ITAT Chennai Restores Tax Deduction of ₹41.98 Lakh Due to Pending Condonation U/S 119(2)(b) | Biz Flow Kit

Recently, the Chennai Bench of the Income Tax Appellate Tribunal (ITAT) made a very interesting decision regarding a disputed tax deduction claim. They decided to completely restore the matter to the lower tax authorities.

The main reason for this was their crucial observation that the assessee currently has a pending condonation petition filed under Section 119(2)(b), and this pending petition has a very direct bearing on whether the deduction claim should be allowed or not.

This specific appeal was originally filed by a group named The Tuticorin Agricultural Producers Co-Operative Marketing Society Limited. They were legally challenging an earlier order that was passed against them by the Commissioner of Income Tax (Appeals), working under the National Faceless Appeal Centre (NFAC), specifically for the Assessment Year (AY) 2020-21.

So, here is the background of how the whole situation started. The assessee had actually failed to file their regular return of income for AY 2020-21 on time. However, the Income Tax Department got hold of some important financial information through its official Insight Portal.

The Department noticed that the assessee had officially reported massive sales of over ₹11.04 crore in their GSTR-3B returns. Along with that, they had also made some really substantial cash deposits.

These deposits amounted to a whopping ₹10.70 crore in a local co-operative bank, plus another ₹59.98 lakh sitting in an SBI account. On top of all this, the Department also took note of massive cash withdrawals that easily exceeded ₹2.73 crore during that exact same relevant time period.

Because of all these huge financial numbers, the tax authorities quickly initiated legal proceedings under Section 148A(d). Soon after, the whole reassessment process was formally opened up by issuing a notice under Section 148. In response to this sudden notice, the assessee finally filed their tax return. In it, they declared a total income of just ₹13,534.

They managed to arrive at this tiny figure by claiming a massive deduction of ₹41.98 lakh under Section 80P(2)(a)(i) of the Act. But the Assessing Officer (AO) flat out denied this deduction claim.

The AO’s reasoning was simply that the return had not been filed within the strict prescribed time limit mentioned under Section 139 of the Act. Later on, the CIT(A) fully upheld this disallowance.

During the hearings, the assessee firmly stated their defence. They pointed out that a condonation petition, dated 17.01.2025, had already been submitted before the Chief Commissioner of Income Tax under Section 119(2)(b).

This petition was specifically asking for the condonation of the delay in filing the tax return. The lawyers argued that whatever the final outcome of this specific petition is, it would directly affect the overall allowability of their massive deduction claim.

The division Bench, which included the Vice President and Shri Balakrishnan S (Accountant Member), carefully observed the entire situation. They noted that if the competent authority actually decides to condone the delay, then the assessee’s deduction claim would definitely require a proper, thorough examination on its actual merits.

Accordingly, the ITAT Bench decided to restore the entire matter right back to the file of the Assessing Officer. They gave a clear direction to pass a completely fresh order, but only after the pending condonation application is finally disposed of by the competent authority.

Ultimately, the appeal was officially allowed for statistical purposes, bringing a temporary but significant relief to the assessee.