Delhi HC Quashes ITR Rejection Over Missing TAR

In a major relief to taxpayers and businesses, the Delhi High Court recently set aside an Income Tax Department order that had rejected an Income Tax Return (ITR) solely because it was not accompanied by a Tax Audit Report (TAR). The case, Nikon Finlease Pvt. Ltd. vs Principal Commissioner of Income Tax, Delhi – 4, raises important questions about procedural fairness and the interpretation of tax audit requirements.

This decision reinforces the idea that minor procedural issues should not override the genuine intention of a taxpayer to comply with tax laws—especially when the delay or omission is justifiable.

Case Background

Nikon Finlease Pvt. Ltd., a regularly compliant taxpayer, had filed its revised ITR for the Assessment Year 2022–23 on 03.11.2022. However, the return was rejected by the Centralized Processing Centre (CPC) because it did not include a Tax Audit Report (TAR).

The company then submitted a condonation of delay application under Section 119(2)(b) of the Income Tax Act, 1961, requesting the tax authorities to accept the delayed submission in good faith. This application was denied by the Principal Commissioner of Income Tax (PCIT), leading Nikon Finlease to approach the Delhi High Court.

High Court’s Verdict

The Delhi High Court set aside the PCIT’s rejection of the condonation application, observing that:

• The taxpayer’s turnover was below ₹10 crore, so a TAR was not required as per the law.

• The CPC’s rejection on the ground of TAR absence was invalid.

• The PCIT’s refusal to condone the delay was not justified, especially since the taxpayer had acted in good faith.

Legal Insight: What is Section 119(2)(b)?

Section 119(2)(b) empowers the Central Board of Direct Taxes (CBDT) and its subordinate authorities to condone delays in filing returns or claims when justified by genuine hardship.

The intent of this provision is to ensure that taxpayers are not penalized for procedural lapses when they have a valid explanation and no intention of evasion.

Why This Judgment Matters

1. Protects Honest Taxpayers: Encourages voluntary and honest filing by acknowledging genuine errors.

2. Clarifies TAR Rules: Reaffirms that TAR is only mandatory for taxpayers with a turnover above ₹10 crore.

3. Strengthens Legal Precedent: Sets a benchmark for future condonation appeals under similar circumstances.

Taxpayer Takeaway

• Always review eligibility for TAR before filing.

• Maintain complete documentation, especially if turnover is near the audit threshold.

• If a rejection occurs, don’t hesitate to seek legal recourse if the reason is unjust.

Frequently Asked Questions (FAQs)

Q1. What is a Tax Audit Report (TAR)?

A TAR is a report submitted by a Chartered Accountant that verifies the compliance of a business with tax laws. It is mandatory for businesses with turnover exceeding ₹10 crore (as of the current tax law).

Q2. Can I file ITR without TAR?

Yes, if your turnover is below ₹10 crore, a TAR is not required, and you can file your ITR normally.

Q3. What is Section 119(2)(b)?

This section allows tax authorities to condone delays in return filings or claims if the taxpayer shows a valid reason and genuine hardship.

Q4. What should I do if my ITR is rejected due to TAR issues?

First, review your turnover and determine if TAR is actually required. If not, you can file a condonation application under Section 119(2)(b) and, if needed, approach the High Court for relief.

Conclusion

The ruling by the Delhi High Court highlights the importance of fairness and procedural clarity in tax administration. Taxpayers, especially small businesses and startups, should take confidence from this decision that the law does support them—provided they act transparently and in good faith.

With rising digital compliance and stricter scrutiny, it’s crucial to understand your obligations—but it’s equally vital to know your rights. This case is a powerful reminder that justice prevails when intent is right.