Deduction u/s 80IC denied for delay in filing return allowed by High Court. CBDT Order u/s 119(2)(b) denying to condone the delay of 46 days set aside.
ABCAUS Case Law Citation:
ABCAUS 2059 (2017) (09) HC
The Grievance:
The Petitioner firm had filed the instant petition under Article 226 of the Constitution of India challenging an order passed by the Respondent/Deputy Commissioner of Income Tax [Assessing Officer (‘AO’)] under Section 147 of the Income Tax Act, 1961 (‘Act’).
Assessment Year : 2011-12
Important Case Laws Cited/relied upon by the parties:
Nath Brothers Exim International Ltd. v. Union of India (2017) 394 ITR 577 (Del)
Sitaldas K. Motwani v. Director General of Income Tax (International Taxation), New Delhi (2010) 323 ITR 223 (Bom).
Brief Facts of the Case:
The Petitioner was a partnership firm having a manufacturing unit eligible for 100% deduction under Section 80IC of the Act from AY 2010-11. Section 80IC provides for special provisions in respect of certain undertakings or enterprises in certain special category States.
For the AY in question, the income tax return of the firm could not be filed within the time prescribed u/s 139 (1) which was 30th September, 2011. However, the return was filed with a delay of 46 days on 16th November, 2011.
The reason furnished by the Petitioner for the delay was that a majority of the contract receipts was subject to deduction of tax at source (TDS) under Section 194C of the Act and there was a delay in receiving TDS certificates. It is also claimed that there was a TDS mismatch inasmuch as the TDS appearing in its records was different from the TDS appearing in Form 26AS. The reconciliation of the TDS involving Government contract was stated to be “an extremely time consuming exercise.
On 12th November, 2013 a notice was issued to the Petitioner under Section 221(1) of the Act asking it to show cause why a penalty should not be levied on it for failure to pay a demand of Rs.81,32,850 plus interest. In response to the notice, the Petitioner pointed out that it had not yet been served with intimation under Section 143 (1) of the Act for the relevant AY before expiry of one year from the end of the financial year in which the return was filed. Accordingly, it was contended that the demand was time barred.
On 25th March, 2014 a notice was issued to the Petitioner u/s 148 of the Act by the AO stating that there were reasons to believe that the Petitioner’s income chargeable to tax for AY 2011-12 had escaped assessment within the meaning of Section 147 of the Act.
The reasons for reopening the proceedings stated that section 80AC specifically provides that if the assessee wants to avail deduction u/s. 80IC he has to necessarily furnish his return of income containing such claim before he due date specified in section 139(1). Hence, the claim of deduction u/s 80IC was not allowable and had to be taxed.
The Petitioner filed its objections to the assumption of jurisdiction under Section 148 wherein it was contended that the reopening was based on a mere change of opinion as to whether the return filed by the Petitioner was within time. The Petitioner claimed that on merits that it was entitled to the deduction under Section 80IC of the Act. However, the Petitioner’s objections were rejected by the AO.
The Petitioner filed its first writ petition in the High Court challenging the notice u/s 148 and the order rejecting the objections filed. However, during the pendency of the Writ, AO proceeded with the re-assessment proceedings and passed the order adding the deduction claimed u/s 80IC of the Act.
The Petitioner had filed the present writ challenging the assessment order passed in the re-assessment proceedings.
During the hearing, the Court’s attention was drawn to Section 119(2)(b) of the Act, which entitles the Central Board of Direct Taxes (‘CBDT’) to grant relief regarding delayed filing of return in cases of genuine hardship.
Accordingly, the High Court ordered that the Petitioner to make an application before the CBDT as such for condonation of delay in filing the Income Tax Returns and CBDT was also directed to pass a reasoned order on such application.
The CBDT declined to condone the delay in filing its income tax return on the following grounds:
- Petitioner did not make an effort to file the return in time although, the audit report, the profit and Loss (P&L) Account, the balance sheet and computation of income were ready by 28th September, 2011 i.e. much before the due date of filing of return and even the TDS certificates were all dated much earlier than September, 2011.
- The TDS mismatch amount was only Rs.14,067 whereas the refund claimed in the return was Rs.14,82,945.
- The specific details regarding the Petitioner not having received the confirmation from the parties about the TDS deducted, were not mentioned and, therefore, could not be verified.
- Even for AY 2010-11 the Petitioner had failed to file its return by the due date and had rather filed it after a delay of 116 days citing similar reasons.
The High Court permitted the Petitioner to challenge the said order passed by the CBDT declining to condone the delay of 46 days in filing the return for AY 2011-12 in the present petition itself.
Contention of the appellant:
It was contended that the Petitioner’s claim on merits for the deduction under Section 80 IC of the Act for AY 2010-11 was already allowed by the Income Tax Appellate Tribunal (‘ITAT’).
It was further pointed out that in the consequential appeal filed by the Revenue in the High Court, no challenge was raised in the grounds concerning the entitlement of the Petitioner to the deduction under Section 80IC of the Act. Further, while admitting the said appeal the High Court had framed two questions only and both were in respect of the time limit within which the return had to be filed by an Assessee. The second question was whether the time limit under Section 80AC of the Act would override Section 139 (4) of the Act.
It was contended that with the claim for deduction for AY 2010-11 under Section 80IC of the Act being allowed on merits, there was no justification to deny such deduction for the immediately following year, i.e., AY 2011-12. This additional factor ought to have been taken note of by the CBDT.
Contentions of the Respondent Prosecution:
Observations made by the High Court:
The High Court observed that the memorandum of the Department appeal to High Court against the order of the ITAT for AY 2010-11 showsed that there were four questions urged by it. All these questions pertained to the non-filing of the return by the Petitioner within time with reference to Section 80 AC and Section 139 (4) of the Act. No question was urged by the Department regarding the entitlement of the Petitioner to the deduction under Section 80 IC of the Act on merits. When the said appeal of the Department was admitted by the Court, only two questions of law were framed. Both pertained to the delay in filing of the return by the Assessee for AY 2010-11. Therefore, the decision of the ITAT that the Petitioner was entitled on merits to the deduction under Section 80 IC of the Act in the first year of its claim, i.e., for AY 2010-11, attained finality.
The High Court opined that when the Department for AY 2010-11 accepted that on merits the Petitioner’s claim for deduction under Section 80 IC of the Act was justified. With there being no change in the circumstances, the Petitioner’s claim for deduction under Section 80 IC of the Act on merits for the next year i.e. AY 2011-12 could not possibly be denied.
The High Court noted that the above facts were not considered by the CBDT when it rejected the Petitioner’s application under Section 119(2)(b) of the Act. The application made by the Petitioner before the CBDT pursuant to the order passed by the High Court was a detailed one. The Petitioner pointed out that in all the subsequent years, i.e., AY 2012-13 up to 2016-17, there was no delay whatsoever in the filing of the returns. It also pointed out that since the Petitioner was an eligible undertaking it could not be denied the deduction under Section 80IC of the Act. The above factors did not appear to have been taken into account by the CBDT.
The High Court was not convinced with the Department in that Circular No.9/2015 of the CBDT would not apply to the belated filing of a return where deduction is claimed under Section 80 IC of the Act as the said circular does not expressly say so.
The High Court further noted that as per the Bombay High Court, the phrase “genuine hardship” in Section 119(2)(b) of the Act ought to be construed liberally. As observed by the said High Court “when substantial justice and technical considerations are pitted against each other, cause of substantial justice deserves to be preferred, for the other side cannot claim to have vested right in injustice being done because of a non-deliberate delay.”
The High Court opined that since the entitlement of the Petitioner to the deduction under Section 80 IC of the Act even for AY 2010-11 had not been questioned by the Department on merits, there was no justification for not viewing the delay of 46 days in filing the return to be bona fide. It was not one of those cases where the delay was so extraordinary so as to not be condoned.
Held:
The High Court set aside the CBDT order passed u/s 119(2)(b) of the Act holding that the claim of the Petitioner for deduction u/s 80IC cannot be defeated on the ground of delay in filing the return.
