2024 (5) TMI 502 - HC - Income Tax

CBDT must allow revised income tax returns based on NCLT-approved recasted accounts under Section 119

The Bombay HC allowed a petition challenging CBDT's rejection of a condonation application under Section 119. The petitioner sought to file revised income ... Condonation of delay under Section 119(2)(b) of the Income-tax Act - genuine hardship - filing of revised return based on recasted books of account - finality of restated financial statements under Section 130(2) of the Companies Act, 2013 - assessment based on revised returns - effect of ongoing investigations on acceptance of recast accounts - commencement of limitation under Section 149Condonation of delay under Section 119(2)(b) of the Income-tax Act - genuine hardship - filing of revised return based on recasted books of account - Validity of CBDT's rejection of petitioner's application for condonation of delay in filing revised returns for A.Y. 2015-16 to 2020-21 and the entitlement to file revised returns based on recasted accounts - HELD THAT: - The Court found the CBDT's rejection of the condonation applications unsustainable. It held that the CBDT failed to address the petitioner's case of 'genuine hardship' as required by Section 119(2)(b) and the authorities below had recommended condonation. Given the NCLT's orders under Section 130 accepting restated financial statements and the administrative record showing recasted accounts taken on record, the petitioner must be permitted to file physical revised returns based on those recasted accounts for A.Y. 2015-16 to 2020-21. The Court emphasised that only after such revised returns are filed can the Income-tax authorities examine tax implications and that refusal to condone the delay had resulted from an unduly restrictive approach by the CBDT. [Paras 13, 14, 15, 24, 25]Impugned order dated 29.02.2024 is quashed; petitioner permitted to file revised returns based on recasted accounts for A.Y. 2015-16 to 2020-21 and to submit physical returns within 30 days; Assessing Officer to frame assessments in accordance with law by 28.02.2025.Finality of restated financial statements under Section 130(2) of the Companies Act, 2013 - effect of ongoing investigations on acceptance of recast accounts - Whether proceedings pending before SFIO/ED/CBI or appeals before NCLAT negate the acceptance of restated financials for income tax purposes - HELD THAT: - The Court observed that the NCLT ordered reopening and recasting of accounts under Section 130 and subsequently took the restated financial statements on record; the fact that investigations or appeals remain pending does not preclude permitting filing of revised returns based on the recasted accounts. The Tribunal's orders preserved the rights of investigative agencies, but that preservation does not justify refusal to condone delay in filing revised returns. The Income tax Department can, after revised returns are filed, examine veracity and implications; accepting revised returns for assessment does not absolve any person from actions arising from ongoing investigations. [Paras 6, 9, 11, 12, 27]Pending investigations or appeals do not by themselves justify denial of condonation; revised returns based on recasted accounts are to be accepted for assessment while preserving the rights of investigative agencies.Assessment based on revised returns - commencement of limitation under Section 149 - Consequences for earlier assessment orders and limitation where revised returns based on recasted accounts are accepted - HELD THAT: - The Court held that any assessment order already passed under Section 143(3) or Section 144C for the years for which recasted/revised accounts are filed will not survive. It clarified that accepting returns on recasted accounts will not preclude actions arising from prior investigations and that, if the recasted accounts require re examination after investigation, the company cannot raise limitation objections for three years from the date of the assessment order. Further, given the peculiar facts, the period for calculating time under Section 149 will commence from the date assessment orders are passed for each of the affected five assessment years. [Paras 26, 27, 28]Prior assessment orders for the affected years will not survive; investigations remain reserved; limitation for reopening (Section 149) will begin from the date assessment orders are passed for each year, and a three year protection against limitation objections is provided where re examination follows investigation.Filing of revised return based on recasted books of account - Interim treatment of assessment proceedings for subsequent years pending completion of assessments for the recasted years - HELD THAT: - To ensure coherent adjudication, the Court directed that pending assessment proceedings for A.Y. 2021-22 and A.Y. 2022-23 shall not proceed until assessments are completed for A.Y. 2015-16 to A.Y. 2020-21 (specifically noting completion for A.Y. 2020-21 and 2021-22 as sequenced in the order). This preserves orderly assessment and prevents prejudicial preemption before earlier years are reassessed on recasted accounts. [Paras 30]Assessment proceedings for A.Y. 2021-22 and A.Y. 2022-23 are stayed until assessments for the earlier recasted years are concluded.Final Conclusion: Writ petition allowed: the CBDT's order rejecting condonation is quashed; petitioner is permitted to file physical revised returns based on NCLT restated accounts for A.Y. 2015-16 to 2020-21 within 30 days, assessments to be framed by the Assessing Officer by 28.02.2025; prior assessment orders for those years will not survive; acceptance of revised returns does not bar investigations and limitation provisions are adjusted as directed; assessments for A.Y. 2021-22 and 2022-23 are stayed until earlier years are assessed. Issues Involved:1. Levy of tax on correct income.2. Genuine hardship due to delay in filing revised returns.3. Relevance of finality attached to recasted books of account under Section 130 of the Companies Act, 2013.4. Reliance on earlier findings by Respondent No. 5.5. Impact of proceedings before SFIO, ED, NCLAT, and civil suits on condonation of delay.6. Verification of genuineness and validity of claims in revised returns.Summary:1. Levy of Tax on Correct Income:The petitioner challenged the order dated 29th February 2024 by the Central Board of Direct Taxes (CBDT) rejecting their application u/s 119 of the Income Tax Act, 1961 for condoning the delay in filing revised returns for A.Y. 2015-16 to 2020-21. The petitioner argued that the returns filed earlier did not reflect the correct financial position, and for proper administration of the Act, the CBDT should have condoned the delay.2. Genuine Hardship Due to Delay:The petitioner claimed genuine hardship if the delay was not condoned, citing:- The need to tax income based on correct financial positions.- The irrelevance of the original books of account post-recasting.- Denial of claims for write-offs and non-assessment of liabilities.- Denial of carry forward and set off of unabsorbed depreciation and brought forward losses.- Other hardships in assessment/appellate proceedings. The court held that the CBDT did not appreciate the import of 'genuine hardship' and should have considered it liberally.3. Relevance of Finality Attached to Recasted Books:The petitioner argued that the CBDT erred in holding that the finality attached to recasted books under Section 130 of the Companies Act, 2013 was not relevant under the Income-tax Act. The court found this stand difficult to accept, noting that the Income Tax Department should have allowed the filing of returns based on recasted books to examine their veracity.4. Reliance on Earlier Findings by Respondent No. 5:The petitioner contended that the CBDT erred in relying on earlier findings and overlooked the statement made by the Ld. ASG for denovo consideration. The court agreed, stating that the CBDT failed to appreciate the contentions raised by the petitioner.5. Impact of Proceedings Before SFIO, ED, NCLAT, and Civil Suits:The CBDT cited ongoing proceedings before SFIO, ED, NCLAT, and pending civil suits as grounds for denying the condonation application. The court found this reasoning flawed, stating that unless the revised returns based on recasted books were allowed, the Income Tax Department could not examine these aspects.6. Verification of Genuineness and Validity of Claims:The CBDT's stance that they needed to verify the genuineness and validity of claims in the revised returns was found baseless by the court. The court emphasized that such verification could only be done after allowing the filing of revised returns.Court's Decision:The court quashed the CBDT's order dated 29th February 2024 and directed the respondents to allow the petitioner to file revised returns based on recasted books of account for A.Y. 2015-16 to 2020-21. The court ordered that the assessments be framed considering the revised returns and clarified that accepting these returns would not absolve anyone from actions based on earlier accounts. The court also ensured that any ongoing investigations would proceed in accordance with the law.