CG Power And Industrial Solutions Ltd. Vs ACIT (Bombay High Court)
CG Power and Industrial Solutions Ltd. (hereafter “Petitioner”) challenged an order by the Central Board of Direct Taxes (CBDT) dated 29th February 2024, which rejected their application under Section 119 of the Income Tax Act, 1961, for condoning the delay in filing revised returns for Assessment Years (A.Y.) 2015-16 to 2020-21.
Chronology and Context:
Company Incorporation and Audit Issues:
- The Petitioner, incorporated in 1937, faced audit issues starting around 2018 when they sought loans from international lenders who required audits by internationally recognized firms.
- Chaturvedi and Shah, the original auditors, resigned, leading to the appointment of K.K. Mankeshwar and Co. and subsequently SRBC and Co. LLP as statutory auditors.
Regulatory and Legal Complications:
- The resignation of Chaturvedi and Shah prompted an inspection by the Registrar of Companies (ROC) under the Companies Act, revealing unauthorized transactions.
- The Ministry of Corporate Affairs (MCA) filed for recasting the books of accounts before the National Company Law Tribunal (NCLT), which was granted on 5th March 2020. The financial statements were restated and audited for FY 2014-15 to FY 2018-19.
Filing for Condonation of Delay:
- Following the recasting, the Petitioner applied for condonation of delay with the CBDT to file revised returns based on these restated accounts. These applications were initially rejected by the CBDT in December 2022 and January 2023.
- A writ petition (Writ Petition No. 4014/2023) resulted in further submissions and a personal hearing but ultimately led to the rejection by the CBDT on 29th February 2024, which the Petitioner found unreasonable.
CBDT’s Grounds for Rejection: The CBDT rejected the condonation application on several grounds: a) Pending investigations by SFIO, ED, CBI, and NCLAT questioning the finality of the restated books. b) The need for verification of the recasted books for genuineness under the Income Tax Act. c) Complexity of unauthorized transactions and their impact on assessments. d) Responsibility of the new management to account for prior issues. e) Potential tax impact on future assessment years. f) Claims by the Petitioner perceived as misleading. g) Ongoing litigation affecting the entries in the recast books.
