Dismissed

Central Board of Direct Taxes v. M/S Vasudev Adigas Fast Food Pvt. Ltd.

Karnataka HC2 Jul 2021WA/272/2020

Case brief

AI extract

What is this about?

This Full Court reversed the Single Judge's order which had quashed the CBDT's rejection of an application for condonation of delay in filing income tax return. The Court held that while the revenue appeal succeeded on law, the limitation period for future proceedings would commence from the date of the appellate order.

What did the court decide?

Laws of limit for scrutiny and other proceedings shall start from the date the appellate order is passed.

Central Board of Direct Taxes Vs M/S Vasudev Adigas Fast Food… — Income Tax | Karnataka HC (2021)

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 2^ND DAY OF JULY, 2021

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PRESENT

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THE HON'BLE MR. JUSTICE SATISH CHANDRA SHARMA

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AND

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THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY

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WRIT APPEAL NO.272/2020 (T-IT)

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BETWEEN

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1 . CENTRAL BOARD OF DIRECT TAXES NORTH BLOCK,

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CENTRAL SECRETARIAT,

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NEW DELHI,

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DELHI - 110001. REPRESENTED BY THE DEPUTY COMMISSIONER OF INCOME - TAX (OSD) – OT AND AND WT SECTION.

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2 . THE PRINCIPAL COMMISSIONER OF INCOME TAX -2 BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560095.

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3 . THE INCOME TAX OFFICER

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WARD 7(1)(3), BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560095.

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...APPELLANTS

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(By SRI : SANMATHI E I, ADVOCATE)

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AND

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1 . M/S VASUDEV ADIGAS FAST FOOD PVT LTD NO.36, 12TH MAIN,

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27TH CROSS, JAYANAGAR, 4TH BLOCK, BANGALORE - 560011. REPRESENTED HEREIN BY ITS DIRECTOR MR. BIJU JOSE THOMAS,

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…RESPONDENT

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(By SRI : T.SURYANARAYANA, ADVOCATE)

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THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRYAING TO SET ASIDE THE ORDER DATED 6.1.2020 IN W.P.NO.18419/2020 (T-IT) PASSED BY THE HON'BLE LEARNED SINGLE JUDGE AND ETC.

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THIS WRIT APPEAL COMING ON FOR PRELIMINARY HEARING AND HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 29.06.2021, THIS DAY, SATISH CHANDRA SHARMA J., PRONOUNCED THE FOLLOWING:

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JUDGMENT

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The delay in filing the appeal is condoned.

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The present writ appeal is arising out of the order

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dated 6.1.2020 passed by the learned Single Judge in W.P.No.18419/2018 (Vasudev Adigas Fast Foods Pvt.Ltd v. Central Board of Direct Taxes and others).

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The appeal is being disposed of with the consent of the learned counsel appearing for the parties finally at the motion hearing stage itself.

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The facts of the case reveal that the

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respondent/assessee has preferred a petition under Articles 226

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and 227 of the Constitution of India for issuance of a writ of certiorari for quashment of the order dated 16.1.2018 passed by the Central Board of Direct Taxes (hereinafter referred to as the CBDT) under Section 119(2)(b) of the Income Tax Act, 1961 (hereinafter referred to as the IT Act of 1961) and also with a prayer to allow the application in respect of condonation of delay in filing the return of income for the assessment year 2014-15.

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The facts of the case reveal that the respondent is a Company incorporated under the Companies Act, 1956 and engaged in the business of provision of hotel, restaurant and catering services. During the financial year 2012 -13, there was a change in the majority shareholding of the respondent/company and disputes arose between the erstwhile management of the respondent/Company i.e., promoter directors ("Promoters") and the new management i.e., investor directors ("Investors") of the respondent/company. In 2014, a petition came to be filed before the Company Law Board (hereinafter referred to as the CLB) in Chennai by the Promoters of the respondent/company alleging oppression and mismanagement by the Investors in the respondent/company under Sections 397 and 398 of the Companies Act, 1956. During the pendency of the said petition, CLB appointed an Administrator vide an order dated 22.05.2014

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to supervise the affairs of the company, heading a Committee of Management, which would replace the Board of Directors of the respondent. The said order was challenged before this Court by way of an appeal in COMPA No.3/2014.

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Due to the aforesaid disputes and pendency of the proceedings before the CLB, the statutory audit of the Company for the financial years 2012-13 and 2013-14 could not be completed within the prescribed time limit. Hence, in the pending appeal in COMPA No.3/2014, as an interim measure, this Court, vide its order dated 07.10.2014 appointed an auditor to audit the books of accounts of the respondent/company for the said two years. Thereafter, this Court disposed of the appeal in COMPA No. 3/2014 vide an order dated 15.10.2014, modifying the CLB's order dated 22.05.2014, but upholding the appointment of the Administrator.

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The newly appointed Auditors completed the statutory audit of the respondent's books of account by February 2015 for the two financial years 2012-13 and 2013-14. However, as the disputes between the Promoters and the Investors in the respondent/company was not yet resolved, the audited accounts of the respondent/company could not be approved and adopted.

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There was further delay on account of a clarification to be obtained by this Court as to whether the Administrator has the right to exercise a casting vote and thereafter, on account of appointment of a new Administrator in view of the existing Administrator resigning. Consequently, the financial statements of the respondent/Company for the financial year 2013-14 together with the Auditor's report and the Directors' report was adopted by the Board of Directors only on 18.04.2016, subsequent to which, the same were approved, adopted and taken on record in the shareholders' annual general meeting on 06.06.2016. Thereafter, the respondent's tax audit in terms of Section 44AB of the Act was concluded on 04.08.2016. On 30.08,2016, the respondent filed its return of income for the assessment year 2014 - 2015 relevant to the previous year 2013-14, declaring a loss of Rs. 56,66,096/- and claiming a refund of Rs. 1,03,02,990/-.

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As the return could not be filed within the time limit prescribed under the Act, on 19.09.2016 the respondent/company filed an application for condonation of delay in filing the return for the assessment year 2014-15 before the assessing officer. The respondent also produced supporting documents and explained the reasons for the loss incurred, vide its letter dated 29.09.2016. As the claim of the respondent exceeded Rs.50 lakhs, the

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respondent was required to make an application to the CBDT under Section 119(2)(b) of the IT Act of 1961 and accordingly, the respondent/company filed an application dated 07.10.2016 (filed on 13.10.2016) before the CBDT, seeking condonation of delay in filing the return of income for the assessment year 201415, setting out in detail the reason for the delay in filing the return. After giving the respondent/company an opportunity of hearing, the CBDT passed an order dated 16.01.2018 rejecting the aforesaid application for condonation of delay on the ground that delay was not caused by any external factors which the respondent had no control over, without appreciating that internal disputes and prolonged litigation between the promoters and the investors concerning the very management of the respondent/company had led to delay in statutory audits and other compliances, which was beyond the control of the respondent/company. Further, the CBDT rejected the application on the ground that the claim for refund filed by the respondent/company is not genuine, virtually making an assessment of the return filed by the respondent/company.

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The said order of the CBDT was challenged before the learned Single Judge in W. P. No. 18419/2018 and the learned Single Judge allowed the writ petition vide order dated

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06.01.2020. Aggrieved by the said order, the revenue is in appeal.

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10. Paragraphs 9 to 12 of the order passed by the learned

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Single Judge read as under;

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"9. I have considered the submissions made by the learned counsel for the parties and have perused the record. Section 119(2)(b) of the Act empowers the Board to condone the delay for avoiding genuine hardship in any case or class of cases by general or special order. The expression ‘genuine hardship’ was considered by the Supreme Court in the case of ‘B.M.MALANI Vs. CIT’ (2008) 10 SCC 617 and it has been held that the ingredients of the expression ‘genuine hardship’ must be determined keeping in view the discretionary meaning thereof and legal conspectus attending thereto. It is well settled in law that the expression ‘genuine hardship’ should be construed liberally so as to advance the cause of justice. It is equally well settled legal proposition that the authority must satisfy itself with regard to the genuineness of the claim. However, the same does not mean that the authority should examine the merits of the claim closely and come to the conclusion that the applicant’s claim is bound to succeed as it amounts to prejudging the case.

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In the backdrop of the aforesaid well settled legal position, the facts of the case may be examined. From perusal of paragraph 3 of the order passed by Central Board of Direct Taxes, it is evident that the Prl. Chief Commissioner of Income Tax, Additional Chief Commissioner of Income Tax as well as Assessing Officer, had recommended that the delay in filing the return be condoned. From perusal of paragraphs 5 to 9 of the impugned order, it is evident that the Central Board of Direct Taxes has examined the return filed by the petitioner on merits and thereafter, in paragraph 10 has recorded the conclusion which reads as under:

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“10. The reluctance of tax auditor to verify the veracity and correctness of the claim of petitioner and the impact of differences and incorrectness in claim, as discussed above has created a serious doubt on the correctness of claim made by the assessee in its return of income. In view of condition laid down in para 5(i) of CBDT circular No.9/2015 dated 9th June, 2015, as discussed above, the claim of petitioner for condonation of delay is not admissible and hence stands rejected.”

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Thus, from perusal of paragraph 10 of the impugned order, it is evident that it is cryptic and while deciding the application filed by the petitioner under Section 119(2)(b) of the Act, the claim of the petitioner has been dealt with on merits. It is also pertinent to mention that the circular dated 09.06.2015 does not apply in cases of Central Board of Direct Taxes. However, by placing reliance on the aforesaid decision, the claim of the petitioner for condonation of delay has been held to be not admissible and has been rejected.

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In the considered opinion of this Court and in the fact situation of the case as well as bearing in mind the well settled legal proposition that the expression ‘genuine hardship’ should receive liberal consideration, the instant case was a fit case for condonation of delay. In view of the preceding analysis, the impugned order dated 16.01.2018 passed by the Central Government is hereby quashed and delay in filing the return of income for the assessment year 2014-15 is condoned. In the result, the petition is allowed."

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The learned Single Judge has allowed the writ petition and has quashed the order dated 16.1.2018 passed by the CBDT and has also allowed the application for condonation of delay in filing the return of income for the assessment year 2014-15.

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Sri.Sanmathi, learned counsel appearing for the Income Tax department has argued before this Court that the learned Single Judge has erred in law and in facts in allowing the writ petition especially in view of the fact that the order passed under Section 119(a)(b) of the IT Act of 1961 was passed in view of the parameters laid down in the statute. He has further argued that the learned Single Judge has erred in law in allowing the writ petition of the respondent/assessee in spite of the fact that the

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respondent/assessee has not fulfilled the conditions set out under Section 119(2)(b) of the IT Act of 1961 for condonation of delay in filing the return of income. His further contention is that the reason cited by the respondent/assessee could not have been accepted and it was not a fit case for condoning the delay.

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It has also been contended by the learned counsel for the Income Tax department that a huge amount is involved and it will be a case of refund and therefore, the order passed by the learned Single Judge is contrary to the Circular dated 9.6.2015 and the Circular is very much applicable in the facts and circumstances of the case. He has also argued that the learned Single Judge has erred in holding that the revenue has to be liberal in cases of condoning the delay in filing the return of income. He has further contended that the CBDT after examination has held that the observations of the auditors in the report regarding the correctness of the claim of the petitioner has created a serious doubt with regard to the return of income and in view of Para 5(v) of the CBDT Circular No.9/2018, dated 9.6.2015, the case does not fall for condoning the delay. Hence, a prayer has been made to set aside the order passed by the learned Single Judge.

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This Court has carefully gone through the order passed by the learned Single Judge, the material on record and heard the learned counsel for the parties at length.

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In the considered opinion of this Court, in cases where an respondent/assessee faces an hardship, Section 119(2)(b) of the Act empowers the CBDT to issue any general or special order authorizing any income tax authority to admit an application or claim for any exemption, deduction, refund or any other relief under the Act, if the time period for taking the benefit of the same has expired under the Act. Thereafter, the said income tax authority has to examine the return so filed on merits in accordance with law.

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The Hon'ble Supreme Court in the case of B. M. Malani Vs. Commissioner of Income Tax , reported in (2008) 174 Taxman 363(SC), has held that the term 'genuine hardship' means 'genuine difficulty' and has held that the ingredients of genuine hardship must be determined keeping in view the dictionary meaning thereof and the legal conspectus attending thereto. Further, the Bombay High Court, in the case of Sitaldas K. Motwani Vs. Director General of Income Tax (International Taxation), New Delhi, reported in [2010] 187

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Taxman 44 (Bom), has held that while considering an application under Section 119(2)(b), the term 'genuine hardship' has to be construed liberally and has held that CBDT cannot examine a refund closely to see if the claim succeeds. All that the CBDT can do is to verify if the case of the respondent/assessee needs consideration and does not suffer from apparent defect. The CBDT is not expected to go deep into the niceties of law.

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The CBDT, in its order dated 16.01.2018, has not appreciated the reasons given by the respondent/assessee for the delay in filing the return of income nor has taken into consideration the documents produced by the respondent/assessee before rejecting the assessee's application seeking condonation of delay for filing its return of income for the assessment year 2014 - 2015 and that the same was beyond the control of the respondent/assessee. Further, the CBDT has examined the return filed by the respondent/assessee on merits and rejected the claim on the ground that the claim is not genuine, relying on Circular No.9/2015 dated 9.6.2015, effectively passing an assessment order, contrary to the settled principles of law. The CBDT, in virtually passing an assessment order on the return of income of the respondent, has traversed beyond the scope of its power to condone the delay in filing the return of

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income under Section 119(2)(b) of the IT Act of 1961, and has acted contrary to the provisions of Section 119(2)(b).

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In respect of Circular No.9/2015 dated 9.6.2015 it can be safely gathered that it does not apply to the power of CBDT to condone the delay in filing the return of income under Section 119(2)(b) of the Act. Section 119(1) of the Act empowers the CBDT to issue orders, instructions and directions to other income tax authorities as it may deem fit for the proper administration of the Act and the power available to the CBDT under Section 119(2)(b) is a specific power provided to the CBDT to pass such orders in cases of genuine hardship.

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The Circular issued by CBDT is binding on the authorities subordinate to it and cannot be binding on itself. Further, the authorities to whom Circular No. 9/2015 dated 09.06.2015 is issued and binding is specified in the said circular itself. 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.

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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.

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In the light of the aforesaid, this Court is of the opinion that the order passed by the learned Single Judge does not warrant interference.

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However, Sri.Sanmathi, learned counsel for the 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

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account the date of limitation from the date the order has been passed by the learned Single Judge may be protected.

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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.

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With the aforesaid, the present writ appeal stands dismissed.

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Pending IA stands disposed of.

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No order as to costs.

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Sd/JUDGE

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Sd/JUDGE

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