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 a belated return filed in 2012 for AY 2010-11 could not be treated as a valid return, and the assessee's application under s.119(2)(b), filed after eight years seeking condonation of a three-month delay for refund purposes, invoked a purely discretionary jurisdiction. The PCIT's refusal to condone the delay was neither unreasonable nor contrary to the statutory scheme. Consequently, the rejection of the assessee's application under s.119(2)(b) was upheld and the writ petition stood dismissed.

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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.

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