2019 (4) TMI 1169 - HC - Income Tax

Court quashes tax order, grants relief for filing delay due to error.

The court allowed the petition, quashing the CBDT's order and directing the processing of the petitioner's income tax return. It found the petitioner ... Genuine hardship - section 119(2)(b) of the Income Tax Act - power to condone delay - circumstances beyond the control of the assessee - correctness and genuineness of claim - Circular No.9/2015Section 119(2)(b) of the Income Tax Act - power to condone delay - genuine hardship - Validity of CBDT's rejection of the petitioner's application for condonation of delay under section 119(2)(b) of the Act. - HELD THAT: - The Court analysed clause (b) of sub-section (2) of section 119 as empowering the Board to admit claims after the prescribed period if it considers it desirable or expedient for avoiding genuine hardship. The exercise requires two stages: first, satisfaction that the claim is correct and genuine; and second, that genuine hardship exists and it is desirable/expedient to relieve the assessee. The Court held that these powers are not to be exercised routinely but to avoid hardship caused by strict limitation rules. Applying these principles, the Court found that the CBDT's rejection failed to appreciate the correctness/genuineness requirement and the circumstances preventing timely filing. The Court concluded the CBDT ought to have exercised its discretion to condone the delay and therefore quashed the impugned order and directed the return to be processed in accordance with law. [Paras 8, 15, 16, 31, 32]Impugned CBDT order rejecting condonation under section 119(2)(b) was quashed and set aside; petition allowed and the petitioner's return to be processed in accordance with law.Circular No.9/2015 - correctness and genuineness of claim - Assessing Officer's duty to inquire - Whether the Assessing Officer and revenue authorities were required to verify correctness and genuineness of the claimed loss under Circular No.9/2015 before CBDT considered condonation. - HELD THAT: - The Court examined Circular No.9/2015 which mandates that when considering applications under section 119(2)(b) the local authorities must ensure the income/loss claimed is correct and genuine and may direct the Assessing Officer to make necessary inquiries or scrutinise the case to ascertain correctness. The Court found the Assessing Officer's report consisted only of comments on merits and did not undertake the verification envisaged by the circular. The Court held that the revenue's contention that it had no power to ascertain genuineness was contrary to the circular and not borne out by the material, and that failure to carry out the required inquiries vitiated the decision-making process. [Paras 16, 17, 18, 19, 20]The Assessing Officer ought to have inquired into and reported on the correctness and genuineness of the loss as required by Circular No.9/2015; absence of such verification was a flaw in the decision-making process.Genuine hardship - circumstances beyond the control of the assessee - Whether the petitioner established genuine hardship and that it was prevented by circumstances beyond its control from filing the correct return within the statutory period. - HELD THAT: - The Court applied the principle from B.M. Malani that compulsion to pay unjust dues causes hardship and held that in addition genuine hardship must ordinarily involve prevention by circumstances beyond the assessee's control from making the claim within time. Examining the facts, the Court accepted contemporaneous evidence (including audit records) showing the loss was incurred and that the omission resulted from a clerical/error by the Chartered Accountant which remained undiscovered because the original return was processed under section 143(1) and not declared invalid. The Court found that the error came to light only upon change of accountants and scrutiny of past records, and concluded these circumstances amounted to prevention beyond the petitioner's control and caused genuine hardship if the loss could not be carried forward. [Paras 22, 23, 24, 25, 26]Petitioner proved genuineness of the loss and that circumstances beyond its control (clerical error by its accountant undetected till records were re-examined) prevented timely filing; therefore genuine hardship was established.Academic argument - carry forward of losses - Whether the respondents' contention that the matter had become academic (because of subsequent returns) defeated the petitioner's claim for condonation. - HELD THAT: - The Court noted Circular No.9/2015 allows condonation applications for claim of refund/loss up to six years from the end of the assessment year, indicating such claims need not become academic by later filings. The CBDT did not take the ground that the claim was academic. The Court therefore rejected the contention that the issue was academic, observing that the provision for entertaining belated claims within six years demonstrates Parliament's intent that such applications remain live for that period. The Court also observed that the assessment order for 2012-13 contained a chart quantifying carry forward losses, undermining the respondents' contention. [Paras 6, 15, 31]The contention that the matter had become academic was rejected; the petitioner's application was within the six-year window and the claim could not be dismissed on that ground.Final Conclusion: The writ petition succeeds. The CBDT's order dated 30.5.2018 refusing condonation under section 119(2)(b) was quashed and set aside; the petitioner's belated return for AY 2009-10 shall be taken up for processing in accordance with law. Issues Involved:1. Condonation of delay in filing the return of income under Section 119(2)(b) of the Income Tax Act, 1961.2. Determination of 'genuine hardship' as per Section 119(2)(b) of the Income Tax Act.3. Examination of the correctness and genuineness of the loss claimed by the petitioner.4. Applicability of judicial precedents and circulars in interpreting Section 119(2)(b).Detailed Analysis:1. Condonation of Delay in Filing the Return of Income:The petitioner, a cooperative bank, sought condonation of delay in filing its return of income for the assessment year 2009-10, which was rejected by the CBDT. The petitioner initially filed a return declaring NIL income and later realized that it failed to claim carry forward losses of Rs. 7,91,66,338/-. A revised return was filed on 24.3.2015, beyond the permissible period, prompting the petitioner to seek condonation under Section 119(2)(b).2. Determination of 'Genuine Hardship':The petitioner argued that the CBDT's rejection was incorrect as it did not consider the genuine hardship caused by the inability to carry forward the losses. The petitioner cited judicial precedents, including the Supreme Court's decision in B.M. Malani v. Commissioner of Income Tax, which held that genuine hardship must be determined based on the dictionary meaning and legal context, and the Bombay High Court's decisions in Artist Tree Pvt. Ltd. v. CBDT and Sitaldas K. Motwani v. Director General of Income Tax, emphasizing a liberal interpretation of 'genuine hardship.'The respondents contended that the petitioner's claim did not meet the criteria for genuine hardship, arguing that the petitioner failed to file the return within the stipulated time despite having ample opportunity and resources.3. Examination of the Correctness and Genuineness of the Loss Claimed:The court noted that the CBDT and the Assessing Officer failed to verify the genuineness of the loss claimed by the petitioner, as mandated by Circular No.9/2015. The circular requires the concerned officer to ensure that the claim is correct and genuine and allows for necessary inquiries or scrutiny by the jurisdictional Assessing Officer. The court found that the Assessing Officer's report only commented on the merits of the application without verifying the correctness of the loss claim.4. Applicability of Judicial Precedents and Circulars:The court referred to several judicial precedents to interpret Section 119(2)(b). It emphasized the importance of substantial justice over technicalities, as highlighted in Jay Vijay Express Carriers v. Commissioner of Income Tax and PDS Logistics International (P.) Ltd. v. Chief Commissioner of Income Tax. The court also examined the conditions laid out in Circular No.9/2015, which allows for condonation of delay up to six years from the end of the relevant assessment year.The court concluded that the petitioner had demonstrated genuine hardship and that the delay was due to circumstances beyond its control, primarily a clerical error by the Chartered Accountant. The court held that the CBDT's refusal to condone the delay was not justified and directed that the petitioner's return of income be processed in accordance with the law.Conclusion:The petition was allowed, and the impugned order dated 30.5.2018 by the CBDT was quashed. The court ordered that the petitioner's return of income be processed, emphasizing the need for substantial justice and the proper application of Section 119(2)(b) to avoid genuine hardship.