2024 (12) TMI 1672 - HC - Income Tax

Refund condonation u/s119(2)(b) denied; belated return invalid and PCIT's discretionary refusal upheld on appeal

HC allowed the Revenue's appeal and set aside the Single Judge's judgment that had interfered with the PCIT's order under s.119(2)(b) IT Act. It held that ... Rejection of application filed by the respondent u/s 119(2)(b) - respondent had sought to invoke the discretionary power of the PCIT u/s 119(2)(b) for the purposes of condoning a delay of three months that had been occasioned by him in filing a return for the assessment year 2010-2011 that would have enabled him to claim refund of tax that was lying to his credit with the Income Tax Department. HELD THAT:- Under the Income Tax Law, a belated return, except those that are specifically covered under the provisions of Section 139 or filed in response to permissions granted by the statutory authorities within the time limit specified in the notices issued by them, cannot be seen as valid returns for the purposes of the Act. It was on realising that the return filed by it in 2012 was belated, and would not be acted upon by the department, that the assessee had chosen to approach the Principal Commissioner with an application u/s 119(2)(b) of the Act. The use of the word “application” under Section 119(2)(b) of the Act has necessarily to be a reference to the application invoking the discretionary jurisdiction of the Principal Commissioner, who has been conferred with the power under Section 119(2)(b) of the Act. It is in that sense that the word “application” is used in Ext.P6 order that was impugned by the respondent/assessee in the writ petition. In fact the reference to the period of nine years in Ext.P6 is a clear indication that the term “application” used in the impugned order was a reference to the application filed u/s 119(2)(b) of the Act and not the belated return that was filed in 2012. If that be the case, we cannot find fault with the order of the Principal Commissioner which essentially says that the Principal Commissioner has not considered it desirable or expedient to exercise the discretion on the facts of the instant case. The view taken by the Principal Commissioner cannot be said to be unreasonable when viewed against the statutory framework, where, an assessee seeking condonation of a three month delay that occurred in 2012, had chosen to approach the Principal Commissioner for a condonation of that delay only after eight years. Thus, we find that the impugned judgment of the learned Singe Judge cannot be legally sustained. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, under Section 119(2)(b) of the Income Tax Act, 1961, the term 'application' refers to the application made to the Principal Commissioner/Board for condonation, or to the belated return itself. 1.2 Whether the Principal Commissioner was justified, in exercise of discretionary power under Section 119(2)(b) read with CBDT Circular No. 9/2015, in rejecting an application for condonation of delay in filing a return claiming refund, when such condonation application was made nearly eight to nine years after the end of the relevant assessment year. 1.3 Whether the learned Single Judge was correct in holding that the Principal Commissioner misdirected himself in law by treating the delay with reference to the date of the condonation application, and in consequently quashing the rejection order and issuing directions for reconsideration and refund (without interest for a particular period). 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Interpretation of 'application' under Section 119(2)(b) Legal framework (as discussed): Section 119(2)(b) empowers the Board (and by delegation, the Principal Commissioner) to admit an 'application' or claim for any exemption, deduction, refund or other relief, after the expiry of the period specified, if it is considered desirable or expedient to do so to avoid genuine hardship. Interpretation and reasoning: The Court held that, in the statutory context, the word 'application' in Section 119(2)(b) necessarily refers to the application invoking the discretionary jurisdiction of the Principal Commissioner/Board, and not to the belated return per se. The impugned order's express reference to a period of about nine years made it clear that the authority was adverting to the delay in filing the Section 119(2)(b) condonation application, not merely to the three-month delay in filing the return in 2012. The Court rejected the view that 'application' in Section 119(2)(b) should be read as a reference to the belated return alone. Conclusions: The Court concluded that the Principal Commissioner correctly treated the 'application' as the condonation application under Section 119(2)(b), and not as the return itself, and that there was no legal error in adopting this construction. Issue 2: Validity of rejection of condonation application under Section 119(2)(b) read with CBDT Circular No. 9/2015 Legal framework (as discussed): Section 119(2)(b) confers a discretionary power which may be exercised when considered desirable or expedient to avoid genuine hardship. CBDT Circular No. 9/2015 prescribes that applications, inter alia for refund, can be considered only if filed within six years from the end of the relevant assessment year. Interpretation and reasoning: The Court noted that the assessee's original return for the relevant assessment year, claiming refund, was belated by three months and thus not a valid return under the scheme of the Act, save where covered by provisions such as Section 139 or by specific permissions within statutorily prescribed time limits. The assessee approached the Principal Commissioner under Section 119(2)(b) only in 2020, almost eight to nine years after the end of the assessment year, to seek condonation of the three-month delay in the 2012 return. The Principal Commissioner, relying on CBDT Circular No. 9/2015 and noting that the condonation application itself was made beyond the six-year outer limit stipulated for considering refund-related claims, declined to exercise discretion. The Court held that this decision, treating the long lapse of time as a relevant factor and adhering to the time cap laid down in the Board's circular, could not be characterised as unreasonable or contrary to the statutory framework. The assessee's conduct in seeking condonation for a minor three-month delay only after eight years was a material circumstance justifying refusal to exercise discretion. Conclusions: The Court upheld the Principal Commissioner's rejection of the condonation application made under Section 119(2)(b), holding that the discretion was lawfully and reasonably exercised in conformity with the statutory scheme and CBDT Circular No. 9/2015. Issue 3: Legality of the directions issued by the learned Single Judge Interpretation and reasoning: The learned Single Judge had quashed the Principal Commissioner's order, on the reasoning that the 'delay' under Section 119(2)(b) related only to the three-month delay in filing the return and not to the eight-to-nine-year delay in filing the condonation application, and consequently directed reconsideration of the application confined to the three-month delay, along with directions concerning refund and limitation of interest under Section 244A. The Court found this approach untenable as it proceeded on an incorrect understanding of 'application' under Section 119(2)(b) and ignored the permissible reliance on the CBDT Circular and the long delay in approaching the authority. Once it was held that the Principal Commissioner had correctly appreciated his jurisdiction and exercised discretion reasonably, there was no basis to interfere with the rejection order or to issue further directions on refund or interest. Conclusions: The Court held that the judgment of the learned Single Judge was legally unsustainable, set it aside, and dismissed the writ petition challenging the Principal Commissioner's order, thereby negating all consequential directions regarding reconsideration, refund, and interest.