2019 (4) TMI 1169 - HC - Income Tax

Condonation of delay in filing claim of carry forward losses u/s 119(2)(b) - After realising the mistake after change of CA petitioner filed an application before the CBDT for condonation of delay in filing the return of income claiming loss - rejected by CBDT stating that petitioner was not prevented from any circumstances beyond its control, no external factors preventing the petitioner from filing its revised return and petitioner is continuously earning profits and it cannot be said that payment of taxes will cause any genuine hardship to the bank - HELD THAT - It is true that the authorised signatory and CEO of the Bank had signed the return of income, it cannot be gainsaid that the concerned officer would have relied upon the Chartered Accountant to have prepared a correct return of income. It is only after the income tax matters were handed over to another firm of Chartered Accountants, and the authorised representative called for the old records so as ascertain and substantiate the amount of brought forward losses available for set-off that it could be detected that though there was a book loss Thus, it was because of circumstances beyond its control that the petitioner could not file the return of income u/s 139(9) within the specified time, inasmuch as the error committed while filing of the return of income did not come to its notice till the Chartered Accountants were changed and the authorised representative called for the old records so as ascertain and substantiate the amount of brought forward losses available for set-off. Therefore, the petitioner has made out a case of genuine hardship for admitting the claim after the expiry of the period specified under the Act. In the opinion of this court, if one considers the reasoning adopted by the Board for rejecting the application, in no case would a bank or a company be in a position to avail of the benefit of section 119(2)(b) as all banks and companies would have employees who maintain the daily accounts and prepare or assist in preparation of Profit and Loss account as well as balance sheet; such books of account are subject to audit by regular auditors as well as tax auditors. It is in cases like the present one, wherein despite the aforesaid position, in case of genuine hardship, if on account of reasons beyond the control of the assessee, an application or claim is not made by the assessee within the period specified in the Act, that powers u/s 119(2)(b) are required to be exercised. In light of the above discussion, this court is of the considered view that the CBDT ought to have exercised such powers u/s 119(2)(b) of the Act and condoned the delay in filing the return of income.

Issues Involved:
1. Condonation of delay in filing the return of income under Section 119(2)(b) of the Income Tax Act, 1961.
2. Determination of "genuine hardship" as per Section 119(2)(b) of the Income Tax Act.
3. Examination of the correctness and genuineness of the loss claimed by the petitioner.
4. Applicability of judicial precedents and circulars in interpreting Section 119(2)(b).

Detailed Analysis:

1. Condonation of Delay in Filing the Return of Income:

The petitioner, a cooperative bank, sought condonation of delay in filing its return of income for the assessment year 2009-10, which was rejected by the CBDT. The petitioner initially filed a return declaring NIL income and later realized that it failed to claim carry forward losses of ?7,91,66,338/-. A revised return was filed on 24.3.2015, beyond the permissible period, prompting the petitioner to seek condonation under Section 119(2)(b).

2. Determination of "Genuine Hardship":

The petitioner argued that the CBDT's rejection was incorrect as it did not consider the genuine hardship caused by the inability to carry forward the losses. The petitioner cited judicial precedents, including the Supreme Court's decision in B.M. Malani v. Commissioner of Income Tax, which held that genuine hardship must be determined based on the dictionary meaning and legal context, and the Bombay High Court's decisions in Artist Tree Pvt. Ltd. v. CBDT and Sitaldas K. Motwani v. Director General of Income Tax, emphasizing a liberal interpretation of "genuine hardship."

The respondents contended that the petitioner's claim did not meet the criteria for genuine hardship, arguing that the petitioner failed to file the return within the stipulated time despite having ample opportunity and resources.

3. Examination of the Correctness and Genuineness of the Loss Claimed:

The court noted that the CBDT and the Assessing Officer failed to verify the genuineness of the loss claimed by the petitioner, as mandated by Circular No.9/2015. The circular requires the concerned officer to ensure that the claim is correct and genuine and allows for necessary inquiries or scrutiny by the jurisdictional Assessing Officer. The court found that the Assessing Officer's report only commented on the merits of the application without verifying the correctness of the loss claim.

4. Applicability of Judicial Precedents and Circulars:

The court referred to several judicial precedents to interpret Section 119(2)(b). It emphasized the importance of substantial justice over technicalities, as highlighted in Jay Vijay Express Carriers v. Commissioner of Income Tax and PDS Logistics International (P.) Ltd. v. Chief Commissioner of Income Tax. The court also examined the conditions laid out in Circular No.9/2015, which allows for condonation of delay up to six years from the end of the relevant assessment year.

The court concluded that the petitioner had demonstrated genuine hardship and that the delay was due to circumstances beyond its control, primarily a clerical error by the Chartered Accountant. The court held that the CBDT's refusal to condone the delay was not justified and directed that the petitioner's return of income be processed in accordance with the law.

Conclusion:

The petition was allowed, and the impugned order dated 30.5.2018 by the CBDT was quashed. The court ordered that the petitioner's return of income be processed, emphasizing the need for substantial justice and the proper application of Section 119(2)(b) to avoid genuine hardship.

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