit of a rectification remedy under Section 154 of the Income Tax Act, 1961 constitutes "sufficient cause" for condoning delay in filing an appeal — even where that delay extended beyond 59 months.

Filing of Returns and CPC Processing

The assessee, for Assessment Year 2020-21, filed the original return of income on 31.12.2020, declaring total income of ₹44,29,080/-. A revised return was subsequently filed under Section 139(5) of the Act on 15.01.2021, wherein the assessee claimed carry forward of losses aggregating to ₹39,23,825/-, comprising:

• Short-term capital loss: ₹3,81,248/-
• Long-term capital loss: ₹35,42,577/-

The Centralised Processing Centre (CPC), Bengaluru processed the return under Section 143(1) of the Act on 03.02.2021 and issued an intimation with the following adverse actions:

1. Disallowance of carry forward of loss of ₹39,23,825/- on the ground that the return was filed beyond the due date of 10.01.2021
2. Levy of fee of ₹10,000/- under Section 234F of the Act
3. Computation of refund of ₹10,890/-, which was adjusted against outstanding demand under Section 220(2) of the Act

Rectification Application and Consequent Delay

Rather than filing a direct appeal against the Section 143(1) intimation, the assessee filed an application for rectification under Section 154 of the Act on 04.05.2021 before the jurisdictional Assessing Officer (ITO, Ward 7(1), Kolkata). The assessee awaited the disposal of this rectification application, which ultimately resulted in a delay of more than 59 months in filing the statutory appeal.

Proceedings Before the First Appellate Authority

The Addl/JCIT(A)-3, Ahmedabad, before whom the appeal was filed under Section 250 of the Income Tax Act, 1961, declined to condone the delay and simultaneously upheld the disallowance on merits. The first appellate authority's findings proceeded on two independent limbs:

On the Question of Delay

The Addl/JCIT(A) observed that the delay of over 59 months was inordinate and that the assessee had failed to produce sufficient cause supported by documentary evidence. The authority characterised the assessee's conduct as "casual," holding that merely awaiting departmental action or hoping for auto-rectification for nearly five years could not constitute sufficient cause within the meaning of Section 249(3) of the Income Tax Act, 1961.

The first appellate authority placed reliance upon the Supreme Court's decision in Union of India & Anr Vs Jahangir Byramji Jeejeebhoy (D) Through His LR, 2024 INSC 262, wherein the Hon'ble Supreme Court had observed: