Sharavathy Conductors Private Limited Vs Chief Commissioner of Income Tax (Karnataka High Court)
The Karnataka High Court, in Sharavathy Conductors Private Limited Vs Chief Commissioner of Income Tax, held that an assessee should not be denied an opportunity to contest its tax deduction claim merely because of a delay in filing a revised income tax return, where the reasons for the delay warranted consideration. The Division Bench of Justice Ravi Malimath and Justice M.I. Arun allowed the assessee’s writ appeal concerning Assessment Year 1997-98 and condoned the delay under Section 119(2)(b) of the Income-tax Act, 1961.
The assessee had sought condonation of approximately four years’ delay in filing its revised return. Its explanation was that, after filing the original return, it became aware of the Supreme Court’s decision in CIT v. Silver Arts Palace, reported in (2003) 259 ITR 684, concerning the treatment of certain sales made in India against convertible foreign exchange as exports for purposes of deduction under Section 80HHC. Relying on that decision, the assessee filed a revised return on 28 March 2003, claiming deduction under Section 80HHC. The assessee maintained that the revised return was filed within six years from the end of the relevant assessment year. It also contended that the Assessing Officer had misread the CBDT Circular dated 9 June 2015 while rejecting its condonation request.
The learned Single Judge had declined to interfere with the rejection of the condonation application, observing that condonation could not be claimed as a matter of right, particularly where the underlying deduction claim was not clearly admissible on merits. The assessee challenged that decision before the Division Bench. During the appeal, reference was also made to ACIT v. Micro Labs Limited, reported in 380 ITR 1 (SC), in which a question concerning deductions had been referred to a larger Bench because of a difference of opinion. The Revenue opposed condonation and alternatively requested that the Assessing Officer defer further proceedings until the Supreme Court decided the pending issue.
The Division Bench found that the reasons furnished by the assessee in paragraphs 2.1 and 2.2 of its statement dated 10 May 2016 had not been properly considered on the relevant question of law. The Court concluded that the assessee should have an opportunity to contest its claim and should not be excluded merely because of the delay. It therefore interfered with the rejection of condonation and allowed the application. The Court also declined the Revenue’s request to keep processing of the revised return in abeyance pending the Supreme Court proceedings.
Accordingly, the High Court set aside the Single Judge’s order dated 24 October 2017 in Writ Petition No. 28376 of 2017, partly allowed the writ petition and condoned the delay in filing the revised return. The Assessing Officer was directed to process the revised return in accordance with law and was left free to pass an appropriate order on the claim. The ruling thus distinguished the question of condonation from the ultimate determination of deduction eligibility. It did not finally adjudicate the assessee’s entitlement to deduction under Section 80HHC.
Cases Discussed
- ACIT v. Micro Labs Limited, (2016) 380 ITR 1 (SC) (Supreme Court) — Referred to in connection with a disputed deduction issue that, according to the judgment, had been referred to a larger Bench following a difference of opinion. The Revenue sought deferment of processing pending adjudication of that issue. The High Court declined to stay processing of the revised return.
- CIT v. Silver Arts Palace, (2003) 259 ITR 684 (Supreme Court) — Relied upon by the assessee to explain why it subsequently filed a revised return claiming deduction under Section 80HHC in relation to sales made in India against convertible foreign exchange. The High Court considered the explanation for delay without finally determining the deduction claim.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
Condonation of delay was sought by the writ petitioner in filing the revised return of income for the assessment year 1997-98 under Section 119(2)(b) of the Income Tax Act. The same was rejected. Hence, the instant writ petition was filed. The learned Single Judge on considering the contentions was of the view that the petitioner – assessee cannot seek condonation of delay in filing the revised return as a matter of right even though such a claim is not clearly admissible under law on merits. That the discretion of the authority in rejecting the application seeking condonation of delay cannot be said to be wrong in any manner whatsoever. Aggrieved by the same, the instant appeal is filed.
2. Sri A.Shankar, the learned Senior counsel appearing for the appellant’s counsel submits that what was sought for was condonation of delay of 4 years in filing the revised return. The Assessing Officer misdirected himself and rejected the application seeking condonation of delay by misreading the Board’s Circular dated 9-6-2015. The reason assigned by the assessee as to why there is a delay in filing the revised return could be seen from the statement dated 10-05-2016, vide Annexure-G to the writ petition. Therein in para-2.1 he has stated that after filing the return of income they came across a Judgment in the case of CIT vs. SILVER ARTS PALACE reported in (2003) 259 ITR 684, whereby the Hon’ble Supreme Court has taken the view that sales made in India in convertible foreign exchange that involved customs clear would amount to an export out of India and deduction under Section 88HHC of the Act was allowable. Considering the aforesaid Judgment the revised return of income was filed on 28-3-2003. That the same is within the period of six years from the end of assessment year, making the claim for deduction under Section 80HHC of the Act. The Commissioner held that as to whether the assessee is eligible for deduction both under Section 80 as well as Section 80-HHC is justifiable, the Hon’ble Supreme Court in the case of ACIT vs. MICRO LABS LIMITED reported in 380 ITR 1 (SC) referred the matter to the larger Bench since there was difference of opinion among the members of the Division Bench and that the same is pending consideration. Therefore, the question of condoning the delay would not arise for consideration.
3. The same is disputed by Sri.K.V.Aravind, learned counsel appearing for the respondent on the ground that firstly there is no reason to condone the delay. Secondly, assuming that the delay is to be considered favourably, the Assessing Officer may be directed to stay his hands till the Hon’ble Supreme Court decides the matter in the MICRO LABS LIMITED’S CASE which has been referred to the larger Bench of the Supreme Court. in the case of MICRO LABS LIMITED and other cases. Therefore, pending adjudication of those disputes the Assessing Officer may stay his hands.
4. On hearing learned counsels, we are of the view that appropriate interference is called for. Rejecting the plea of condonation of delay in filing the revised return, in our considered view require to be interfered with. The reasons assigned by the assessee as to why there is delay in filing the revised return is clearly enunciated in para -2.1 and 2.2 of the statement dated 10-5-2016. The same was not considered on a question of law. Under these circumstances, we are of the view that the assessee should have a right to contest his claim and cannot be non-suited merely on the ground of delay. Hence, we are inclined to allow the application for condonation of delay. Further, it is just and appropriate that the Assessing Officer decides the claim of the petitioner in accordance with law. We do not think it appropriate to stay the processing of the revised return by the Assessing Officer. The Assessing Officer is entitled to pass such orders as he deems fit.
5. Under these circumstances, the appeal is allowed.
1) The order dated 24.10.2017, passed by the learned Single Judge in Writ Petition No.28376 of 2017 is set aside.
2) The writ petition is partly allowed.
3) The delay in filing the revised return is condoned. The Assessing Officer shall process the revised return in accordance with law.
