THE SURENDRANAGAR DISTRICT CO-OPERATIVE BANK LTD. vs. THE DEPUTY COMMISSIONER OF INCOME TAX

Facts

The petitioner, Surendranagar District Co-operative Bank Ltd., is challenging an order dated 30.5.2018 passed by the Central Board of Direct Taxes (CBDT) under section 119(2)(b) of the Income Tax Act, 1961. The CBDT rejected the bank's application for condonation of delay in filing its return of income for Assessment Year 2009-10. The bank incurred a book loss of Rs. 8,56,52,868/- in the financial year 2008-09. The original return filed on 30.9.2009 declared NIL income using ITR-7. Subsequently, during assessment proceedings for AY 2012-13, it was discovered that the original return for AY 2009-10 failed to claim carry-forward losses of Rs. 7,91,66,338/-. The bank then filed a revised return in ITR-5 on 24.3.2015, declaring a loss, which was a belated return. This necessitated the application for condonation of delay under section 119(2)(b).

Held

The High Court held that the CBDT ought to have exercised its powers under section 119(2)(b) of the Act and condoned the delay in filing the return of income. The Court found that rendering substantial justice should be the paramount consideration rather than deciding on hyper-technicalities. The Court distinguished the present case from the precedents relied upon by the revenue, such as Deep Narayan Gupta v. CBDT and B U Bhandari Nandgude Patil Associates v. CBDT, noting that in those cases, the delay was either deliberate or lacked sufficient substantiation, unlike the present situation where the original return was filed in time and the subsequent revised return was necessitated by an error in claiming carry-forward losses. The Court quashed and set aside the impugned order of the CBDT and directed that the petitioner's return of income be processed in accordance with law. The petition was allowed.

Key Issues

1. Whether the CBDT erred in rejecting the petitioner's application for condonation of delay under section 119(2)(b) of the Income Tax Act, 1961, by not exercising its powers reasonably and judiciously, thereby causing genuine hardship to the petitioner? Assessee's Contentions: - The petitioner argued that section 119(2)(b) contemplates genuine hardship and does not require circumstances beyond the assessee's control, distinguishing it from other clauses. They relied on CBDT Circular No. 9/2015, which mentions only genuine hardship. - They cited B.M. Malani v. CIT, Artist Tree Pvt. Ltd. v. CBDT, and Sitaldas K. Motwani v. DGIT to support the interpretation of 'genuine hardship' and the need for substantive justice over technicalities. - The petitioner contended that denial of carry-forward losses due to technicalities would result in perpetual loss, constituting genuine hardship. Revenue's Contentions: - The respondent argued that the core ingredient of section 119(2)(b) is genuine hardship and the CBDT's opinion on the facts should not be substituted by the court unless arbitrary or capricious. - They questioned the petitioner's excuse regarding the Chartered Accountant's awareness, citing the bank's CEO signing the return and the possibility of rectifying mistakes under section 139(5). - The respondent's affidavit suggested that the loss was glossed over and that the bank's accounting team and auditors should have noticed it.