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 tax returns based on recasted accounts ordered by NCLT under Section 130(2) of Companies Act, 2013, following statutory auditor resignation and unauthorized transactions discovery. The court found the Income Tax Department's objections frivolous, noting that NCLT had already approved the recasted accounts on MCA's application and these were filed with RoC. The HC issued mandamus directing respondents to allow filing of revised returns for assessment years 2015-16 to 2020-21 based on NCLT-approved recasted accounts, with petitioner required to file physical returns within 30 days.

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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.

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