Sri Deepak Varma V. Commissioner of Income Tax Bangalore-IV and Income Tax Officer, Circle-8(2)

WP/40548/2013

AI Insights

The case involves Sri Deepak Varma, the petitioner, who filed a writ petition against the order of the Commissioner of Income Tax-IV, Bangalore, concerning the non-processing of his revised income tax return for the assessment year 2007-08. The petitioner had initially filed a return claiming a refund due to tax deductions at source on advance rentals received, which were later returned following the premature termination of a lease agreement. The revised return was filed late, and the delay was not condoned by the tax authorities, leading to the writ petition. The High Court, considering the circumstances of the delay and the principles of avoiding genuine hardship, decided in favor of the petitioner.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 672075 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 23-07-2014
• Assessment Year: misc
• Other Referred Cases: Sitaldas K.Motwani v. Director-General of Income-tax, Pala Marketing Co-operative Society Ltd. v. Union of India and Others, B.M.MALANI V. CIT, Gujarat Electric Co. Ltd. v. CIT, R.Seshammal v. ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: VANI
• Keywords: Condonation of delay; Genuine hardship; Income Tax; Revised return
• Section: 119(2)(b); 119(2)(6)

Judgement Text

" -: 1 :- IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 23RD DAY OF JULY, 2014 BEFORE THE HON'BLE MRS.JUSTICE B.V.NAGARATHNA WRIT PETITION NO.40548/2013 (T-IT) BETWEEN: SRI DEEPAK VARMA S/O SRI SATYAPAL VARMA, AGED 58 YEARS, RESIDING AT NO.10, H.M.ASTORIAN, BENSON CROSS ROAD, NANDIDURGA ROAD BANGALORE. ... PETITIONER (BY SMT.VANI H., ADV.) AND: 1. THE COMMISSIONER OF INCOME TAX BANGALORE-IV C.R.BUILDING, QUEENS ROAD BANGALORE-560 001. 2. INCOME TAX OFFICER, CIRCLE-8(2), SAMPIGE ROAD MALLESWARAM BANGALORE-560 002. ... RESPONDENTS (BY SRI. K.V.ARAVIND, SENIOR STANDING COUNSEL FOR R1 & R2) ***** THIS W.P. IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO SET ASIDE THE ORDER DATED 31.7.2013 PASSED BY THE FIRST RESPONDENT VIDE ANNEXURE-P. -: 2 :- THIS PETITION COMING ON FOR PRELIMINARY HEARING IN ‘B’ GROUP THIS DAY, COURT MADE THE FOLLOWING:- O R D E R This writ petition has been filed by the petitioner being aggrieved by the order of the first respondent – Commissioner of Income Tax- IV, Bangalore, on 31/07/2013 (Annexure “P”), passed under Section 119(2)(6) of the Income Tax Act, 1961 (hereinafter, referred to as the “Act”, for the sake of brevity). 2. The facts germane to the disposal of this writ petition are that the petitioner, who is an individual assessee and owner of the flat at Bombay, had let out the flat to M/s.DHL Express (India) Pvt. Ltd., under a leave and licence agreement dated 01/03/2007. The petitioner had received a sum of Rs.1,50,000/- per month, as the monthly rentals, subject to deduction of tax at source. Petitioner had also received Rs.20,000/- per month, towards furniture, -: 3 :- fixtures etc., in the said flat, in addition to advance rentals for a period of 14 months, which were to be adjusted against the last 14 months of the lease period. The advance rentals were received on 28/02/2007 during the financial year 2006-07 and the assessment year being 2007-08. The lessee had deducted tax at source with regard to the advance rentals while making the payment to the petitioner. On the aforesaid premise, the petitioner filed his return of income for the assessment year 2007-08 on 27/07/2007 and the said return of income was processed and the tax liability was determined at Rs.2,10,110/- and since there was a tax deduction at source to an extent of Rs.4,00,854/- on account of the advance rentals received by the petitioner, he claimed a refund of Rs.1,90,744/- in the original return of income filed by him. 3. The leave and license agreement which commenced from 01/03/2007 was to -: 4 :- expire on 30/11/2010 after a period of 33 months. However, that was prematurely terminated after a period of 18 months. There were negotiations between the parties and in September 2008 petitioner returned a sum of Rs.23,80,000/- to the lessee M/s.DHL Express (India) Pvt. Ltd. Consequently, there was no rental income received after the period of 18 months in respect of which, the return of income for the assessment year 2007-08 was filed. According to the petitioner, the actual rentals received was only Rs.3,60,808/- for that year. On account of the aforesaid circumstances, the petitioner filed revised return for the assessment year 2007-08 on 16/07/2009, seeking refund of Rs.4,00,854/-. Admittedly, the other petitioner had a right to file a revised return, which had to be done so on or before 31/03/2009 and hence, the revised return filed by the petitioner was delayed by 3 ½ months. Petitioner also filed an application under Section 119(2)(b) of the Act, -: 5 :- seeking condonation of delay in filing revised return and for refund of the excess tax paid on scrutiny of the revised return. By order dated 31/10/2012, the said application was rejected. Being aggrieved by that order, petitioner had preferred W.P.No.50054/2012 before this Court. The said writ petition was allowed by order dated 12/02/2013, the impugned order dated 31/10/2012 was quashed and the matter was remanded to the first respondent for reconsideration in accordance with law. Pursuant to the order of remand, the impugned order dated 31/07/2013 has been passed and that order is assailed in this writ petition. 4. I have heard learned counsel for the petitioner and the learned standing counsel for the respondents and perused the material on record. 5. Learned counsel for the petitioner during the course of her submission has drawn -: 6 :- my attention to instruction No.13/2006 dated 22/12/2006, which has been issued by the Central Board of Direct Taxes (CBDT) pursuant to clause (b) of sub-section (2) of Section 119 of the Act. She contended that the first respondent ought to have condoned the delay in filing the revised return and permitted processing of the revised return filed on 16/07/2009 by the petitioner. That there was a short delay of 3 ½ months in filing the revised return on account of genuine and bona fide reasons. She gave reasons as to why the revised return had to be filed, seeking refund in view of the agreement dated 01/03/2007 being terminated between the petitioner and M/s.DHL Express (India) Pvt. Ltd., prematurely which had resulted in return of the advance rentals and other deposits made by that entity to the petitioner. Consequently, the tax paid on the advance rentals had to be refunded to the petitioner and that was the reason as to why the revised return was filed. She also -: 7 :- submitted that on account of two bereavements in the family of the petitioner namely his parents died in November 2009 and June 2009, therefore petitioner was not in a position to file the revised return in accordance with the stipulated time and therefore, there were genuine reasons as to why returns were filed belatedly. It is further submitted that though the impugned order takes note of the aforesaid facts but the first respondent has not appreciated those facts in their proper perspective while applying clause (b) of sub-section (2) of Section 119 of the Act. She also submitted that the first respondent ought to have condoned the delay in filing the return and permitted processing of the revised return as petitioner is entitled to refund and non- processing of the revised return and non payment of refund has resulted in genuine hardship to the petitioner. In support of her submissions, she has placed reliance on two decisions. The first being of the Bombay High -: 8 :- Court in case of Sitaldas K.Motwani v. Director-General of Income-tax [(2010) 323 ITR 223) and Pala Marketing Co- operative Society Ltd. v. Union of India and Others [(2009) 311 ITR 177 (Ker.)], to contend that this was a fit case where the first respondent ought to have permitted processing of the revised return filed by the petitioner. 6. Per contra, learned standing counsel appearing for the respondent – Department, stated that the reason as to why the revised return has been filed by the petitioner is not in consonance with the Departmental Instruction No.13/2006 by drawing my attention to sub- section (a) of clause (5) of that settlement. It was contended that merely because certain subsequent events had transpired after filing of the original return, would not entitle the petitioner to file revised return and seek refund. He also contended that reasons have been -: 9 :- rightly appreciated in the impugned order for not condoning the delay, as the petitioner had sufficient time to file the revised return on or before 31/03/2009. He therefore, submitted that there is no merit in this writ petition. 7. Having heard learned counsel for the parties and on perusal of the material on record, it is noted that admittedly, the revised return was filed on 16/07/2009 i.e., after a delay of 3 ½ months as the last date for filing of revised return was 31/03/2009. While considering an application under clause (b) of sub-section (2) of Section 119 of the Act, the authority while going into the reason as to why the revised return has been filed has also to consider the application for refund in such a manner as to avoid genuine hardship to the assessee. For that, what the authority has to consider is as to whether the revised return was filed with a bona fide intention and for genuine and bonafide reasons. -: 10 :- Obviously, while seeking condonation of delay in filing the revised return, the assessee would have to give his explanation as to why the revised return could not be filed within the last date stipulated in law. While considering that explanation, the authority would have to take into consideration Instruction No.13/2006. If the authority is of the opinion that there was a genuine reason as to why the revised return could not be filed in time, that would have to be taken into note of and the delay would have to be condoned and while condoning that delay, the authority would also have to consider that if the delay is not condoned, then it would result in genuine hardship to the assessee. It is in this context that Instruction No.13/2006 has been issued by the CBDT for the guidance of the authority while considering an application under Section 119 (2)(b) of the Act. -: 11 :- 8. In the instant case, the first respondent – authority has noted the reasons as to why there was a delay in filing the revised return and also has taken note of the fact that the parents of the assessee were ill and they both died within a period of one year. However, the first respondent authority has stated that there were four months available to the assessee to make a revised return and as the revised return was not made in that period of four months that was available prior to 31/03/2009, the delay could not be condoned and the application had to be rejected on that ground. The first respondent has also stated that there was a supplementary refund claim made and for that reason also, the application had to be rejected. 9. Before giving a finding as to whether the first respondent has rightly considered the application filed by the petitioner, it is necessary -: 12 :- to go into the relevant decisions on clause (b) of sub-section (2) of Section 119 of the Act. The said sub-section uses the expression “avoiding genuine hardship”. This expression is relatable to the assessee. The expression “genuine hardship”, has been considered by the Hon’ble Supreme Court in the case of B.M.MALANI V. CIT [(2008) 306 ITR 196 (SC)], to mean not fake or counterfeit, real, not pretending (not bogus or merely a ruse). The ingredients of real hardship must be determined keeping in mind the dictionary meaning thereof and the legal conspectus attending thereto. For the said purpose, another well known principle namely, a person cannot take advantage of his own wrong, may also have to be borne in mind. 10. The aforesaid observations of the Hon’ble Supreme Court have been considered by the Gujarat High Court in the case of Gujarat Electric Co. Ltd. v. CIT [(2002) 255 ITR 396 -: 13 :- (Guj)], wherein, it was held that when the revised return was filed belatedly on account of the ill-health of the officer who was looking after matters pertaining to taxation, the Court held that it was a reason required to be considered for the purpose of condoning the delay under clause (b) of sub-section (2) of Section 119 of the Act. 11. In Sitaldas K.Motwani v. Director- General of Income-tax [(2010) 323 ITR 223], the Bombay High Court has explained the phrase “genuine hardship” in the following manner:- “Having heard both the parties, we must observe that while considering the genuine hardship, respondent No.1 was not expected to consider a solitary ground as to whether the petitioner was prevented by any substantial cause from filing return within due time. Other factors -: 14 :- detailed hereinbelow ought to have been taken into account. X X X X “The Madras High Court in the case of R.Seshammal v. ITO [1999]237 ITR 185, was pleased to observe as under (page 187): “This is hardly the manner in which the State is expected to deal with the citizens, who in their anxiety to comply with all the requirements of the Act pay monies as advance tax to the State, even though the monies were not actually required to be paid by them and there-after seek refund of the monies so paid by mistake after the proceedings under the Act are dropped by the authorities concerned. The State is not entitled to plead the hyper technical plea of limitation in such a situation to avoid return of the amounts. Section 119 of the Act vests ample power in the Board to render justice in such a situation. The Board has acted -: 15 :- arbitrarily in rejecting the petitioner’s request for refund.” The phrase “genuine hardship” used in section 119(2)(b) should have been construed liberally even when the petitioner has complied with all the conditions mentioned in Circular dated October 12, 1993. The Legislature has conferred the power to condone delay to enable the authorities to do substantive justice to the parties by disposing of the matter on the merits. The expression “genuine” has received a liberal meaning in view of the law laid down by the apex court referred to hereinabove and while considering this aspect, the authorities are expected to bear in mind that ordinarily the applicant, applying for condonation of delay does not stand to benefit by lodging its claim late. Refusing to condone delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated. As against this, when delay is condoned the -: 16 :- highest that can happen is that a cause would be decided on the merits after hearing the parties. When substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred for the other side cannot claim to have a vested right in injustice being done because of a non-deliberate delay. There is no presumption that delay is occasioned deliberately, or on account of culpable negligence, or on account of mala fides. A litigant does not stand to benefit by resorting to delay. In fact he runs a serious risk. The approach of the authorities should be justice oriented so as to advance the cause of justice. If refund is due to the applicant, mere delay should not defeat the claim for refund. Whether the refund claim is correct and genuine, the authority must satisfy itself that the applicant has a prima facie correct and genuine claim, does not mean that the authority should examine the merits -: 17 :- of the refund claim closely and come to a conclusion that the applicant’s claim is bound to succeed. This would amount to prejudging the case on the merits. All that the authority has to see is that on the face of it the person applying for refund after condonation of delay has a case which needs consideration and which is not bound to fail by virtue of some apparent defect. At this stage, the authority is not expected to go deep into the niceties of law. While determining whether a refund claim is correct and genuine, the relevant consideration is whether on the evidence led, it was possible to arrive at the conclusion in question and not whether that was the only conclusion which could be arrived at on that evidence.” 12. In Pala Marketing Co-operative Society Ltd., v. Union of India and others [(2009) 311 ITR (Ker)], the Kerala High Court while considering the expression “genuine hardship” has observed as under:- -: 18 :- “Even though courts while considering application for condonation of delay under section 5 of the Limitation Act may be justified in considering the merits of the case and consequences to the party for non- consideration of the case on the merits, I do not think section 119(2)(b) is just an incorporation of section 5 of the Limitation Act. What is stated in section 119(2)(b) is that if the Board considers desirable or expedient for avoiding genuine hardship to the assessee, it should condone the delay. In other words, what the Board should consider is hardship to the party if delay is not condoned. The Board should condone the delay if failure to condone the delay causes genuine hardship to the assessee, no matter whether the delay in filing return is meticulously explained or not. Strangely the Board has stated in its order that it is not possible to investigate (scrutinise) the return of income because the statutory time limit has already elapsed. I do not know on what basis this statement is made because even in a case where the claim of refund is made, the Assessing Officer has to examine the liability for income-tax of the petitioner and refund is made only if tax is not payable or the amount paid is in excess of the tax, interest, etc., payable. In other words, once the Board -: 19 :- allows the application under section 119(2)(b) of the Act, the matter goes to the Assessing Officer for considering the assessee’s claim for refund under section 237. Section 237 makes it clear that the Assessing Officer while considering application for refund should consider the amount of tax chargeable on the claimant under the Act and refund arises only if the payment is in excess of the tax payable under the Act. In other words, the Assessing Officer has powers of assessment under section 237 while considering an application for refund. Refund is payable only if it is in excess of tax and other amounts payable under the Act. In other words, an assessee who escapes assessment invites assessment if an application for refund is made under section 237.” 13. In light of the aforesaid decisions and the observations made there under and keeping in mind Instruction No.13/2006, which have been issued to the CBDT for guidance of the respondent – authority, the correctness and legality of the impugned order would have to be considered. The reason as to why the petitioner filed the revised return is on account of the premature termination of the leave and licence -: 20 :- agreement dated 01/03/2007, after a period of 18 months and that the agreement did not last for a full period of 33 months. On account of premature termination of the agreement, the petitioner had to return the advance rentals as well as the security deposit to M/s.DHL Express (India) Pvt. Ltd., the lessee. Those amounts had been received by the petitioner during the financial year 2006-07. While filing the return for that year, those amounts were reflected in the return and infact, the TDS deducted in respect of those amounts paid to the petitioner- assessee was also reflected and the said amounts had also suffered tax. But on account of the premature termination of the agreement as the petitioner had to refund the amounts received by way of advance rentals and security deposit to M/s.DHL Express (India) Pvt. Ltd., the petitioner was constrained to file the revised return. No doubt, the revised return had to be filed by 31/03/2009 but in this context, the bona fide reason of the petitioner in not filing the revised return in time had to be considered by the respondent authority. Petitioner -: 21 :- had explained the delay by stating that the negotiations with M/s.DHL Express (India) Pvt. Ltd., took some time and that it was only in May 2009, petitioner agreed for settlement between him and M/s.DHL Express (India) Pvt. Ltd., and during this period i.e., November 2008 his mother died and his father died in June 2009 after illness and therefore, for those reasons, he was unable to file the revised return on or before 31/03/2009. Having regard to the explanation given by the petitioner for the delay in filing the return by 3 ½ months, I am of the view that the first respondent ought to have considered the aforesaid explanation in light of the facts of the case and also the fact that the petitioner had not delayed the filing of the revised return due to negligence, carelessness or due to any other frivolous reason. In that view of the matter, first respondent ought to have condoned the delay in filing the returns rather than taking a very strict and pedantic view of the matter. Accepting the aforesaid reasons the delay in filing the return is condoned or -: 22 :- otherwise genuine hardship would be caused to the petitioner. 14. Hence, for the aforesaid reasons, the impugned order is quashed. Second respondent is now directed to process the revised return in accordance with law. 15. At this stage, learned standing counsel for the respondents would submit that on processing of the revised return, incase petitioner is liable to any fresh demands to be made by the Assessing Officer at that stage, petitioner cannot take up the plea of limitation, on raising the demand. He contends that processing of the revised return would now be taken up, as on account of there being litigation between the parties-as the earlier order passed by the first respondent – authority had also been assailed by the petitioner and this Court had set aside that order and on remand-the impugned order has been passed recently. 16. Learned counsel for the petitioner states that no such plea of limitation would be raised by the petitioner, in case any fresh demand is raised on -: 23 :- processing of the revised return filed by the petitioner. Submission of the learned counsel for the petitioner is placed on record. 17. In the result, Annexure “P” is quashed. Delay in filing the revised return dated 16/07/2009 is condoned for the assessment year 2007-08. Respondent No.2 is directed to process the revised return filed by the petitioner in accordance with law. 18. Writ petition is allowed in the aforesaid terms. Sd/- JUDGE. *mvs "