2024 (1) TMI 1081 - HC - Income Tax

Condonation of delay in filing the returns of income seeking refund - delay due to date of ruling of the AAR - genuine hardship for purposes of Section 119(2)(b) - petitioner explained the delay up to 16.08.2016, which is the date of ruling of the AAR in the matter relating to the G.R.Engineering Private Limited project, by pointing out that its applications for advance ruling may have been rejected otherwise - whether it is desirable or expedient to condone the delay so as to avoid genuine hardship? - Whether the petitioner had a reasonable basis for asserting that it was under the bona fide belief that it would lose the valuable right of receiving an advance ruling if the returns of income had been filed? - HELD THAT - Upon examining the relevant provisions and the precedents cited in this regard, it is of the view that the petitioner's assertion that it believed bona fide that it could lose the valuable right of requesting for an advance ruling by filing the returns of income while the applications are pending before the AAR cannot be disregarded as lacking credibility. As returns of income were filed on 04.03.2017, which is more than six months after the AAR ruling, another question arises, namely, whether the delay between 16.08.2016 and 04.03.2017 was adequately explained? - In the affidavit in support of the petition, the petitioner referred to the earlier rulings of the AAR in respect of previous projects of the petitioner to the effect that the income of the petitioner was not taxable in India and asserted that this led to the bona fide belief that returns need not be filed. The petitioner also averred that taxes were deducted and remitted in respect of income earned by the petitioner. The petitioner asserted that it did not file the returns of income on the due dates in these circumstances. If the petitioner had filed the returns of income prior to the due dates, it is likely that the applications for advance ruling would have been held to be not maintainable as per the proviso to Section 245R(2). Therefore, the filing of applications before the AAR after the due dates for filing returns of income does not lead to the conclusion that the petitioner has not made out a case of genuine hardship for purposes of Section 119(2)(b). Thus the applications to condone delay in filing returns of income and seeking refund are liable to be condoned on terms since such applications fall within the scope of the expression 'genuine hardship' in Section 119(2)(b) - no opinion is expressed herein on the merits of the refund claims - orders impugned herein are quashed and the delay is condoned subject to payment of a sum of Rs. 50,000/- as costs.

Summary

Issues Involved:
1. Preliminary objection regarding authorization of Chartered Accountants.
2. Whether the delay in filing returns of income seeking refund should be condoned under Section 119(2)(b) of the Income Tax Act.
3. Interpretation of Section 245R(2) of the Income Tax Act concerning pending applications before the AAR and its impact on filing returns.

Summary:

Preliminary Objection:
The respondents raised a preliminary objection that the writ petition should not have been filed by the Chartered Accountants of the petitioner, as the authorization did not extend to court proceedings. The court found that the authorization was broad enough to include these proceedings and dismissed the objection, stating that any breach of the ethics code could not be the basis to reject the petition.

Condonation of Delay:
The petitioner, a company incorporated in Singapore, sought to condone the delay in filing returns for AY 2012-13 and 2013-14, asserting that it was under a bona fide belief that filing returns would result in rejection of its applications before the AAR, as per the proviso to Section 245(R)(1) of the Income Tax Act. The court examined whether the delay was justified under Section 119(2)(b), which allows the Board to condone delay to avoid genuine hardship.

Interpretation of Section 245R(2):
The petitioner argued that filing returns would be considered as a proceeding pending before the assessing officer, potentially leading to the rejection of its AAR applications. The court noted that the Supreme Court's decision in Sin Oceanic was based on consent and did not interpret the proviso to Section 245R(2). The court found that the petitioner's belief was credible and that the delay in obtaining the digital signature certificate (DSC) of a foreign director was a reasonable explanation for the delay from 16.08.2016 to 04.03.2017.

Conclusion:
The court concluded that the petitioner had made a case for genuine hardship under Section 119(2)(b) and that the applications to condone delay should be allowed. The orders impugned were quashed, and the delay was condoned subject to payment of Rs. 50,000/- as costs in each petition to the Tamil Nadu State Legal Services Authority. The Assessing Officer was directed to process the returns after ensuring compliance with the conditional order. Both writ petitions were allowed on these terms, with no order as to costs, and connected miscellaneous petitions were closed.