2017 (8) TMI 730 - HC - Income Tax

Court Overturns CBDT's Delay Refusal, Upholds Section 80IC Deduction

The Court set aside the notice under Section 148 and subsequent orders, including the assessment order, finding the delay in filing the return to be bona ... Reopening of assessment - claim of deduction u/s. 80IC not allowable - delay of 46 days in filing the return - Held that:- In the present case, since the entitlement of the Petitioner to the deduction under Section 80 IC of the Act even for AY 2010-11 has not been questioned by the Department on merits, there is no justification for not viewing the delay of 46 days in filing the return to be bona fide. It is not one of those cases where the delay is so extraordinary so as to not be condoned. Consequently, the Court sets aside the order dated 9th August, 2017 passed by the CBDT under Section 119 (2) (b) of the Act. The result is that the claim of the Petitioner for deduction under Section 80IC of the Act cannot be defeated on the ground of delay in filing the return. Since this was the principal reason for reopening of the assessment, the notice dated 25th March 2014 issued by the AO under Section 148 of the Act and the order dated 25th February 2015 passed by the AO rejecting the Petitioner's objections to the reopening of the assessment are set aside. The consequential impugned assessment order dated 17th March, 2015 passed by the AO under Section 147 of the Act is also therefore set aside. Any order by the CIT (A) in the further appeal filed against the said order by the Assessee will also therefore not survive. If any further appeal has been filed before the ITAT, then appropriate orders will accordingly be passed in the said appeal. - Decided in favour of assessee. Issues Involved1. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.2. Entitlement to deduction under Section 80IC despite delayed filing of return.3. Legality of CBDT's refusal to condone delay in filing the return under Section 119(2)(b).4. Applicability of Circular No.9/2015 to belated returns claiming deductions under Section 80IC.Detailed Analysis1. Validity of Reopening of Assessment under Section 147The Petitioner challenged the reopening of assessment for AY 2011-12 by the Assessing Officer (AO) under Section 147 of the Income Tax Act, 1961. The AO issued a notice under Section 148 on 25th March 2014, citing reasons that the Petitioner’s income had escaped assessment due to the delayed filing of the return, which rendered the claim for deduction under Section 80IC invalid. The Petitioner contended that the reopening was based on a mere change of opinion regarding the timeliness of the return filing.2. Entitlement to Deduction under Section 80IC Despite Delayed FilingThe Petitioner argued that the deduction under Section 80IC should be allowed despite the delay in filing the return. The AO had disallowed the deduction on the grounds that the return was filed 46 days late, violating Section 80AC, which mandates timely filing for claiming deductions under Sections 80IB and 80IC. The Petitioner highlighted that the delay was due to a TDS mismatch and late receipt of TDS certificates, which was a time-consuming reconciliation process.3. Legality of CBDT's Refusal to Condon DelayThe Central Board of Direct Taxes (CBDT) declined to condone the delay in filing the return for AY 2011-12, citing that the Petitioner had the necessary documents ready before the due date and the TDS mismatch was minimal. The Petitioner challenged this decision, arguing that the delay was bona fide and that the CBDT did not consider the merits of the deduction claim, which was allowed for AY 2010-11 by the ITAT.4. Applicability of Circular No.9/2015The Department argued that Circular No.9/2015, which provides guidelines for condonation of delay in filing returns, does not apply to cases where deductions under Section 80IC are claimed. The Petitioner contended that the circular does not explicitly exclude such cases and that the phrase 'genuine hardship' should be construed liberally to include their situation.Judgment SummaryReopening of AssessmentThe Court found that the principal reason for reopening the assessment was the delay in filing the return, which was subsequently addressed by the CBDT's refusal to condone the delay. Since the reopening was based on this ground, and the Court found the delay to be bona fide, the notice under Section 148 and the subsequent order rejecting the Petitioner’s objections were set aside.Deduction under Section 80ICThe Court noted that the ITAT had allowed the deduction for AY 2010-11 on merits, and the Department did not challenge this decision. Therefore, the Petitioner’s entitlement to the deduction under Section 80IC for AY 2011-12 should not be denied due to the delay in filing the return.CBDT's Refusal to Condon DelayThe Court set aside the CBDT's order dated 9th August 2017, which refused to condone the delay. The Court emphasized that the Petitioner’s claim for deduction under Section 80IC was bona fide and that the delay of 46 days was not extraordinary.Applicability of Circular No.9/2015The Court disagreed with the Department’s interpretation that Circular No.9/2015 does not apply to deductions under Section 80IC. The Court cited the Bombay High Court's decision in Sitaldas K. Motwani v. Director General of Income Tax (International Taxation), which advocated for a liberal interpretation of 'genuine hardship.'ConclusionThe Court allowed the writ petition, setting aside the notice under Section 148 and the subsequent orders, including the assessment order dated 17th March 2015. The Court directed that the Petitioner’s claim for deduction under Section 80IC should not be defeated due to the delay in filing the return. The writ petition was allowed with no orders as to costs.