2009 (12) TMI 36 - HC - Income Tax

Assessee's time-barred refund claim under section 115C requires prima facie verification, not detailed merit examination

Sitaldas K. Motwani, Versus 1. Director General of Income Tax (International Taxation), 2. Joint Director of Income Tax (International Taxation), 3. CIT 4. UOI

The Bombay HC addressed a case where an assessee filed a return for A.Y. 2000-01 on 24th September 2003, claiming refund of Rs.20,78,871/- on short-term ... Application u/s.119(2)(b) for condonation of delay in filing of return and claiming refund - return of income - barred by limitation - correctness and genuineness of the refund claim - genuine hardship - Short Term Capital Gains on sale of shares of Indian Companies qualify to be investment income u/s.115C - Whether the petitioner was prevented by any substantial cause from filing return within due time - HELD THAT:- ​​​​​​​The phrase 'genuine hardship' used in Section 119(2)(b) should have been construed liberally even when the petitioner has complied with all the conditions mentioned in Circular dated 12th October, 1993. The Legislature has conferred the power to condone delay to enable the authorities to do substantive justice to the parties by disposing of the matters on merit. The expression 'genuine' has received a liberal meaning in view of the law laid down by the Apex Court in the case of B.M. Malani Vs. CIT and Anr.[2008 (10) TMI 2 - SUPREME COURT] referred to hereinabove and while considering this aspect, the authorities are expected to bare in mind that ordinarily the applicant, applying for condonation of delay does not stand to benefit by lodging its claim late. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. All that the authority has to see is that on the face of it the person applying for refund after condonation of delay has a case which needs consideration and which is not bound to fail by virtue of some apparent defect. At this stage, the authority is not expected to go deep into the niceties of law. While determining whether refund claim is correct and genuine, the relevant consideration is whether on the evidence led, it was possible to arrive at the conclusion in question and not whether that was the only conclusion which could be arrived at on that evidence. In the result, we set aside the impugned order and remit the matter back to the respondent No.1 for consideration afresh, with the direction to decide the question of hardship as well as that of correctness and genuineness of the refund claim in the light of the observations made hereinabove. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:(a) Whether the delay in filing the income tax return for the assessment year 2000-01 and claiming refund can be condoned under Section 119(2)(b) of the Income Tax Act, 1961.(b) What constitutes 'genuine hardship' within the meaning of Section 119(2)(b) for condonation of delay in filing returns and claiming refunds.(c) Whether the refund claim made by the assessee is correct and genuine so as to merit consideration despite the delay.(d) The extent of the authority's discretion and the proper legal approach in considering applications for condonation of delay and refund claims under Section 119(2)(b).(e) The applicability and interpretation of relevant precedents and Board Circulars, including CBDT Instruction No.13/2006, in the context of condonation of delay and refund claims.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Condonation of Delay under Section 119(2)(b)Relevant Legal Framework and Precedents: Section 119(2)(b) empowers the tax authorities to condone delay in filing returns or claims for refund if there is 'genuine hardship'. CBDT Instruction No.13/2006 provides guidelines to consider the genuineness of the claim and hardship. The Apex Court in B.M. Malani v. CIT (2008) 10 SCC 617 clarified the meaning of 'genuine' as real and not bogus or a mere ruse. The Gujarat High Court in Gujarat Electric Co. Ltd. v. CIT and the Madras High Court in Seshammal (R) v. ITO emphasized a liberal construction of 'genuine hardship' and condemned hypertechnical rejections of refund claims.Court's Interpretation and Reasoning: The Court observed that the respondent authority erred by narrowly focusing only on whether the assessee was prevented by circumstances from filing the return on time. The Court held that 'genuine hardship' must be construed liberally, considering all relevant factors, including bonafide belief and lack of knowledge of legal obligations. The Court emphasized that refusal to condone delay can defeat substantive justice, and the authorities should prefer substantial justice over technicalities.Key Evidence and Findings: The assessee was a nonresident Indian settled abroad, who believed that since tax was deducted at source, filing a return was not mandatory. The return was filed voluntarily after the limitation period expired, along with an application for condonation of delay. The assessee was not assessed earlier and filed the return before any notice under Sections 142 or 148 was issued. These facts supported the claim of bonafide ignorance and genuine hardship.Application of Law to Facts: The Court found that the assessee's failure to file the return within time was due to a bonafide belief and lack of knowledge rather than deliberate or culpable negligence. The hardship arising from denial of refund due to delay was genuine and deserved consideration.Treatment of Competing Arguments: The respondent argued that no substantial cause prevented timely filing and that the refund claim was not correct and genuine. The Court rejected this narrow approach, holding that the absence of a specific preventing circumstance does not preclude condonation if other grounds of genuine hardship exist.Conclusion: The Court held that the delay in filing return and claiming refund deserved condonation if the claim was genuine and hardship real, and the authority must consider the matter afresh with a liberal approach.Issue (b): Meaning and Scope of 'Genuine Hardship'Relevant Legal Framework and Precedents: The Apex Court in B.M. Malani clarified 'genuine' means real and not bogus. The Gujarat and Madras High Courts emphasized that hardship includes circumstances like bonafide ignorance, ill health, or other genuine reasons that prevented timely compliance. The Board Circular and Section 119(2)(b) intend to enable authorities to do substantial justice.Court's Interpretation and Reasoning: The Court held that 'genuine hardship' is not confined to external impediments but also includes situations where the assessee acted under bonafide belief or ignorance of law. The Court stressed that the authorities must adopt a justice-oriented approach, not a hypertechnical or restrictive one.Key Evidence and Findings: The assessee's bonafide belief that return filing was unnecessary due to TDS deduction was a genuine hardship. The hardship also arose from the risk of penalty or prosecution if the return was not filed.Application of Law to Facts: The Court found that the assessee's circumstances fit within the ambit of genuine hardship, warranting condonation of delay.Treatment of Competing Arguments: The respondent's narrow view that hardship must be a circumstance preventing filing was rejected as too restrictive.Conclusion: Genuine hardship includes bonafide ignorance and the risk of penal consequences, and must be liberally construed to advance substantial justice.Issue (c): Correctness and Genuineness of Refund ClaimRelevant Legal Framework and Precedents: The Board Circular requires that the income declared and refund claimed be correct and genuine. However, the authority is not to prejudge the merits but to satisfy prima facie correctness to avoid frivolous claims.Court's Interpretation and Reasoning: The Court held that the authority must ascertain whether the claim is prima facie correct and genuine, not conclusively decide the merits. The authority should not reject condonation on the ground that the claim is bound to fail on detailed examination.Key Evidence and Findings: The assessee claimed short term capital gains on shares, taxed at 20% under Section 115C, and sought refund of excess TDS deducted at 30%. The shares were foreign exchange assets acquired through NRE account, qualifying under relevant provisions. The respondent's view that income from sale of assets cannot be income from assets was a point of contention but not a basis to reject condonation at the threshold.Application of Law to Facts: The Court found that on the face of it, the refund claim was not frivolous or bound to fail and deserved consideration on merits.Treatment of Competing Arguments: The respondent's rejection based on correctness was premature and amounted to prejudging the case.Conclusion: The refund claim was prima facie genuine and correct, requiring merit-based adjudication after condonation of delay.Issue (d): Discretion and Approach of Authorities under Section 119(2)(b)Relevant Legal Framework and Precedents: Section 119(2)(b) confers discretionary power to condone delay to advance substantial justice. The Apex Court and High Courts have emphasized a liberal and justice-oriented approach rather than strict technicality.Court's Interpretation and Reasoning: The Court held that authorities must balance technical time limits against the cause of justice, preferring to decide cases on merits rather than rejecting on procedural grounds. There is no presumption that delay is deliberate or mala fide. The authority must consider all relevant circumstances and not confine itself to a narrow test.Key Evidence and Findings: The respondent failed to consider the full scope of hardship and genuineness, focusing narrowly on absence of a preventing circumstance.Application of Law to Facts: The Court directed reconsideration of the condonation application with a holistic and liberal approach.Treatment of Competing Arguments: The respondent's strict approach was rejected as contrary to the legislative intent and judicial precedents.Conclusion: The authority's discretion under Section 119(2)(b) must be exercised liberally to advance justice and consider all relevant factors.3. SIGNIFICANT HOLDINGS'The phrase 'genuine hardship' used in Section 119(2)(b) should have been construed liberally even when the petitioner has complied with all the conditions mentioned in Circular dated 12th October, 1993. The Legislature has conferred the power to condone delay to enable the authorities to do substantive justice to the parties by disposing of the matters on merit.''Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned the highest that can happen is that a cause would be decided on merits after hearing the parties.''Whether the refund claim is correct and genuine, the authority must satisfy itself that the applicant has a prima facie correct and genuine claim, does not mean that the authority should examine the merits of the refund claim closely and come to a conclusion that the applicant's claim is bound to succeed. This would amount to prejudging the case on merits.''The authorities are expected to bare in mind that ordinarily the applicant, applying for condonation of delay does not stand to benefit by lodging its claim late. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of malafides.'Final determinations:- The impugned order rejecting condonation of delay was set aside.- The matter was remitted to the respondent authority for fresh consideration of condonation of delay application, focusing on genuine hardship and prima facie genuineness of the refund claim.- All other rival contentions on merits were kept open for adjudication after condonation.