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The Central Board of Direct Taxes is entrusted with the administration and enforcement of the provisions of the Income-tax Act, 1961. One of its significant powers comes from Section 119(2)(b), which allows it to accept applications for refund claims or for the carry forward and set-off of losses, even if the returns were filed after the statutory deadlines. This power is exercised in cases where the taxpayer can demonstrate a valid reason for the delay and where denying such a claim would result in undue hardship.

The provision exists to ensure that taxpayers with legitimate claims are not unfairly disadvantaged due to procedural lapses or delays that may be beyond their control. However, this power is not exercised arbitrarily. The Board frames guidelines to define the conditions and the process that income-tax authorities must follow when dealing with such delayed applications. Over the years, multiple instructions and circulars have been issued in this regard, adapting the framework to changing legal provisions and practical challenges.

Introduction to Circular No. 11/2024

On 15 October 2024, the CBDT issued Circular No. 11/2024, replacing all previous instructions concerning condonation applications for delayed filing of returns involving refund claims or the carry forward of losses. This circular sets out a consolidated and updated framework that covers jurisdictional authority, monetary limits, timelines, eligibility conditions, and procedural aspects.

The intent behind the updated guidelines is to ensure uniformity in decision-making across the country, to provide a clear understanding to both taxpayers and tax officials, and to introduce stricter timelines for the disposal of applications. The guidelines also align with recent legislative amendments, especially the introduction of Section 139(9A), which underscores the importance of reasonable cause and genuine hardship as prerequisites for condonation.

Reasons for Updating the Condonation Guidelines

Taxpayers may miss the prescribed deadline for filing returns for a variety of reasons. These may include medical emergencies, technical issues with the filing portal, professional obligations that could not be postponed, disputes awaiting resolution, or personal circumstances that prevented timely compliance. Without a condonation mechanism, such taxpayers would lose the right to claim refunds for excess tax paid or to carry forward losses for set-off in subsequent years, potentially leading to significant financial implications.

The earlier instructions on condonation of delay were issued at different times and lacked a consolidated approach. Some provisions were outdated, especially given the changes in technology and return processing methods. The amendment introducing Section 139(9A) in the Finance (No. 2) Act, 2024, brought a statutory requirement for ensuring reasonable cause and genuine hardship. This necessitated a comprehensive revision of the condonation framework to align with the legislative intent and current administrative needs.

Jurisdictional Monetary Limits for Condonation Powers

The circular outlines the monetary thresholds within which different levels of income-tax authorities can decide on condonation applications. These limits ensure that each case is dealt with at the appropriate level based on its financial significance, preventing unnecessary escalation and allowing faster disposal.

• Principal Commissioners or Commissioners of Income Tax can handle applications involving claims up to ₹1 crore for a single assessment year.

• Chief Commissioners of Income Tax are authorised to decide cases where the claim exceeds ₹1 crore but does not exceed ₹3 crores for the relevant year.

• Principal Chief Commissioners of Income Tax handle claims that are above ₹3 crores for a single assessment year.

• The Commissioner of Income Tax at the Central Processing Centre, Bengaluru, has the specific responsibility for condoning delays in verifying returns through submission of the ITR-V.

This hierarchy ensures efficient use of administrative resources while allowing adequate scrutiny for high-value claims.

Time Limit for Filing Condonation Applications

A strict time frame has been set to avoid prolonged uncertainty in tax matters. No condonation application will be entertained if filed beyond five years from the end of the relevant assessment year. This outer limit applies to applications submitted on or after 1 October 2024.

For instance, if the relevant assessment year ends on 31 March 2023, the application for condonation must be filed before 31 March 2028. After this period, no authority will have the jurisdiction to admit the application, regardless of the reasons for delay. This limitation promotes finality in tax assessments and ensures that records are not revisited after an excessive lapse of time.

Timeline for Disposal of Applications

To ensure timely resolution, the circular directs that condonation applications must be disposed of within six months from the end of the month in which they are received by the competent authority. This requirement applies uniformly to all authorities, irrespective of the monetary value of the claim.

The fixed timeline benefits both taxpayers and the tax administration. Taxpayers gain certainty about the outcome of their application within a predictable period, while tax officers are encouraged to process cases without undue delay. It also supports efficient case management by preventing the accumulation of pending applications.

Conditions for Granting Condonation

In line with Section 139(9A), authorities must be satisfied that the delay in filing the return is backed by a reasonable cause and that refusing to condone the delay would result in genuine hardship to the taxpayer. These conditions ensure that the condonation mechanism is used only in deserving cases.

Reasonable cause refers to circumstances beyond the taxpayer’s control that led to the delay. This could include serious illness, natural calamities, prolonged litigation, technical glitches in the filing system, or other unavoidable events. Genuine hardship involves a situation where the taxpayer would suffer a real financial or legal disadvantage if the condonation is denied. Together, these criteria prevent misuse of the condonation provisions.

To verify the legitimacy of the claim, the competent authority may direct the Assessing Officer to conduct enquiries. This could involve reviewing documents, cross-checking facts, and assessing the taxpayer’s compliance history. The decision on whether to grant condonation must be based on the merits of each case.

Special Provisions for Refund Claims Arising from Court Orders

In some situations, a taxpayer’s refund claim results from a court order. Legal proceedings can be lengthy, and it would be unfair to penalise taxpayers for delays caused by such processes. The guidelines address this by excluding the period during which the matter was pending before any court when calculating the five-year limit for filing a condonation application.

However, there is an important caveat. The application must still be filed within six months from the end of the month in which the court order was issued or by the end of the relevant financial year, whichever is later. This ensures that claims arising from court orders are addressed promptly while providing flexibility to account for legal delays.

Handling Supplementary Refund Claims

The circular also covers supplementary refund claims, which occur when a taxpayer is entitled to an additional refund for the same assessment year after the original assessment has been completed. Such belated claims can be considered for condonation if they meet the prescribed conditions.

The decision-making authority for supplementary refund claims depends on the monetary value of the claim, following the same jurisdictional limits as other condonation applications. However, there are additional conditions:

• The income in respect of which the refund is claimed must not be accessible in the hands of another person under any provision of the Income-tax Act.

• No interest will be paid on refunds granted as a result of belated claims.

• The refund must arise from excess payments such as tax deducted at source, tax collected at source, advance tax, or self-assessment tax.

These conditions ensure that the provision for supplementary refunds serves its intended purpose without creating opportunities for exploitation.

Administrative Efficiency and Transparency

One of the key objectives of the updated guidelines is to enhance transparency in decision-making. Clear monetary limits, strict time frames for both filing and disposal, and defined conditions for eligibility make the process more predictable. This benefits taxpayers, who can assess the likelihood of their application being accepted before filing it, and also helps tax authorities by providing a standardised approach across different jurisdictions.

By mandating a six-month disposal period, the guidelines also aim to improve administrative efficiency. In practice, this requires authorities to adopt better case management systems, allocate resources appropriately, and avoid procedural bottlenecks.

Impact of the Updated Guidelines on Taxpayers

The introduction of the updated framework for condonation applications has both immediate and long-term implications for taxpayers. While the process has been made more structured, it also demands greater diligence and awareness from individuals and businesses. Taxpayers can no longer rely on indefinite periods for making delayed claims. They must be proactive in identifying eligible refunds or loss carry forward opportunities and filing condonation applications within the prescribed time limits.

The clarity provided by the new circular benefits those who are compliant but have missed deadlines due to unavoidable circumstances. At the same time, it discourages casual or negligent behaviour by ensuring that applications without genuine hardship or reasonable cause are not entertained. This dual effect helps maintain fairness while reducing unnecessary administrative workload.

Importance of Maintaining Timely Compliance

Although the condonation mechanism provides relief in certain cases, it is not a substitute for timely compliance with the provisions of the Income-tax Act. Filing returns within the prescribed due dates remains the safest way to ensure eligibility for refunds, carry forward of losses, and other benefits under the law. Late filing often leads to loss of certain deductions, penalties, and interest charges, in addition to the uncertainty of awaiting condonation approval.

The guidelines serve as a reminder that while the system accommodates genuine delays, the responsibility to comply on time lies with the taxpayer. Those who maintain proper records, monitor filing deadlines, and address tax matters promptly are less likely to find themselves in situations where they need to seek condonation.

Step-by-Step Process for Filing a Condonation Application

The process for filing a condonation application under the revised guidelines requires careful preparation and adherence to procedural requirements. Taxpayers should follow these steps:

• Identify the reason for delay and assess whether it constitutes reasonable cause and genuine hardship.

• Gather all supporting documentation, such as medical records, court orders, technical issue reports, or other evidence relevant to the reason for delay.

• Calculate the refund amount or quantify the loss carry forward claim accurately, ensuring that it falls within the jurisdictional monetary limits for the appropriate authority.

• Prepare the condonation application in the prescribed format, clearly stating the facts, reasons for delay, and relief sought.

• Submit the application to the competent authority based on the monetary value of the claim. If the application involves delay in verification through ITR-V, it should be sent to the Commissioner at CPC Bengaluru.

• Track the application status and provide any additional information or clarification requested by the authority or the Assessing Officer.

Following the correct procedure improves the chances of the application being accepted and ensures a smoother process.

Role of Assessing Officers in the Condonation Process

Assessing Officers play a vital role in the evaluation of condonation applications. While the final decision rests with the competent authority, the officer may be directed to conduct inquiries into the facts of the case. This may involve examining the taxpayer’s compliance history, verifying supporting documents, and assessing whether the claim is genuine and in line with the provisions of the Act.

The involvement of the Assessing Officer adds a layer of verification, ensuring that condonation is granted only where justified. This step also helps maintain the integrity of the system by preventing false or exaggerated claims.

Practical Scenarios Where Condonation May Be Granted

To understand how the updated guidelines work in practice, it is useful to consider some hypothetical situations:

• A business owner is hospitalized for several months due to a serious medical condition and misses the filing deadline for a return claiming a large refund.

• A taxpayer’s income tax case is pending in court for several years, and a refund becomes due only after the final judgment is delivered.

• Technical glitches on the filing portal prevent timely submission of a return, despite multiple attempts to file before the due date.

• A natural disaster disrupts normal life and business operations, making it impossible to prepare and file returns on time.

In each of these cases, the delay could be condoned if the taxpayer files the application within the prescribed five-year limit and provides adequate proof of reasonable cause and genuine hardship.

Restrictions and Safeguards in the Guidelines

The updated guidelines include restrictions to ensure that the condonation mechanism is not abused. These safeguards include:

• No condonation after five years from the end of the relevant assessment year, except where court proceedings extend this period as per the special provisions.

• No interest payable on belated refund claims.

• Conditions for supplementary refund claims, such as the income not being assessable in another person’s hands and the refund arising only from excess tax payments.

• Requirement for authorities to record satisfaction regarding both reasonable cause and genuine hardship before granting condonation.

These safeguards strike a balance between taxpayer relief and administrative efficiency, ensuring that only legitimate cases receive approval.

Importance of Documenting Reasons for Delay

One of the critical success factors in a condonation application is the quality and completeness of the supporting documentation. Taxpayers must be able to demonstrate that the delay was beyond their control and that they acted promptly once the circumstances preventing timely filing were resolved.

Examples of useful documentation include:

• Hospital admission and discharge records for medical emergencies.

• Copies of court orders and proof of litigation timelines for cases involving legal disputes.

• Official records of natural disasters or other disruptive events.

• Screenshots, error messages, and helpdesk tickets for technical glitches during online filing.

Well-documented applications are more likely to be approved, as they provide clear evidence for the authority to base its decision.

Aligning the Guidelines with Section 139(9A)

The introduction of Section 139(9A) reinforces the requirement that condonation is available only where the taxpayer can show reasonable cause and genuine hardship. The updated guidelines directly align with this statutory provision, ensuring consistency between administrative instructions and legislative intent.

By integrating Section 139(9A) into the framework, the CBDT ensures that the condonation process is not a discretionary relief applied inconsistently. Instead, it becomes a structured process backed by statutory authority, reducing the scope for arbitrary decisions and increasing predictability for taxpayers.

Court-Ordered Refunds and the Exclusion of Litigation Period

Refund claims arising from court orders often involve long litigation periods, during which the taxpayer cannot take any further steps to claim the refund. Recognising this, the guidelines exclude the litigation period from the five-year limit for filing a condonation application.

This provision ensures fairness by acknowledging that the delay is not attributable to the taxpayer. However, to maintain timeliness, the application must still be submitted within six months from the end of the month in which the court order is issued or by the end of the relevant financial year, whichever is later.

Handling of Supplementary Refund Claims

Supplementary refund claims present unique challenges because they arise after the initial assessment for the same year has been completed. The updated guidelines allow for the condonation of such claims, provided they meet the standard conditions and fall within the monetary limits of the deciding authority.

For example, if a taxpayer discovers that they overpaid advance tax due to an error in income estimation, and the excess payment is identified after assessment, they can seek a supplementary refund. However, the claim must relate to excess TDS, TCS, advance tax, or self-assessment tax, and no interest will be paid on such refunds.

Administrative Benefits of the Updated Framework

From an administrative perspective, the updated guidelines bring several benefits. Clear jurisdictional limits and fixed timelines allow authorities to manage workloads effectively. By specifying the role of Assessing Officers and the requirement for documented verification, the framework reduces the risk of errors or fraudulent claims slipping through the system.

The standardisation of procedures across different levels of the tax administration ensures that similar cases are treated consistently, regardless of location. This enhances the credibility of the system and builds taxpayer trust.

Encouraging Voluntary Compliance

While the guidelines primarily address delayed filings, their structured nature also promotes voluntary compliance. Taxpayers are more likely to file on time if they know that relief for delays is limited to genuine cases. The fixed five-year window and requirement for prompt application after a court order or resolution of the cause of delay serve as deterrents against casual late filing.

Voluntary compliance benefits both taxpayers and the administration, reducing the number of condonation applications and allowing resources to be directed toward more critical tasks such as assessments and investigations.

Overview of Regulatory Oversight in Securitisation

Securitisation operates within a legal and regulatory framework that ensures the safety, transparency, and integrity of the transactions. In India, the Reserve Bank of India plays a central role in regulating the securitisation market, particularly for banks and non-banking financial companies. Additionally, the Securities and Exchange Board of India regulates securitisation transactions where securities are listed or offered to the public.

The regulatory framework seeks to ensure that securitisation does not become a channel for excessive risk transfer or a method to conceal bad assets. Guidelines often cover eligibility criteria for assets, minimum holding periods, minimum retention requirements, credit enhancement provisions, disclosure standards, and reporting obligations. These rules aim to balance the benefits of liquidity generation and risk diversification with the need to safeguard financial stability.

Internationally, jurisdictions have their own regulations, but many adopt principles recommended by global bodies such as the Basel Committee on Banking Supervision. These principles emphasize prudent risk management, transparency in structuring transactions, and the importance of retaining a portion of the risk by the originator.

Key Regulatory Guidelines for Securitisation

Regulatory frameworks typically outline specific eligibility requirements for assets to be securitised. For example, regulators may restrict securitisation to assets that are already generating steady cash flows and have a proven repayment history. There may be requirements for the originator to hold the assets for a certain period before they can be securitised, which ensures that only seasoned loans are packaged and sold.

Another important aspect is the minimum retention requirement, often referred to as the “skin in the game” principle. Under this rule, originators must retain a certain percentage of the securitised assets on their books, thereby aligning their interests with those of investors. This reduces the likelihood of originators offloading risky assets without due diligence.

Regulations also deal with the use of credit enhancement techniques, such as over-collateralisation, reserve funds, or guarantees, which provide additional comfort to investors. However, excessive or complex credit enhancements can create opacity, and regulators closely monitor their use.

Role of Rating Agencies

Rating agencies play a vital role in securitisation by assessing the creditworthiness of the issued securities. They evaluate the underlying asset pool, the structure of the transaction, the adequacy of credit enhancement measures, and the robustness of cash flow waterfalls. Ratings help investors gauge the risk level and make informed investment decisions.

However, the global financial crisis highlighted the potential pitfalls of overreliance on ratings. Conflicts of interest, overly optimistic assumptions, and failure to account for extreme market conditions can lead to mispricing of risk. Consequently, both regulators and market participants now advocate for investors to conduct their own due diligence alongside relying on external ratings.

Risk Management in Securitisation

Securitisation carries several risks that need to be carefully managed. One of the primary risks is credit risk, which arises from the possibility of default in the underlying asset pool. This risk is partly mitigated through diversification, credit enhancements, and rigorous underwriting standards.

Market risk is another factor, particularly in cases where securitised instruments are traded in secondary markets. Changes in interest rates, economic conditions, or investor sentiment can influence the value of the securities. Liquidity risk can emerge if investors are unable to sell the securities when needed, especially in times of market stress.

Operational risk is also relevant, as securitisation involves complex legal documentation, servicing arrangements, and cash flow management. Errors in these processes can affect timely payments to investors. Moreover, legal risk may arise if the securitisation structure fails to meet the requirements for bankruptcy remoteness or if there are disputes over asset ownership.

Lessons from the Global Financial Crisis

The 2007–2008 financial crisis underscored the importance of robust regulation, transparency, and prudent risk assessment in securitisation. In the years leading up to the crisis, excessive reliance on complex securitisation structures, weak underwriting standards, and misaligned incentives between originators and investors contributed to the systemic collapse.

Post-crisis reforms have aimed to address these weaknesses. For instance, stricter disclosure requirements, retention rules, and higher capital charges for certain securitised exposures have been introduced. These measures seek to restore investor confidence and ensure that securitisation serves as a tool for financial stability rather than a source of systemic risk.

Legal Documentation in Securitisation

Legal documentation forms the backbone of any securitisation transaction. Key agreements include the trust deed, which establishes the special purpose vehicle, and the sale agreement, which governs the transfer of assets from the originator to the SPV. The servicing agreement outlines the responsibilities of the servicer in collecting payments and managing the asset pool.

Other important documents include the offering memorandum or prospectus, which provides detailed information to potential investors, and the credit enhancement agreements that set out the terms of additional support measures. Clear and comprehensive documentation is essential to avoid disputes, ensure enforceability, and provide investors with the necessary transparency.

Accounting and Disclosure Requirements

From an accounting perspective, securitisation transactions must comply with relevant standards for asset derecognition, revenue recognition, and consolidation of the SPV. Proper accounting treatment is crucial for accurately reflecting the financial position of the originator and the SPV. Incorrect recognition or derecognition of assets can mislead stakeholders and regulators.

Disclosure requirements often include providing details on the performance of the underlying asset pool, the structure of the transaction, credit enhancements, and any changes in servicing arrangements. Periodic reporting allows investors to monitor the health of their investments and assess whether the risk profile has changed over time.

Securitisation in Emerging Markets

In emerging markets, securitisation offers significant potential for financial sector development. By converting illiquid assets into tradable securities, financial institutions can unlock capital for further lending and promote broader financial inclusion. However, the development of securitisation in these markets is often constrained by limited investor awareness, shallow capital markets, and underdeveloped legal frameworks.

To promote securitisation in such markets, regulators and policymakers may need to focus on building the necessary market infrastructure, enhancing transparency, and providing clarity on taxation and accounting treatment. Encouraging participation from a diverse range of investors, including pension funds, insurance companies, and mutual funds, can also help deepen the market.

Technological Innovations in Securitisation

Advances in technology are reshaping the securitisation process. The use of blockchain, for instance, has the potential to enhance transparency, reduce operational risks, and streamline settlement processes. Smart contracts can automate payment distributions, compliance checks, and reporting, thereby reducing reliance on intermediaries.

Data analytics and artificial intelligence are also playing a role in improving the assessment of underlying asset quality, predicting default probabilities, and optimising portfolio composition. These technologies can help originators and investors make more informed decisions and enhance the efficiency of the securitisation market.

Sustainable Finance and Green Securitisation

An emerging trend is the use of securitisation for sustainable finance initiatives. Green securitisation involves pooling assets such as renewable energy loans, energy-efficient building mortgages, or electric vehicle financing, and issuing securities backed by these environmentally beneficial projects. This not only provides investors with opportunities to support sustainable development but also opens new funding channels for green projects.

Internationally, standards for green bonds and sustainable finance are being adapted for securitisation to ensure that proceeds are used for genuine environmental benefits. Transparent reporting on the environmental impact of the underlying assets is essential for maintaining investor trust and preventing greenwashing.

Cross-Border Securitisation

Cross-border securitisation involves transactions where the originator, SPV, and investors may be located in different jurisdictions. Such transactions can help originators tap into larger and more diverse investor bases, potentially reducing funding costs. However, they also introduce additional complexities, including currency risk, differences in legal systems, and compliance with multiple regulatory regimes.

Successful cross-border securitisation requires careful structuring to address issues such as double taxation, enforceability of contracts, and recognition of bankruptcy remoteness. Collaborations between regulators and harmonisation of standards can facilitate the growth of cross-border securitisation while safeguarding investor interests.

Conclusion

The audit of advances in banking institutions is a vital process that ensures the safety, performance, and compliance of the loan portfolio. By applying structured auditing frameworks, banks can detect early warning signals, assess the adequacy of security, verify borrower credentials, and ensure adherence to internal and regulatory norms. This process not only safeguards the bank’s financial stability but also contributes to overall credit discipline in the economy. With advances forming a substantial portion of a bank’s assets, meticulous scrutiny helps mitigate credit risk, prevent potential defaults, and maintain asset quality.

As financial markets evolve, advances become more complex, involving various credit products, innovative financing models, and cross-border exposures. This underscores the importance of auditors staying updated with the latest regulatory requirements, risk management techniques, and industry best practices. Integrating technology-driven audit tools, data analytics, and AI-based monitoring systems further enhances efficiency and accuracy in detecting irregularities.

Ultimately, the effectiveness of an audit of advances depends on the combination of technical expertise, professional skepticism, and thorough understanding of the banking environment. When implemented diligently, it not only upholds the integrity of the financial system but also fosters trust among depositors, investors, regulators, and other stakeholders. In this way, audit of advances plays a crucial role in ensuring the resilience, transparency, and sustainable growth of banking operations.