NRI/OCI cardholder wins TDS refund on property sale despite delayed ITR filing under Section 119(2)(b)

Gujarat HC allowed petition of NRI/OCI cardholder seeking TDS refund on property sale despite delayed ITR filing. Court held that Covid-19 travel restrictions and petitioner's non-resident status constituted genuine hardship justifying exercise of discretionary jurisdiction under Section 119(2)(b). Since petitioner had no statutory obligation to file return for sale transactions and demonstrated bona fide reasons for delay, denial of refund would cause unjust enrichment to Revenue. Court granted principal refund amount but denied interest per CBDT Circular 9/2015, emphasizing equity and fairness principles.

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1. ISSUES PRESENTED and CONSIDERED

- Whether the delay in filing the Income Tax Return (ITR) for Assessment Year 2021-22 by a Non-Resident Indian (NRI) can be condoned under Section 119(2)(b) of the Income Tax Act, 1961, on grounds of genuine hardship caused by Covid-19 related travel restrictions and other circumstances.

- Whether the rejection of the application for condonation of delay, thereby withholding the refund of Tax Deducted at Source (TDS) on sale of immovable properties, amounts to unjust enrichment in favor of the Revenue.

- Whether the petitioner's plea of ignorance of TDS deduction due to reliance on a power of attorney holder who passed away, and inability to file the return within the due date, constitutes sufficient cause for condonation under the statute.

- Whether the automated and online availability of TDS information (via Form 26AS) negates the petitioner's claim of genuine hardship and ignorance.

- The scope and exercise of discretionary power under Section 119(2)(b) of the Income Tax Act, 1961, in condoning delay for filing returns and allowing claims for refund.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Condonation of Delay under Section 119(2)(b) of the Income Tax Act, 1961

The legal framework under Section 119(2)(b) empowers the Income Tax Board to authorize any income-tax authority (except appellate authorities) to admit applications or claims for exemption, deduction, refund, or other relief after the prescribed period, if it is considered desirable or expedient to avoid genuine hardship.

Precedents cited include the Gujarat High Court's earlier rulings directing authorities to further the cause of justice rather than merely paying lip service to the provision's purpose. The Court emphasized a purposive and liberal construction of the provision to prevent undue hardship.

The Court noted that the petitioner, being an NRI, was not under statutory obligation to file the return for the transactions in question, as he had no other taxable income and incurred a capital loss on the sale of immovable properties. The delay in filing was attributed to the death of the power of attorney holder who managed the petitioner's affairs and the global Covid-19 pandemic that imposed travel restrictions, preventing the petitioner from timely filing.

The Court found that these circumstances were relevant and material to the question of genuine hardship and ought to have been considered by the respondent authority. The denial of condonation on technical grounds without appreciating these factors was held to be unjust.

Issue 2: Whether rejection of condonation application results in unjust enrichment of Revenue

The petitioner argued that withholding the refund on account of delay leads to unjust enrichment of the Revenue, as the refund is lawfully due. The respondent's rejection was based on the absence of cogent documentary evidence of hardship and the availability of TDS information online.

The Court observed that while the petitioner is not entitled to interest on the delayed refund (as per CBDT Circular No. 9 of 2015), the substantive right to receive the principal refund remains intact. Denial of refund despite acknowledgment of its legitimacy violates principles of equity, fairness, and good conscience (ex aequo et bono).

Issue 3: Effect of automated TDS deduction and online availability of information on petitioner's claim

The respondent contended that the petitioner had access to TDS details through Form 26AS and the facility to file returns online, negating the claim of ignorance or inability to file.

The Court rejected this contention in the peculiar facts of the case, emphasizing the petitioner's non-resident status, reliance on a power of attorney who died without informing him, and the practical difficulties caused by the pandemic and travel restrictions. The Court noted that these factors distinguished the case from routine situations where online access suffices.

The principle of "ignorantia juris non excusat" was invoked by the respondent, supported by Supreme Court authority, but the Court held that the petitioner's factual circumstances warranted a different approach under the discretionary power of Section 119(2)(b).

Issue 4: Exercise of discretionary power under Section 119(2)(b)

The Court reiterated that the discretion under Section 119(2)(b) must be exercised liberally and purposively to avoid genuine hardship. The petitioner's status as a non-resident, the death of the attorney, and Covid-19 travel restrictions were sufficient grounds to constitute genuine hardship.

The Court found that the respondent failed to apply the provision in a manner consonant with its object and spirit, thereby causing undue hardship to the petitioner and denying lawful refund.

3. SIGNIFICANT HOLDINGS

The Court held that:

"The Respondent ought to have taken into account the fact that the Petitioner was not a resident of India and was a non-filer. Further, there were several travel restrictions during Covid time which made filing of the return a difficult task. This factor, being relevant and material to the issue of genuine hardship, ought to have weighed in favour of the Petitioner, particularly when the delay in filing the return stood as the sole impediment in processing the refund of tax deducted at source (TDS) on sale of immovable property during the relevant Assessment Year."

"In such circumstances, where the Petitioner has bona fide demonstrated the reasons for not filing the return within the prescribed time, the Respondent was duty-bound to exercise the discretionary jurisdiction vested in him under Section 119(2)(b) of the Act in a liberal and purposive manner, in consonance with the object of the provision."

"The denial of such relief would result in unjust enrichment of the Revenue and cause undue hardship to the Petitioner, to whom the refund lawfully belongs."

"The absence of interest on the refund amount for the delayed filing does not derogate from the Petitioner's substantive right to receive the principal refund amount, which he would have otherwise been entitled to, had the return been filed within the prescribed period."

Consequently, the Court quashed and set aside the impugned order rejecting the condonation application and directed the respondent to pass a fresh order condoning the delay and allowing the petitioner to file the return and claim the refund, subject to verification, within twelve weeks.

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