KAIZEN PROJECTS AND CONSTRUCTIONS (SINCE DISSOLVED) vs. THE PRINCIPAL COMMISSIONER OF INCOME TAX
What did the High Court hold?
The High Court held that Section 119(2)(b) of the Income Tax Act, 1961, empowers the Board (and delegated authorities) to admit applications or claims after the expiry of the specified period and deal with them on merits. However, a Division Bench of the same Court in Daisy v. The Principal Commissioner of Income Tax had opined that the delegated power under Section 119(2)(b) and Circular No. 9/2015 does not authorize the Principal Commissioner to consider the merits of the refund application itself. Instead, the focus should be solely on the merits of the application for condonation of delay. Consequently, the impugned orders were found unsustainable and were set aside. The matter was remitted back to the Principal Commissioner of Income Tax to pass fresh orders on the applications for condonation of delay, explicitly stating that the Principal Commissioner should not go into the merits of the petitioner's claims.
What were the facts?
The petitioner, the surviving partner of a dissolved partnership firm, filed writ petitions challenging orders dated October 20, 2023, passed by the Principal Commissioner of Income Tax, Kozhikkode. These orders rejected applications for condonation of delay in filing income tax returns for assessment years 2017-18 to 2021-22. The reason for rejection cited was the petitioner's failure to furnish substantiating evidence for the claims made, as per CBDT Circular 9/2015. The petitioner argued that the Principal Commissioner had considered the merits of the claim rather than solely the delay, which was contrary to law. The Department contended that the rejection was due to the lack of substantiating evidence for the claims made in the application.
What were the issues?
1. Whether the Principal Commissioner of Income Tax, while considering an application for condonation of delay in filing income tax returns under Section 119(2)(b) of the Income Tax Act, 1961, is empowered to consider the merits of the underlying claim for refund or carry forward of losses, or is limited to considering only the merits of the delay itself? Assessee's Contention: The assessee argued that the power under Section 119(2)(b) is to condone delay and does not grant the Principal Commissioner the authority to adjudicate on the merits of the income, loss, or refund claim. They relied on a Division Bench judgment of the Kerala High Court in Daisy v. The Principal Commissioner of Income Tax. Revenue's Contention: The revenue contended that the Principal Commissioner had not considered the merits of the claim but rejected the application because the assessee failed to produce substantiating evidence for the claims made.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Heard together (5 matters)
Read from the judgment's own cause title. This page is filed under one of them.
Cause title — parties, addresses and appearances
J U D G M E N T [WP(C) Nos.37637, 37665, 37751, 37779 & 37794 of 2023] The very same petitioner in these writ petitions is the surviving partner of a partnership firm, which was dissolved on account of death of its Managing Partner. The petitioner herein, aged above 80 years, challenges Exts.P7 orders dated 20.10.2023 passed by the Principal Commissioner of Income Tax, Kozhikkode under Section 119(2)(b) of the Income Tax Act, 1961 (“Act”, for short) rejecting her applications for condonation of delay in filing income tax returns for the assessment years 2017-18, 2018-19, 2019-20, 2020-21, 2021-22. The reason stated in the impugned orders, Exts.P7, for rejecting the applications for condonation of delay in filing the returns is one and the same, which reads as under:
“ xxx xxx xxx As per the instructions of CBDT CIRCULAR 9/2015 [F.NO.312/22/2015-OT], DATED 9-6-2015, on CONDONATION OF DELAY IN FILING REFUND CLAIM AND CLAIM OF CARRY FORWARD LOSSES UNDER SECTION 119(2)(b) the powers of acceptance/rejection of the application in case of such claims will be subject to Following conditions: I. At the time of considering the case under Section 119(2)(b), it shall be ensured that the income/loss declared and/or refund claimed is correct and genuine and also that the case is of genuine hardship on merits. II. The correctness of the claim should be ascertained. In the subject case, sufficient opportunities were given to the assesse to furnish evidences/details regarding the claims made. However, assesse failed to furnish the details/evidences called for. In the absence of substantiating evidences related to the claims made by the assesse, the application is hereby rejected.”
Learned counsel for the petitioner submits that consequent to the filing of the applications seeking condonation of delay in filing returns for the assessment years mentioned above, the Department issued notice dated 7.7.2023 to the petitioner to furnish proof/supporting documents on or before 14.7.2023. The petitioner sought one month's time to furnish documents as per communication dated 12.7.2023. Thereafter, on 12.8.2023, she uploaded the reply to the notices along with supporting documents in the Department's Portal and the same were acknowledged. The petitioner alleges that without considering the documents submitted/uploaded by the petitioner in support of her contentions in the applications for condonation of delay in filing returns for the assessment years in question, the Department vide Exts.P7 orders dated 20.10.2023, relying on Circular No.9/2015 dated 9.6.2015, rejected the applications stating that the assessee failed to furnish the details/evidences called for. She prays that the impugned orders may be set aside and the matter may be directed to be re-considered after hearing the petitioner.
Today, this Court had considered the very same issue in WP(C) No.37648/2023, wherein the application of the petitioner therein for condonation of delay of one day in filing the income tax return was rejected on the very same ground, and this Court after hearing both sides and considering the provision under Section 119(2)(b) of the Act and Circular No.9/2015 dated 9.6.2015 and the Division Bench judgment of this Court in Daisy v. The Principal Commissioner of Income Tax, in W.A.No.1420/2023 dated 26.9.2023, allowed the writ petition and set aside the impugned order therein. Learned counsel for the petitioner herein and the learned Standing Counsel for the Department submit that these writ petitions are also covered by the same judgment delivered today and therefore, these writ petitions are also liable to be allowed following the judgment in WP(C) No.37648/2023 delivered today. The relevant portion of the said judgment is extracted herein below:
“3. Learned counsel for the petitioner submits that the power under Section 119(2)(b) of the Act is vested with the Central Board of Indirect Taxes and Customs and it delegates the Principal Commissioner/the Principal Chief Commissioner of Income Tax to condone the delay in filing return, on consideration given to the application filed by an assessee for not filing return on time. She further submits the Act does not give power to the Principal Chief Commissioner/the Principal Commissioner of Income Tax to consider the merits of the claim of income, loss etc. The impugned order would disclose that the Principal Commissioner of Income Tax has not delineated the grounds for condoning the delay, but has rejected the application considering the merits of the claim of the petitioner. She further submits that such consideration is illegal and not authorised, as held by a Division Bench of this Court in Daisy v. The Principal Commissioner of Income Tax, in W.A.No.1420/2023 dated 26.9.2023. 4. On the other
hand, Sri.P.G.Jayasankar, learned Standing Counsel for the Department, submits that the Principal Chief Commissioner has not considered the merits of the claim, but since the assessee did not produce or furnish substantiating evidences with regard to the claims made in the application, the Principal Commissioner of Income Tax rejected the application of the petitioner.
Section 119(2)(b) of the Act would read as under: "119. Instructions to subordinate authorities - (1) The Board may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board: (2) Without prejudice to the generality of the foregoing power,- (a) xxx xxx xxx (b) the Board may, if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order,
authorize
any income-tax authority, not being a Commissioner Appeals) to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law."
On a perusal of Section 119(2)(b) of the Act, it is evident that the said Section only empowers the Board to admit an application or claim for exemption, deduction, refund or any other relief under the Act, after the expiry of the period specified by or under the Act for making such application or claim and deal with the same on merits, in accordance with law. The Board has delegated such power to the Principal Chief Commissioner of Income Tax/the Principal Commissioner of Income Tax vide its circular No.9/2015 dated 9.6.2015. A Division Bench of this Court had an occasion to consider the provisions of Section 119(2)(b) of the Act and the said circular in the case of Daisy (supra), wherein the Court has been of the opinion that the Circular empowers the Principal Chief Commissioner/the Principal Commissioner of Income Tax to consider the merits of the refund claim while exercising the delegated power under Section 119(2)(b) of the Act, which would amount to circumvent the provisions of the Act. It has been further held that the Principal Chief Commissioner or the Principal Commissioner of Income Tax has no power to consider the merits of the refund application and what is required to be considered is the merits of the application for condonation of delay only.
Considering the provisions of Section 119(2)(b) of the Act and the Circular dated 9.6.2015 aforesaid, the order impugned herein, Ext.P7, is unsustainable and the same is hereby set aside. The writ petition stands allowed. The matter is remitted back to the file of the Principal Commissioner of Income Tax to pass fresh orders on the application of the petitioner-assessee for condonation of delay in filing the return. While considering the said application for condonation of delay, the Principal Commissioner is not required to go into the merits of the claim of the petitioner.”
In view of the above, following the judgment in WP(C) No.37648/2023 delivered today, these writ petitions are also allowed. The impugned orders in these writ petitions, Exts.P7, dated 20.10.2023 are set aside as unsustainable and the matter is remitted back to the file of the Principal Commissioner of Income Tax to pass fresh orders on the applications of the petitioner- assessee for condonation of delay in filing returns for the assessment years 2017-18, 2018-19, 2019-20, 2020-21, 2021-22. It is made clear that while considering the said applications for condonation of delay, the Principal Commissioner is not required to go into the merits of the claim of the petitioner. Pending interlocutory application, if any, in these writ petitions stands dismissed. DINESH KUMAR SINGH
JUDGE jg
Appendix — schedule of exhibits
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