2022 (5) TMI 690 - HC - Income Tax

Exemption of capital gains in terms of Section 54EC - LTCG - Assessing Authority having opined that the investment should have been made on or before 03.02.2003 denied the benefit of Section 54EC of the Act and had brought to tax the capital gains - period of limitation for filing the application under Section 119 2 b - As argue delay in investing the amount in bonds was only of two days and a genuine ground was put forth for condoning the said delay of two days which was unintentional - HELD THAT - Indisputably, application under Section 119 2 b of the Act was filed by the appellant assessee on 24.05.2011 before the respondent No.1. Had the respondent No.1 considered the said application before issuance of the Circular dated 09.06.2015, certainly the said application would not have been rejected on the ground of delay i.e., beyond the period of six years as specified in the Circular dated 09.06.2015. It is also not in dispute that no provisions of the Act and Rule prescribes the period of limitation for filing the application under Section 119 2 b , it is only by virtue of the Circular dated 09.06.2015, period of limitation of six years has been prescribed for the first time. It would be beneficial to refer to the judgment of the Hon'ble Apex Court in the case of Gemini Distilleries 2017 (10) TMI 1275 - SUPREME COURT wherein the CBDT Circular dated 09.02.2011 was considered inasmuch as its retrospective operation and held that the CBDT cannot issue any Circular having retrospective operation. No doubt, the validity of the Circular dated 09.06.2015 was not challenged directly by the appellant, applicability of the said Circular was the main issue before the Writ Court. In all fairness, if the matter is perceived in the angle of delay caused in adjudicating the application filed on 24.05.2011 much before the Circular dated 09.06.2015 coming into force, the resultant effect obviously would have been different. For the reasons best known to the Revenue, the said application was not disposed of within a reasonable period. Assessee should not suffer where no default was committed by him in submitting the application under Section 119 2 b of the Act on 24.05.2011 i.e., when there was no period of limitation prescribed. No application could be denied on technical grounds. Given the circumstances, without dwelling upon this issue further, to balance the scales of justice, we deem it appropriate to set aside the order of the learned Single Judge as well as the order dated 13.12.2017 impugned and remand the matter to the respondent No.1 for re-consideration of the application filed on 24.05.2011 to take an appropriate decision on the merits of the case in accordance with law. This view is fortified by the judgment of the Hon'ble Apex Court in the case of Gemini Distilleries supra.

Summary

Issues:
Challenge to order denying benefit of Section 54EC of the Income Tax Act - Delay in investing in specified bonds - Application under Section 119[2][b] rejected on grounds of limitation - Applicability of Circular dated 09.06.2015 - Appeal against rejection of application - Retrospective operation of Circular - Delay in adjudicating application - Setting aside of orders and remand for re-consideration.

Analysis:

1. The appellant, an income tax assessee, challenged the order denying the benefit of Section 54EC of the Income Tax Act due to a delay in investing in specified bonds. The appellant sold a property in 2002 and invested in Rural Electrification Corporation Ltd. bonds in 2003. The Assessing Authority disallowed the exemption, resulting in a tax demand, which was paid by the appellant. A Revision Petition and subsequent applications were made to condone the delay, which were rejected by authorities, leading to the filing of a Writ Petition.

2. The appellant contended that the rejection of the application under Section 119[2][b] of the Act was solely based on limitation, citing a CBDT Circular from 2015. The appellant argued that the Circular was applied retrospectively, which was unjustifiable. The appellant emphasized that at the time of application in 2011, no time limit was prescribed, and the Circular's imposition of a six-year limit was post-facto. Reference was made to a Supreme Court judgment supporting the appellant's position.

3. The Revenue defended the rejection, asserting that the Circular from 2015 applied to pending applications like the appellant's. The Revenue highlighted the delay in filing the application and the lack of satisfactory reasons for the delay. The Revenue contended that the belated application could not be condoned, given the timelines of assessment orders.

4. The Court considered the arguments and noted that the Circular from 2015 introduced a six-year limitation period, not present in the Act or Rules before. Citing a Supreme Court judgment on Circulars' retrospective operation, the Court found that the delay in adjudicating the 2011 application before the Circular's issuance was crucial. The Court opined that the appellant should not suffer due to technical grounds, setting aside the orders and remanding the matter for reconsideration in light of the circumstances and legal principles.

5. Consequently, the Court allowed the Writ appeal in part, setting aside the Single Judge's order and remanding the case for re-consideration by the first respondent, emphasizing an expedited decision-making process while leaving all rights and contentions open for the parties involved.