Application Of Section 14 Of Limitation Act In Income Tax Proceedings

14. Exclusion of time of proceeding bona fide in court without jurisdiction.— (1) In computing the period of limitation for any suit the time during which the plaintiff has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the defendant shall be excluded, where the proceeding relates to the same matter in issue and is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it

As can be clearly read from the above, the benefits of the aforementioned section are only available to Courts and not quasi-judicial bodies. In fact in a recent judgement of the Supreme Court in the case of Ganesan vs Commissioner^[2], the Court held that the even in those cases where a statute prescribes a procedure which is akin to the procedure followed in a Court, the quasi-judicial bodies exercising such procedure will not be analogous to a Court for the purpose of application relevant provisions of the Limitation Act.

However, the Supreme Court in the M.P Steel Corporation vs Commissioner of Central Excise^[3], observed that though the limitation Act does not apply to quasi- judicial bodies, the principles on which Section 14 is based, being principles which advance the cause of justice, would nevertheless apply based on the well found notion that justice and reason is at the heart of all legislation by Parliament. The relevant part of the judgement is reproduced as below

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31 We have already held that the Limitation Act including Section 14 would not apply to appeals filed before a quasi-judicial Tribunal such as the Collector (Appeals) mentioned in Section 128 of the Customs Act.

40. However, this does not conclude the issue. There is authority for the proposition that even where Section 14 may not apply, the principles on which Section 14 is based, being principles which advance the cause of justice, would nevertheless apply. We must never forget, as stated in Bhudan Singh and Anr. v. Nabi Bux and Anr. (1970) 2 SCR 10, that justice and reason is at the heart of all legislation by Parliament.

41. The language of Section 14, construed in the light of the object for which the provision has been made, lends itself to such an interpretation. The object of Section 14 is that if its conditions are otherwise met, the Plaintiff/applicant should be put in the same position as he was when he started an abortive proceeding. What is necessary is the absence of negligence or inaction. So long as the Plaintiff or applicant is bonafide pursuing a legal remedy which turns out to be abortive, the time beginning from the date of the cause of action of an appellate proceeding is to be excluded if such appellate proceeding is from an order in an original proceeding instituted without jurisdiction or which has not resulted in an order on the merits of the case. If this were not so, anomalous results would follow.

52. The abortive appeal had been filed against orders passed in March-April, 1992. The present appeal wasfiled Under Section 128, which Section continues on the statute book till date. Before its amendment in 2001, it provided a maximum period of 180 days within which an appeal could be filed. Time began to run on 3.4.1992 Under Section 128 pre amendment when the Appellant received the order of the Superintendent of Customs intimating it about an order passed by the Collector of Customs on 25.3.1992. Under Section 128 as it then stood a person aggrieved by a decision or order passed by a Superintendent of Customs could appeal to the Collector (Appeals) within three months from the date of communication to him of such decision or order. On the principles contained in Section 14 of the Limitation Act the time taken in prosecuting an abortive proceeding would have to be excluded as the Appellant was prosecuting bona fide with due diligence the appeal before CEGAT which was allowed in its favour by CEGAT on 23.6.1998. The Department preferred an appeal against the said order sometime in the year 2000 which appeal was decided in their favour by this Court only on 12.3.2003 by which CEGAT's order was set aside on the ground that CEGAT had no jurisdiction to entertain such appeal. The time taken from 12.3.2003 to 23.5.2003, on which date the present appeal was filed before the Commissioner (Appeals) would be within the period of 180 days provided by the pre amended Section 128, when added to the time taken between 3.4.1992 and 22.6.1992. The amended Section 128 has now reduced this period, with effect from 2001, to 60 days plus 30 days, which is 90 days. The order that is challenged in the present case was passed before 2001. The right of appeal within a period of 180 days (which includes the discretionary period of 90 days) from the date of the said order was a right which vested in the Appellant. A shadow was cast by the abortive appeal from 1992 right upto 2003. This shadow was lifted when it became clear that the proceeding filed in 1992 was a proceeding before the wrong forum. The vested right of appeal within the period of 180 days had not yet got over. Upon the 31 lifting of the shadow, a certain residuary period within which a proper appeal could be filed still remained. That period would continue to be within the period of 180 days notwithstanding the amendment made in 2001 as otherwise the right to appeal itself would vanish given the shorter period of limitation provided by Section 128 after 2001.

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In light of the above it is safe to say that the principles on which Section 14 of the Limitation Act, are also applicable in Income Tax Proceedings. In fact from the authorities as mentioned below, it is clear the various High Courts have time and again imported the principle of Section 14 of the Limitation Act in Income Tax Proceedings, by considering the exercise of remedy at an alternate forum to constitute a "sufficient cause" for condonation of delay u/s 264 of the Income Tax Act.

In the case of Saurashtra Cement & Chemical Industries Ltd. vs. CIT^[4], the Gujarat High Court has held that a bonafide oversight on part of the Petitioner in pursuing its remedies, would be a sufficient cause for condonation of delay, in terms of section 264(3) of the Act. The Gujarat High Court, in the facts of the case, where the Petitioner proceeded with his 24 claim in regard to the assessment year 1969-70 instead of the assessment year 1968-69, held as follows

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The negligence to operate as a bar in considering a case for condonation must be such negligence as is related to the diligence in taking appropriate proceedings. So far as the alleged inaction for a period of time from 1973 to 1978 was concerned, it must be noted that the petitioner was not guilty of any inaction, inasmuch as he was proceeding with his claim in regard to the assessment year 1969-70 instead of for the assessment year 1968-69. May be there was a mistake on his part to claim deduction for the assessment year 1969-70 instead of the assessment year 1968-69 but he could not be held guilty of inaction in the sense that he lay idle all this time to put forth his claim in regard to the year 1968-69. So far as the other limb of the argument was concerned, namely, that the petitioner was guilty of negligence in claiming a deduction for the year 1969-70 whereas he should have claimed the same for the assessment year 1968-69, having regard to the facts involved in this matter in general and particularly taking into consideration the fact that the petitioner had claimed depreciation in respect of the aforesaid amount in respect of the assessment year 1969-70 as the entry for the said amount was made on the last day of the accounting year relevant to the assessment year 1968- 69, the lapse on the part of the petitioner indicated an oversight on its part rather than negligence. This oversight on its part could not be considered as if it amounted to negligence in taking the necessary proceedings. Therefore, the delay must be condoned on the ground of sufficiency of cause.

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The Telangana High Court in the case of Thunuguntla Jagan Mohan Rao v Deputy Commissioner of Income Tax^[5], where in the facts of that case, the petitioner under the bonafide impression that the appeal was required to be filed challenging only consequential order and not against revisional order, filed an appeal against the revisional order after the delay of 154 days, the Court while condoning the delay, held that

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21. The reasoning assigned by the assessee for not preferring the appeal within the period of limitation to the Tribunal was that he was under the mistaken impression that only the consequential order passed by the Assessing Officer on 31-12-2015 was required to be challenged and not the order dt.10-03-2015 of the Revisional Authority, and that only after he consulted the Advocate, he realized the mistake and then challenged the order of the Revisional Authority.

27. Applying the principles laid down in the above case to the instant case, we are of the opinion that, in the facts and circumstances of the case, the explanation for the delay offered by the appellant cannot be said to smack of mala fides or that it was put forth as a part of a dilatory strategy, and therefore, the Tribunal ought to have condoned the delay of said period of 154 days in filing the I.T.A. and taken up the matter on merits.

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Attention of the reader in particular is brought to the recent decision of Delhi High Court in the case of K.L.J Organic Limited vs Comm. of Income Tax (International Taxation) – 2^[6], wherein the High Court while directly importing the provision of Section 14 of Limitation Act, in Income Tax proceedings excluded the time spent by the Petitioner in prosecuting the proceeding in a court without jurisdiction from the total period of limitation. In that case the Revision Petition u/s 264 of Act was delayed, as the Petitioner, under a mistake of law, was pursuing an appeal u/s 248 of the Act, which the petitioner later came to realize was not maintainable. The Court, while condoning the delay due to time lost by the Petitioner in pursuing the remedy before the wrong forum held as follow

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6. In the opinion of this Court, Section 14 of the Limitation Act, 1963 is attracted to the facts of the present case and the Petitioner is entitled to exclusion of time spent in prosecuting the proceeding bona fide in a court without jurisdiction.

7. This Court is of the view that if the time spent by the Petitioner in prosecuting the appeal under Section 248 of the Act is excluded, then the Revision Petition filed under Section 264 would be within time. 8. Consequently, the present writ petition is allowed and the matter is remanded to the CIT(IT) to decide the Revision Petition on merit in accordance with law.

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Thus the undisputed law emanating from the aforesaid case laws is that the provision of Section 14 of the Limitation Act can be imported in Income Tax Proceedings as long as the conduct of the assessee does not suffer from want of bona fides, deliberate inaction or negligence. The aforesaid principle can come for rescue in myriad of situation, where the parties under a bonafide mistake of law pursues a remedy before wrong forum and on subsequent realization approaches the right forum, notwithstanding the fact that no specific relief is provided in the statute that condones the time lost by the party before the wrong forum.

The authors are Advocates and views are personal.