The Central Board of Direct Taxes (CBDT) plays a critical role in issuing timely clarifications and providing relief to taxpayers where procedural or systemic issues hinder compliance. One such recent development involves the extension of processing timelines for Income Tax Returns (ITRs) filed late but condoned under section 119(2)(b) of the Income Tax Act, 1961. The concept stems from the understanding that not all delays are intentional or evasive, and genuine taxpayers should not be penalized due to procedural bottlenecks or technological shortcomings.
Background of Condonation Under Section 119(2)(b)
Section 119(2)(b) of the Income Tax Act empowers the CBDT to authorize income tax authorities to admit applications or claims for exemption, deduction, refund, or any other relief, even after the expiry of the time limit, to avoid genuine hardship to the taxpayer. This provision ensures that legitimate claims do not suffer merely due to procedural delays, especially where the taxpayer’s intent is clear, and compliance failure is not deliberate. Over the years, this section has provided crucial relief to taxpayers who missed statutory deadlines due to unavoidable circumstances such as health emergencies, data loss, natural calamities, or system failures.
Under the condonation provision, taxpayers must apply to the relevant Competent Authority, explaining the reasons for the delay and requesting acceptance of the belated return. Once condonation is granted, the return is treated as a valid ITR and becomes eligible for processing as per law. The condonation ensures the taxpayer does not lose access to legitimate claims such as refunds, carry forward of losses, or specific deductions that would have otherwise been denied due to missed deadlines.
Technical Constraints Leading to Unprocessed ITRs
Despite the condonation orders being issued and returns being filed electronically, many such cases encountered systemic roadblocks at the time of processing. The Income Tax Department operates on a centralized processing model where ITRs are processed under section 143(1). Under this section, the return is automatically processed for computational correctness, verification of deductions, and determination of refund or demand, if any. However, the system is programmed to process returns only within a prescribed time limit. Once the time window lapses, the automated system flags these returns as time-barred, making further processing impossible unless manual intervention or system-level relaxation is provided.
As a result of this limitation, even those returns that had received condonation and were filed within the extended permissible window remained unprocessed. This has particularly impacted cases involving refunds, as the taxpayer is left without recourse despite complying with all requirements. Numerous grievances have been reported by affected individuals who have fulfilled their tax obligations and submitted returns post-condonation but continue to wait for refunds due to expired processing timelines.
The absence of a system-level override created an administrative deadlock. Income Tax Authorities at field levels lacked the jurisdiction or technological access to push these returns through the system. Thus, the problem required a top-down resolution from the CBDT itself, in the form of a centralized instruction or notification that would mandate the processing of such delayed returns notwithstanding the statutory deadlines already having passed.
Nature and Impact of Taxpayer Grievances
The delay in processing ITRs has led to significant inconvenience for taxpayers. Refunds stuck in the system represent blocked funds that could have been used for personal or business needs. In some cases, taxpayers have also faced complications in subsequent assessment years, especially if the unprocessed return related to a year where losses were to be carried forward. The ripple effects can be seen in areas such as mismatch notices, incorrect interest computations, and even denial of credit for taxes paid. These grievances are not just isolated to individuals but have also affected partnerships, companies, and trusts that rely on timely refunds or adjustments to plan their cash flows and comply with ongoing tax obligations.
From a legal standpoint, the taxpayer has complied with all requirements once a condonation order is obtained and the return is filed electronically. The onus of timely processing shifts to the system. However, in the absence of a specific directive from the CBDT, field officers and processing centers have no scope to act outside the automated framework. Consequently, the aggrieved taxpayer has no practical remedy except to wait for the department to take corrective action. This helplessness has led to repeated representations to the CBDT, highlighting the urgent need for a resolution that aligns system operations with administrative intent.
The grievances have further highlighted a gap in the digital processing infrastructure where procedural compliance is rendered ineffective by technical rigidity. This calls for more dynamic programming in the central processing systems, allowing for exceptions where condonation is explicitly granted. Until such systems are developed, administrative relief in the form of extensions and manual intervention remains necessary to uphold the principles of equity and fairness in taxation.
The CBDT’s Response and Relief Initiative
Acknowledging the volume and gravity of taxpayer grievances, the CBDT has issued a circular providing much-needed relief. The circular directs that all valid returns filed electronically under condonation orders on or before 31st March 2024 shall be processed, even if the time limit under section 143(1) has expired. This move effectively reopens the window for processing delayed but condoned ITRs, enabling the department to compute refunds or carry out necessary adjustments. The circular acts as a formal override of the system’s time-bar flags and empowers the Income Tax Department to act by the spirit of the law, rather than being limited by the letter of the system code.
The circular is not just a procedural clarification but also a policy measure demonstrating the department’s commitment to easing the taxpayer burden. It recognizes the genuine hardship caused by technical limitations and seeks to remedy it without requiring further action from the taxpayer. The extension also ensures consistency in treatment, as all eligible taxpayers who obtained condonation will benefit from this relief uniformly. It also reaffirms the position that the condonation order itself is a sufficient legal basis to treat the ITR as valid for all purposes, including processing under section 143(1).
By issuing this directive, the CBDT sends a clear signal that taxpayer rights and departmental accountability must go hand in hand. It also reinforces the need for continuous review and updating of automated systems to accommodate such policy decisions in real-time. In the absence of this flexibility, the department risks creating a mismatch between its intent and its execution, which ultimately harms the trust and compliance culture among taxpayers.
Importance of Timely Processing Under Section 143(1)
Section 143(1) plays a foundational role in the tax administration framework. It is the primary mechanism through which the department communicates acceptance, correction, or adjustment of a return filed by the taxpayer. The processing includes verification of arithmetic errors, internal inconsistencies, incorrect claims, and matching of tax credits as per Form 26AS or AIS. If any adjustment is necessary, an intimation is sent to the taxpayer indicating the resultant demand or refund. If no adjustment is required, the return is simply processed and accepted.
The timeline for issuing intimation under section 143(1) is generally nine months from the end of the financial year in which the return is filed. Once this time lapses, the return is deemed processed as per the version submitted by the taxpayer. However, in cases where condonation is granted, and the return is filed after the original deadline, this timeline becomes irrelevant unless the system is instructed to accept the late return for processing. The extension granted by the CBDT thus revives the possibility of issuing an intimation under section 143(1) even if the standard time window has expired.
This extension is crucial because, without an intimation, the return remains technically unprocessed, and actions such as refund issuance or tax credit recognition cannot occur. Moreover, a pending return can also trigger compliance issues in future years or raise flags during scrutiny. Therefore, ensuring that all valid condoned returns are processed under section 143(1) is not just a formality but a legal and financial necessity for affected taxpayers.
Scope and Applicability of the CBDT’s Circular
The relief provided by the CBDT through its circular is specifically targeted. It applies only to Income Tax Returns (ITRs) that meet two essential criteria: (1) they must have been filed electronically under a valid condonation order granted under section 119(2)(b), and (2) the filing must have occurred on or before 31st March 2024. This cutoff date ensures that the benefit is extended only to those who had already acted within a reasonable period but were still disadvantaged by the system’s limitations.
The scope of the circular is not universal. It does not extend the deadline for seeking new condonation orders beyond 31st March 2024. Nor does it permit the filing of new belated returns after that date. It merely allows the processing of returns that had already been filed within the authorized time but remained unprocessed due to time-barred system constraints. Thus, the relief is retrospective and remedial, not prospective or permissive.
It is also important to note that this relief applies to returns of all types—whether individual, corporate, or trusts—provided they were validly filed under condonation orders. No distinction is made between original, revised, or defective returns, as long as they were filed in compliance with the condonation approval. This broad applicability ensures equitable treatment across categories of taxpayers who were similarly impacted by the same technical challenge.
Timeframe and Deadlines for Processing
The circular specifies a clear window within which the extended processing must be completed. The Income Tax Department has been instructed to process all eligible returns by 31st May 2025. This means that field offices and central processing units have been given approximately 14 months from the end of the condonation window to complete the necessary actions. This timeline allows sufficient leeway for system-level upgrades, case-by-case processing, and manual intervention if required.
The clarity in deadlines is vital because it ensures the timely closure of pending matters. Taxpayers can expect resolution within a defined timeframe rather than being left in indefinite limbo. It also helps the department manage its workflow by creating an organized window for handling these special cases. By prescribing a hard stop on 31st May 2025, the CBDT ensures that the relief remains temporary and focused, avoiding the risk of indefinite administrative burden or misuse.
This processing deadline will likely be integrated into the automated system through back-end programming, allowing these returns to bypass the default time-barred status and proceed as if they had been filed within the original timeline. The department may also deploy manual overrides or special task forces at the central or regional level to expedite the resolution of complex or high-value cases. Regular monitoring of progress is expected to ensure the goal is achieved within the stipulated timeframe.
Returns Covered and Conditions for Eligibility
For a return to be eligible under the CBDT’s extended processing framework, several conditions must be satisfied. First, the taxpayer must have submitted an application for condonation of delay under section 119(2)(b) to the appropriate authority. Second, this application must have been accepted, and a formal condonation order must have been issued. Third, based on this order, the taxpayer must have filed the return electronically on the income tax portal on or before 31st March 2024.
The return must also be complete in all respects, including verification through electronic modes (such as Aadhaar OTP, net banking, or digital signature) within the applicable time. Returns that remain unverified or are marked defective due to missing information may not qualify unless they are subsequently corrected and validated. It is the taxpayer’s responsibility to ensure that the filing process is fully concluded and that he return is deemed successfully filed on the system.
Additionally, the return must be in a format and for an assessment year that is supported by the department’s systems. For instance, if the return relates to an assessment year for which processing modules have been retired or decommissioned, manual processing may be required. The CBDT may issue further instructions to clarify how such exceptional cases will be handled. For now, the circular broadly covers all eligible returns filed within the condonation window and allows their processing under section 143(1).
Implications for Refund Processing
One of the most significant consequences of delayed ITR processing is the blocking of tax refunds. For many taxpayers, the expectation of a refund is the primary reason they seek condonation and file the return even after the due date. When such returns are not processed, the refund remains pending, even though the taxpayer may have paid advance tax, self-assessment tax, or had excess TDS deducted. The extension granted by the CBDT unlocks these refunds by allowing the department to process the returns and compute the correct refund amount.
Once the returns are processed, eligible taxpayers will receive intimation under section 143(1), which includes details of the final tax computation, adjustments, if any, and refund payable. The refunds will be issued directly to the bank account linked with the PAN and validated on the income tax portal. Interest under section 244A may also be applicable for the delay in refund, depending on the time elapsed and the date of return filing.
This refund processing will help restore taxpayer confidence in the system and alleviate financial hardship, especially in cases involving significant amounts or long-pending returns. The resolution of such matters also aids the department by clearing backlogs, reducing grievance volumes, and restoring the overall integrity of the assessment cycle. Taxpayers are advised to keep their bank details updated and monitor the status of their return through the portal to ensure timely receipt of intimation and refund.
Impact on Carry Forward of Losses and Other Claims
Another area positively impacted by the CBDT’s relief measure is the carry forward of losses. Under the Income Tax Act, specific losses—such as business loss, capital loss, or loss under house property—can be carried forward to future years only if the return for the loss year is filed within the due date under section 139(1). However, where condonation is granted under section 119(2)(b), courts have generally held that the effect of condonation extends to all consequential benefits, including carry forward.
With the processing of such condoned returns now permitted, taxpayers will be able to claim these losses in future years legitimately. This will prevent disallowances or litigation in subsequent assessment years, where tax authorities may question the basis of brought-forward claims. It also ensures continuity in accounting and financial records, especially for businesses and professionals who rely on accurate loss computation to determine tax liability in the following years.
Moreover, other claims such as deductions under Chapter VI-A (like 80C, 80D), exemptions for long-term capital gains, or foreign tax credit may also be validated through the processing of these returns. The confirmation of such deductions or credits is essential not only for the current year but also to avoid adjustment notices or rejections in future assessments. The CBDT’s move thus restores the full value of the condonation process by enabling actual enforcement of the claims made in such returns.
Administrative and Systemic Measures Expected
To implement the relief effectively, the CBDT will likely coordinate with various directorates, including the Directorate of Systems, to create back-end protocols that allow processing of time-barred but condoned returns. This may include reprogramming certain system flags, creating exception modules, and setting up escalation paths for technical errors. Field officers may be issued internal Standard Operating Procedures (SOPs) to ensure consistency and accuracy in handling these cases.
The department may also allocate resources specifically for this task, including assigning a dedicated team within the Centralized Processing Centre (CPC) to process these cases in a batch-wise manner. Since many of these returns are likely to be refund cases, priority may be given to those involving larger amounts or pending grievances. Periodic reviews may be conducted by regional offices to track the pace of processing and escalate any systemic bottlenecks to the central authority.
Taxpayers can assist this process by ensuring their records are updated, especially PAN linking, bank verification, and Aadhaar status. If any intimation is issued seeking clarification or rectification, taxpayers should respond promptly to avoid further delays. In some cases, manual correspondence may be required if the system throws validation errors or mismatch notices. Overall, the success of this initiative depends on proactive participation from both taxpayers and departmental officers.
Comparison with Past CBDT Circulars and Relief Measures
The latest CBDT circular extending the processing window for condoned delayed returns is not the first instance of administrative relief being granted to address technical and procedural issues. Over the years, the CBDT has issued several circulars that aim to provide equitable treatment to taxpayers who face genuine hardships, particularly when procedural deadlines cause substantive tax losses.
One notable precedent was the circular permitting the processing of returns for Assessment Year (AY) 2009–10 and AY 2010–11, which were delayed but accompanied by valid condonation orders. That relief also arose due to technical system blocks, which made processing impossible even after legal compliance. Similarly, during the COVID-19 pandemic, the CBDT issued multiple circulars granting extensions to return filing deadlines, verification windows, and timelines for processing refunds, acknowledging the extraordinary disruption to normal compliance workflows.
What sets the current circular apart is its scope and clarity. It not only recognizes the systemic flaw that prevented processing but also specifies the applicable cutoff dates and the final deadline for completing the action. By doing so, it ensures that the relief remains targeted, manageable, and enforceable. Unlike earlier circulars that were often vague in application or required manual interpretation by assessing officers, this directive is backed by a time-bound administrative mandate, increasing its effectiveness and uniformity across tax jurisdictions.
Judicial Views on Condonation and Taxpayer Rights
Indian courts have consistently taken a taxpayer-friendly view when interpreting condonation provisions under Section 119(2)(b). The judiciary has emphasized that the intent of tax law is not to penalize genuine taxpayers for procedural lapses, especially when they are willing to comply but are hindered by exceptional circumstances. Several landmark rulings have reinforced the idea that once a condonation is granted, the return should be treated as if it were filed within the prescribed time for all purposes.
In Vineet Kumar v. Income Tax Officer, the Delhi High Court ruled that the Income Tax Department cannot deny the processing of a return solely because it is filed late when the delay has been condoned by the competent authority. Similarly, in Sitaldas K. Motwani v. DGIT, the Bombay High Court held that once condonation is approved, all consequential benefits—including refund and carry forward of losses—must follow logically, and the department cannot withhold them on technical grounds.
These judgments reflect the underlying legal principle that procedural requirements should not override substantive rights. Courts have routinely directed the department to process condoned returns, even through manual intervention if necessary. The CBDT’s circular is in alignment with these judicial principles, demonstrating that administrative instructions can play a proactive role in reducing litigation, ensuring consistency with the law, and respecting taxpayer rights.
Broader Tax Policy and Compliance Implications
From a tax policy perspective, the circular represents a shift towards greater administrative responsiveness and a commitment to improving the taxpayer experience. It reinforces the idea that the tax administration must be as much about service as it is about enforcement. The decision to extend the processing window for condoned returns sends a positive signal that the CBDT is willing to adapt its systems and timelines when legitimate claims are being held up by technical constraints.
This approach aligns with the government’s broader initiatives under the “Faceless Assessment” and “Taxpayer Charter” programs, both of which emphasize accountability, efficiency, and fairness. By allowing delayed but condoned returns to be processed, the department ensures that law-abiding citizens are not discouraged by systemic rigidity. It also fosters voluntary compliance, as taxpayers become more confident that their concerns will be addressed fairly.
On the operational side, the circular demonstrates the need for periodic system audits and feedback loops between policy-makers and IT system developers. When automated systems are rigidly coded without considering exceptional scenarios, they can become bottlenecks rather than facilitators. The processing of condoned returns requires systems that are adaptable, responsive to legal directives, and capable of integrating dynamic timelines. This episode underlines the importance of building resilience and flexibility into tax administration technology platforms.
Digital Infrastructure Challenges and Future Improvements
The inability to process condoned returns within the existing IT systems points to limitations in digital infrastructure and workflow automation. The current system, built for scale and uniformity, sometimes lacks the flexibility to accommodate exceptional but legally valid cases. In the instance of condoned returns, the system’s default setting to reject time-barred filings essentially overrides the authority granted by the CBDT through condonation, leading to unintended consequences.
To address this, the Directorate of Systems must build in layers of conditional processing logic that can accommodate condonation scenarios. For example, if a return is flagged as late but matched with a condonation order, the system should allow a bypass of time-barred flags and enable normal processing under Section 143(1). These adjustments must be automated, traceable, and periodically updated to reflect evolving policy and legislative developments.
The long-term solution lies in creating a more adaptive architecture within the tax filing and processing ecosystem. AI-based case classification, rule-based exceptions, and centralized dashboards for condoned returns could be considered. By flagging these returns separately and routing them through a dedicated workflow, the department could ensure compliance with administrative relief measures while maintaining transparency and control.
The experience from the current situation should also inform future software development contracts and service-level agreements with IT vendors. Flexibility, exception management, and override capabilities should be key deliverables alongside core functions. A mechanism for urgent rollout of relief measures via patches or real-time updates would allow the tax administration to act more quickly in response to taxpayer needs and systemic flaws.
Communication and Awareness Among Taxpayers
While the CBDT’s decision provides genuine relief, its impact also depends on whether taxpayers are adequately informed and able to act accordingly. Many taxpayers may still be unaware that their returns—previously assumed to be lost or invalid—are now eligible for processing and may result in refunds or accepted loss carry forwards. The success of this initiative depends in part on the effectiveness of communication through tax portals, email updates, social media channels, and advisory firms.
Tax professionals and chartered accountants play a key role in identifying eligible cases and assisting clients in tracking their processing status. In some instances, revalidation or minor rectifications may be necessary for processing to proceed smoothly. For taxpayers who have moved or changed bank accounts, updating contact and banking information on the income tax portal becomes essential to avoid failed transactions or uncredited refunds.
The department may also consider publishing periodic lists or dashboards showing the number of condoned returns processed under the extended window, further encouraging confidence and transparency. It could also issue FAQs, step-by-step guides, and system alerts on the portal to help taxpayers understand the scope of the circular and take any follow-up actions required. This outreach effort is crucial in ensuring that administrative relief is translated into actual tax benefits.
Ensuring Uniform Implementation Across Jurisdictions
A potential challenge in the execution of this relief measure is the uniform implementation across different jurisdictions and assessing officers. In the past, differences in interpretation or awareness among officers have led to inconsistent treatment of similar cases. Some officers have insisted on additional documentation, while others have refused processing, citing system limitations. The CBDT must ensure that such inconsistencies are avoided this time.
To this end, issuing a follow-up instruction or Standard Operating Procedure (SOP) for all field units can help. It should include examples of eligible cases, instructions for system access, and escalation protocols for exceptional scenarios. The Directorate of Systems should ensure that officers have the necessary permissions and training to use any new modules introduced to facilitate this processing.
Internal audit mechanisms may be deployed to track whether field offices are complying with the circular’s intent. If necessary, centralized teams could take over certain high-volume or high-value returns to ensure consistent and timely processing. The overall aim should be to eliminate discretion and delay in the processing of returns that have already been validated through a formal condonation process.
Real-World Case Studies and Taxpayer Experiences
To better understand the impact of the CBDT’s extension for processing delayed ITRs filed with condonation, it is helpful to examine real-world examples. Consider the case of an individual taxpayer who missed the original filing deadline due to hospitalization. The taxpayer later submitted a condonation request, which was approved, and the return was filed electronically. However, despite full compliance, the system continued to treat the return as invalid due to expired processing timelines, and a substantial refund remained unpaid. Following the CBDT’s new circular, this return now qualifies for processing, and the taxpayer is likely to receive the refund within the extended window.
In another example, a partnership firm incurred significant losses in a financial year but failed to file the return by the due date due to an internal data loss. A condonation request was later granted, and the return was filed. However, since the return was not processed, the losses could not be carried forward and offset against future profits, inflating the tax liability in subsequent years. With the CBDT’s relief, the return can now be processed, and the loss claim will be validated, potentially leading to tax savings in future assessment years.
Such case studies highlight the practical consequences of systemic inflexibility. While the legal provision for condonation existed, the absence of synchronized system updates nullified its effect, causing financial strain and compliance complications. The latest circular bridges this gap by recognizing the disconnect and enabling a remedy through extended processing.
Recommendations for Taxpayers Moving Forward
To ensure a smooth experience during the processing of condoned returns, taxpayers should take proactive steps. First, they should monitor the status of their return regularly on the income tax portal. Any discrepancy, such as a defective return notice or verification failure, should be resolved promptly. Taxpayers should also ensure that their contact information, including email and mobile number, is accurate and active for receiving department notifications.
In case the return does not reflect any movement, taxpayers may consider raising a grievance through the e-Nivaran portal or contacting the Centralized Processing Centre (CPC). If any refund is delayed beyond a reasonable period, a follow-up with documentary proof of the condonation order and return filing acknowledgment may be submitted for manual review. For more complex cases, engaging a tax consultant or chartered accountant may be helpful to ensure compliance with all procedural steps.
Maintaining a record of all correspondence, including the condonation order, filing acknowledgment, verification confirmation, and bank validation, will help in any future communication with the department. In the rare event of denial or non-processing despite eligibility, the taxpayer may consider submitting a formal representation to the jurisdictional assessing officer or filing a complaint under the Taxpayer Charter.
Suggestions for Future Policy Enhancements
While the current relief is commendable, it also reveals areas where long-term reform is necessary. One of the key recommendations is that condonation-accepted returns should be automatically processed without the need for further administrative intervention. This requires integration between the approval system and the central processing system so that once a condonation order is uploaded, it triggers the lifting of time-barred flags in the backend.
Another policy suggestion is to maintain a separate category for condoned returns within the e-filing system, allowing them to be tracked and processed distinctly from standard returns. This could include unique acknowledgment numbers, dashboard indicators, or priority status for processing. Such categorization would streamline operations and reduce delays caused by confusion or manual sorting.
The department could also consider building a smart dashboard for field officers to track pending condoned returns in their jurisdiction. This would improve accountability and allow for timely escalations. Regular training programs and circular updates for departmental staff will further ensure uniform interpretation and compliance.
A revision of the standard processing window under Section 143(1) for exceptional cases may also be warranted. Rather than imposing a rigid cutoff, the law could allow a flexible extension period triggered by specific CBDT notifications or taxpayer representations. This would ensure that administrative actions can keep pace with legal exceptions.
Ensuring Technology Supports Policy Intent
The most critical lesson from this situation is the need for technology systems to be dynamic and policy-aligned. Tax administration in the digital age cannot rely solely on pre-programmed deadlines and static validation rules. Flexibility must be built into the core architecture to support legal provisions like condonation, rectification, and refund reissuance.
The income tax portal and the CPC’s backend systems should have a decision layer that interprets policy updates in real time. Once a circular is issued, it should be automatically factored into system logic, much like software updates in consumer platforms. This would eliminate manual intervention, reduce taxpayer grievances, and enhance the credibility of administrative reforms.
In future system upgrades, the department should invest in modular platforms that allow for the rapid deployment of rule changes. Automated triggers for exception handling, AI-powered case categorization, and integrated communication modules could be introduced to align operational capacity with legal requirements.
Conclusion
The CBDT’s decision to extend the processing window for delayed ITRs filed with condonation is a significant step toward ensuring fairness and responsiveness in tax administration. It acknowledges the limitations of automated systems and rectifies a gap that had caused genuine hardship for compliant taxpayers. By taking this action, the department reinforces its commitment to taxpayer service and legal equity.
However, this relief must be seen as part of a broader journey toward more adaptive, technology-integrated, and policy-conscious tax governance. The challenges encountered in this instance should inform future reforms so that procedural bottlenecks do not undermine substantive taxpayer rights.