2021 (7) TMI 525 - HC - Income Tax

Condonation of delay in filing the return of income -single judge bench has allowed the petition of the assessee - period of limitation for scrutiny assessment expiring - HELD THAT - A bare reading of Section 119(1) clearly shows that the circulars/orders/instructions are binding on other income tax authorities and that the same are not binding on the CBDT itself. However, despite the above settled position of law, the CBDT has relied on Circular No. 9/2015 dated 09.06.2015 and rejected the application of the respondent/assessee. In the present case the CBDT has ignored the recommendations of the jurisdictional authorities to condone the delay in filing the return of income, at the time of considering the application of the respondent/assessee seeking condonation of delay in filing the return of income. The CBDT had sought for a report from the Principal Commissioner of Income Tax-II, as well as the jurisdictional Additional Commissioner of Income Tax. It is pertinent to note that both the Principal Commissioner of Income Tax-II as well as the jurisdictional Additional Commissioner of Income Tax have given a report that the delay in filing the return of income may be condoned. Though the CBDT has referred to the said opinions, but has not taken the same into consideration while deciding the application of the respondent/assessee. This Court is of the opinion that the order passed by the learned Single Judge does not warrant interference. As department has stated before this Court that the present case will become time barred for the purpose of scrutiny and therefore, for the purpose of scrutiny and other proceedings, the right of the revenue to proceed ahead in accordance with law by taking into account the date of limitation from the date the order has been passed by the learned Single Judge may be protected - The prayer made by the learned counsel for the Income Tax department appears to be genuine prayer and therefore, in the present case, for the purpose of scrutiny, if any, and for the purpose of other proceedings also, the limitation shall start from the date the order has been passed by the learned Single Judge.

Issues Involved:
1. Delay in filing the appeal.
2. Application for condonation of delay in filing the return of income for the assessment year 2014-15.
3. Rejection of the application by the Central Board of Direct Taxes (CBDT).
4. Challenge to the CBDT's order before the learned Single Judge.
5. Interpretation of 'genuine hardship' under Section 119(2)(b) of the Income Tax Act, 1961.
6. Applicability of CBDT Circular No. 9/2015 dated 9th June 2015.
7. Recommendations by jurisdictional authorities regarding condonation of delay.
8. Right of the revenue for scrutiny and other proceedings.

Detailed Analysis:

1. Delay in Filing the Appeal:
The court condoned the delay in filing the appeal, allowing the matter to proceed.

2. Application for Condonation of Delay:
The respondent, a company engaged in hotel, restaurant, and catering services, faced internal disputes leading to delays in statutory audits for financial years 2012-13 and 2013-14. Consequently, the financial statements for 2013-14 were adopted only in April 2016, and the tax audit was concluded in August 2016. The return for the assessment year 2014-15 was filed on 30.08.2016, declaring a loss and claiming a refund. An application for condonation of delay was filed with the CBDT on 13.10.2016.

3. Rejection by CBDT:
The CBDT rejected the application on 16.01.2018, citing that the delay was not caused by external factors beyond the respondent's control and questioning the genuineness of the refund claim, effectively making an assessment of the return.

4. Challenge Before the Learned Single Judge:
The respondent challenged the CBDT's order in W.P. No. 18419/2018. The learned Single Judge quashed the CBDT's order, noting that the CBDT had improperly assessed the merits of the return rather than focusing on the reasons for the delay. The Single Judge emphasized that 'genuine hardship' should be construed liberally to advance justice and that the CBDT's decision was cryptic and not supported by the facts.

5. Interpretation of 'Genuine Hardship':
The court referred to the Supreme Court's interpretation in B.M. Malani vs. CIT, which held that 'genuine hardship' should be determined liberally and not prejudge the merits of the case. The Single Judge found that the CBDT failed to appreciate the genuine difficulties faced by the respondent due to internal disputes and prolonged litigation.

6. Applicability of CBDT Circular No. 9/2015:
The Single Judge held that the circular dated 09.06.2015 did not apply to the CBDT's power under Section 119(2)(b). The CBDT had erroneously relied on this circular to reject the application for condonation of delay.

7. Recommendations by Jurisdictional Authorities:
The court noted that the Principal Chief Commissioner of Income Tax, Additional Chief Commissioner of Income Tax, and the Assessing Officer had recommended condoning the delay. The CBDT ignored these recommendations without proper consideration.

8. Right of the Revenue for Scrutiny:
The court acknowledged the department's concern about the limitation period for scrutiny and other proceedings. It directed that the limitation period should start from the date of the learned Single Judge's order, allowing the revenue to proceed in accordance with the law.

Conclusion:
The appeal was dismissed, upholding the learned Single Judge's decision to quash the CBDT's order and condone the delay in filing the return. The court emphasized a liberal interpretation of 'genuine hardship' and criticized the CBDT for overstepping its authority by assessing the merits of the return. The revenue's right to scrutiny was preserved by adjusting the limitation period accordingly. No order as to costs was made.

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