2021 (7) TMI 525 - HC - Income Tax

Appeal Dismissed, Emphasizing Genuine Hardship Interpretation

The appeal was dismissed, affirming the Single Judge's decision to quash the CBDT's order and condone the delay in filing the return. The court stressed a ... Condonation of delay under Section 119(2)(b) - genuine hardship - scope of CBDT's power in admitting time barred claims - prohibition on CBDT prejudging the merits of a claim when considering condonation - binding effect of CBDT circulars on the CBDT itself - weight to be given to recommendations of subordinate income tax authoritiesCondonation of delay under Section 119(2)(b) - genuine hardship - scope of CBDT's power in admitting time barred claims - Validity of the CBDT's rejection of the application for condonation of delay in filing return for AY 2014-15. - HELD THAT: - The Court held that Section 119(2)(b) empowers the CBDT to issue general or special orders to enable an income tax authority to admit claims where time limits have expired if genuine hardship is shown, and that the concept of 'genuine hardship' must be construed liberally. The High Court found that the respondent's inability to file the return within time arose from circumstances beyond its control (internal management disputes, delayed statutory audit and adoption of accounts) and that subordinate tax authorities had recommended condonation. The CBDT, however, rejected the application by effectively examining the refund claim on merits and concluding the claim was not genuine. That approach traversed beyond the narrow exercise of power under Section 119(2)(b), which requires only satisfaction that the case merits consideration and does not suffer from an apparent defect, not a deep merits adjudication. [Paras 15, 16, 17, 21]The CBDT's order rejecting condonation was quashed and delay in filing the return for AY 2014-15 was condoned.Prohibition on CBDT prejudging the merits of a claim when considering condonation - improper adjudication of merits/prejudging refund claims - Whether the CBDT could reject condonation by conducting a merits level examination of the refund claim. - HELD THAT: - The Court reaffirmed that while the CBDT may verify that a time barred claim does not suffer from an apparent defect, it must not undertake an in depth merits examination or itself pass an assessment under the guise of condonation. The impugned order was held to have gone into the correctness of the return and relied on auditor observations and Circular No.9/2015 to conclude non genuineness of the claim, thereby effectively passing an assessment and exceeding the remit of Section 119(2)(b). [Paras 10, 11, 17]CBDT erred in prejudging the return on merits; such merits adjudication is outside the scope of power under Section 119(2)(b).Binding effect of CBDT circulars on the CBDT itself - weight to be given to recommendations of subordinate income tax authorities - Whether Circular No.9/2015 could be applied by the CBDT to refuse condonation and whether the CBDT was bound to follow recommendations of subordinate authorities. - HELD THAT: - The Court observed that circulars issued by the CBDT under Section 119(1) are binding on subordinate authorities but are not binding on the CBDT itself. The judgment also noted that the CBDT had sought and received favourable reports from the Principal Commissioner and Additional Commissioner recommending condonation but did not give those opinions appropriate weight when deciding the application. Reliance on the circular to reject condonation and to impugn the claim was therefore inappropriate. [Paras 18, 19, 20]Circular No.9/2015 is not binding on the CBDT; the CBDT should have considered and given weight to the recommendations of subordinate authorities and not relied on the circular to refuse condonation.Scope of CBDT's power in admitting time barred claims - weight to be given to recommendations of subordinate income tax authorities - Remedial direction concerning limitation for scrutiny and further proceedings following quashing of CBDT order. - HELD THAT: - The Court recognised the revenue's submission that condoning the delay might make the case time barred for future scrutiny if limitation were reckoned from the original date. As a protective measure, the High Court directed that for purposes of scrutiny and other proceedings the period of limitation shall run from the date of the Single Judge's order allowing the writ petition, thereby preserving the revenue's right to proceed in accordance with law. [Paras 22, 23]For purposes of scrutiny and further proceedings, limitation shall be reckoned from the date the Single Judge's order was passed.Final Conclusion: The High Court dismissed the revenue's writ appeal. It upheld the Single Judge's quashing of the CBDT's order dated 16.01.2018, condoned the delay in filing the return for AY 2014-15, held that the CBDT exceeded its power by prejudging the return and misapplying Circular No.9/2015, and directed that limitation for scrutiny and other proceedings shall run from the date of the Single Judge's order. Issues Involved:1. Delay in filing the appeal.2. Application for condonation of delay in filing the return of income for the assessment year 2014-15.3. Rejection of the application by the Central Board of Direct Taxes (CBDT).4. Challenge to the CBDT's order before the learned Single Judge.5. Interpretation of 'genuine hardship' under Section 119(2)(b) of the Income Tax Act, 1961.6. Applicability of CBDT Circular No. 9/2015 dated 9th June 2015.7. Recommendations by jurisdictional authorities regarding condonation of delay.8. Right of the revenue for scrutiny and other proceedings.Detailed Analysis:1. Delay in Filing the Appeal:The court condoned the delay in filing the appeal, allowing the matter to proceed.2. Application for Condonation of Delay:The respondent, a company engaged in hotel, restaurant, and catering services, faced internal disputes leading to delays in statutory audits for financial years 2012-13 and 2013-14. Consequently, the financial statements for 2013-14 were adopted only in April 2016, and the tax audit was concluded in August 2016. The return for the assessment year 2014-15 was filed on 30.08.2016, declaring a loss and claiming a refund. An application for condonation of delay was filed with the CBDT on 13.10.2016.3. Rejection by CBDT:The CBDT rejected the application on 16.01.2018, citing that the delay was not caused by external factors beyond the respondent's control and questioning the genuineness of the refund claim, effectively making an assessment of the return.4. Challenge Before the Learned Single Judge:The respondent challenged the CBDT's order in W.P. No. 18419/2018. The learned Single Judge quashed the CBDT's order, noting that the CBDT had improperly assessed the merits of the return rather than focusing on the reasons for the delay. The Single Judge emphasized that 'genuine hardship' should be construed liberally to advance justice and that the CBDT's decision was cryptic and not supported by the facts.5. Interpretation of 'Genuine Hardship':The court referred to the Supreme Court's interpretation in B.M. Malani vs. CIT, which held that 'genuine hardship' should be determined liberally and not prejudge the merits of the case. The Single Judge found that the CBDT failed to appreciate the genuine difficulties faced by the respondent due to internal disputes and prolonged litigation.6. Applicability of CBDT Circular No. 9/2015:The Single Judge held that the circular dated 09.06.2015 did not apply to the CBDT's power under Section 119(2)(b). The CBDT had erroneously relied on this circular to reject the application for condonation of delay.7. Recommendations by Jurisdictional Authorities:The court noted that the Principal Chief Commissioner of Income Tax, Additional Chief Commissioner of Income Tax, and the Assessing Officer had recommended condoning the delay. The CBDT ignored these recommendations without proper consideration.8. Right of the Revenue for Scrutiny:The court acknowledged the department's concern about the limitation period for scrutiny and other proceedings. It directed that the limitation period should start from the date of the learned Single Judge's order, allowing the revenue to proceed in accordance with the law.Conclusion:The appeal was dismissed, upholding the learned Single Judge's decision to quash the CBDT's order and condone the delay in filing the return. The court emphasized a liberal interpretation of 'genuine hardship' and criticized the CBDT for overstepping its authority by assessing the merits of the return. The revenue's right to scrutiny was preserved by adjusting the limitation period accordingly. No order as to costs was made.