129 Days Late, But Not Too Late: Nagpur ITAT directed CIT (A) to decide the case on merits after providing an opportunity of hearing to the Assessee

 

 

When justice prevailed over limitation-and a taxpayer got another opportunity to fight the real tax issue

In tax litigation, sometimes the first battle is not about how much tax is payable, but whether the taxpayer will even get an opportunity to argue the case.

A recent order of the Income Tax Appellate Tribunal, Nagpur Bench, in ITA No. 55/NAG/2026, Renuka Yogesh Shukla v. ITO, provides an excellent illustration of this principle. The assessee’s appeal before the CIT(A) had been dismissed because it was filed 129 days late. The CIT(A) refused to condone the delay and consequently never examined the substantive tax dispute.

Before the ITAT, the focus therefore shifted first to the delay. The result was significant: the Tribunal condoned the delay, restored the appeal to the CIT(A), and directed the first appellate authority to decide the issues on merits. The Tribunal order was pronounced on 25 March 2026 by Dr. Manish Borad, Accountant Member.

The dispute behind the dispute

The underlying case relates to a widow who had received compensation pursuant to an award of the Motor Accident Claims Tribunal (MACT), Kelapur, following the unfortunate death of her husband in a road accident.

The assessee was engaged in the business of trading FMCG goods under the name “Shukla Agencies.” For Assessment Year 2020-21, she had originally returned income of ₹3,18,850 under section 44AD. Subsequently, reassessment proceedings were initiated under section 148 on the basis of information relating to interest receipts.

The MACT had awarded compensation of ₹61,07,728 and directed payment of simple interest at 8% from the date of registration of the claim petition till complete realisation.

During the year, the assessee received ₹30,35,170 from United India Insurance Company as interest connected with the motor accident compensation.

The assessee’s stand was straightforward: this was not ordinary interest income. The interest had been awarded as part of the compensation for the period from filing of the claim petition until actual realisation. Therefore, it was contended that the interest formed an integral part of the compensation and was not taxable.

The assessee relied, inter alia, upon the judgment of the Bombay High Court in Shri Rupesh Rashmikant Shah v. Union of India & Ors., W.P. No. 2902/2016 dated 8 August 2019. The same contention, along with the MACT award and supporting documents, had been placed before the Assessing Officer.

The Assessing Officer’s approach

The Assessing Officer, however, applied sections 56(2)(viii), 145B and 57(iv) and treated 50% of the interest as taxable.

Thus, out of interest of ₹30,35,170, an amount of ₹15,17,585 was added to the returned income.

The total income consequently increased from ₹3,18,850 to ₹18,36,435.

The assessment order also relied upon the Supreme Court decision in Rama Bai v. CIT while taking the view that interest on compensation was taxable.

But there was another important aspect.

The assessee had already submitted the relevant documents during assessment proceedings, including the MACT order and details explaining the nature of the receipt. The assessment record itself acknowledges that these documents were filed and placed on record.

Then came the 129-day delay

The assessee preferred an appeal before the CIT(A), but the appeal was filed 129 days beyond the prescribed time.

The CIT(A) considered the explanation for the delay but refused to condone it, primarily observing that the reason was not supported by documentary evidence or an affidavit. The appeal was consequently dismissed as barred by limitation—without deciding the substantive tax issue.

This created an unusual situation.

The taxpayer had a substantive dispute involving ₹15.17 lakh of addition, important legal provisions and a judgment of the jurisdictional High Court. Yet the dispute remained undecided merely because of the delay in filing the first appeal.

That became the principal issue before the ITAT.

The argument before the ITAT

The grounds raised before the Tribunal specifically challenged the CIT(A)’s refusal to condone the delay and the dismissal of the appeal in limine.

It was contended that the CIT(A) had failed to provide an effective opportunity and had dismissed the appeal without considering the substantive grounds. The appeal also highlighted the genuine and bona fide circumstances behind the delay.

At the same time, the substantive grounds were also placed before the Tribunal.

These included the contention that the Bombay High Court judgment in Rupesh Rashmikant Shah covered the issue and that the interest awarded in connection with motor accident compensation was an integral part of the compensation itself. The grounds further challenged the mechanical application of section 56(2)(viii) read with sections 145B and 57(iv).

The broader argument was that the taxpayer should not lose the right to have a genuine tax dispute examined merely because of a procedural delay.

The Tribunal’s approach: “Delay is neither deliberate nor intentional”

The ITAT carefully considered the reasons for the delay.

The Tribunal noted that the assessee was living in a rural and backward area and concluded that the delay was neither deliberate nor intentional.

Importantly, the Tribunal adopted a liberal approach and relied upon two decisions of the Hon’ble Supreme Court:

•  Collector, Land Acquisition, Anantnag & Anr. v. Mst. Katiji & Ors., (1987) 2 SCC 107; and

•  Inder Singh v. State of Madhya Pradesh, judgment dated 21 March 2025, reported as 2025 INSC 382.

On that basis, the Tribunal condoned the 129-day delay.

This is perhaps the most important takeaway from the order.

Limitation is important. But limitation is not intended to become a weapon to deny adjudication of a genuine dispute where the delay is satisfactorily explained and there is no deliberate or intentional default.

A second important victory: the matter goes back to CIT(A)

Once the delay was condoned, the Tribunal faced a simple question: Should it itself decide the taxability of the MACT interest?

The answer was no.

Since the CIT(A) had not dealt with the substantive issues on merits, the Tribunal considered it appropriate to restore the matter to the CIT(A) for denovo adjudication.

The Tribunal specifically directed the CIT(A) to adjudicate the appeal on merits as contemplated under section 250(6), while providing the assessee reasonable opportunity and considering the documents and evidence that may be filed.

Thus, the Tribunal has not held that the ₹30.35 lakh interest is exempt or non-taxable.

That issue remains open before the CIT(A).

And that distinction is important.

What exactly has been achieved?

The result can be understood in three stages:

Stage 1 – Assessment:
The AO treated 50% of ₹30,35,170 as taxable and made an addition of ₹15,17,585.

Stage 2 – CIT(A):
The appeal was dismissed because of the 129-day delay, without adjudicating the substantive grounds.

Stage 3 – ITAT:
The delay was condoned and the matter was restored to the CIT(A) for adjudication on merits.

Therefore, the immediate relief is not deletion of the addition. The real achievement is that the taxpayer has regained the opportunity to have the substantive dispute decided on merits.

And sometimes, that itself is a very significant victory.

Why this order matters beyond this case

Tax litigation is often viewed as a contest of sections, judgments and technical interpretations. But procedure is equally important.

An assessee may have an excellent case on merits. Yet if the appeal is dismissed at the threshold, the merits may never be examined.

The present order reinforces an important judicial philosophy: courts and appellate authorities should, where circumstances justify it, prefer substantial justice over a hyper-technical approach to limitation.

The Supreme Court’s approach in Collector, Land Acquisition v. Katiji has long emphasised a justice-oriented approach to condonation of delay. The Nagpur ITAT has applied that principle in the present case after considering the facts and circumstances of the assessee.

But the tax controversy is still alive

The next round will be before the CIT(A).

There, the substantive issue concerning the character and taxability of interest received on MACT compensation will have to be examined.

The assessee’s case is that the interest awarded from the date of filing of the claim petition until actual realisation formed an integral part of the compensation and, relying on the Bombay High Court’s decision in Rupesh Rashmikant Shah, should not be subjected to tax in the manner adopted by the AO.

The ITAT has deliberately kept this question open. It has expressly stated that it is remitting the issues without dwelling upon the merits.

The larger lesson for taxpayers

There are two lessons from this case.

First, never assume that a procedural setback is the end of the road. If there is a genuine reason for delay, the law provides a mechanism for seeking condonation.

Second, never ignore the importance of documentary evidence. In this case, the MACT award, the nature of the interest and the judicial precedent formed the foundation of the substantive defence. The assessment record itself records that the assessee had furnished the MACT order and other relevant details.

For taxpayers, the message is simple:

A delayed appeal may still have a future. A genuine tax dispute deserves to be heard. And justice should ultimately turn on the merits of the case-not merely on the calendar.

For the assessee in this case, the door which appeared to have been closed by a 129-day delay has now been reopened.

The next question is no longer “Was the appeal filed late?”

It is now the more important question:

“Was the tax actually payable?”

That question is still to be answered.

The copy of the order is as under:

ITAT Order Copy - 55NAG2026 Order Copy