Section 119(2)(b) Application- CBDT expected to go deep into niceties of law?

Whether CBDT is expected to go deep into the niceties of law before considering application u/s 119(2)(b) of the Income Tax Act 1961?

Introduction

In India, every assessee required to file his Income tax return within time prescribed under section 139 of the Income Tax Act. However, sometimes the assessee is not able to file his return within the due date prescribed under section 139. The consequences for not filing the return in time is that the assessee is not able to claim its refund and in case of losses the assessee is not able to carry forward his losses. Even the belated return is to be filed up to the end of the relevant assessment year. For example, the income tax return for the financial year ending 31.03.2021 is to be filed maximum up to 31.03.2022. the question for application for condonation arises when the assessee is not able to file his return up to the end of the relevant assessment year. Generally, the cases in which the question of filing the condonation of delay arises are related to NRIs and senior citizens whose TDS is deducted and they are not aware about the deduction of TDS. These cases may also include where the Tax is collected at source on various transactions like purchase of motor vehicle, TDS is deducted on cash withdrawals.

Section 119(2)(b) provides a remedy for the assessee in genuine cases of delay. For cases where assessee could not file their Income Tax returns within time due to genuine hardship, Income Tax Act has section 119(2)(b) read with circular no 09/2015 dated 09-06-2015,as machinery provision for condonation of delay in filing of return.

Scope of Section 119(2)(b)

Section 119(2)(b) of the income tax act 1961 empowers CBDT to authorise any income-tax authority, by a general or special order, 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 under this Act for making such application or claim and deal with the same on merits in accordance with law;

Vide its circular No. 09/2015 dated 09-06-2015, CBDT had issued instructions to its subordinate authorities for condonation of delay in filing “refund claim” and “claim of carry forward losses” under section 119(2)(b). This circular contains comprehensive guidelines on the conditions for condonation and the procedure to be followed for deciding such matters by such subordinate authorities.

The broad guidelines of the CBDT circular are as follows:

1. The powers of acceptance/rejection of condonation application for claim of refund/loss within the monetary limits delegated to the Pr.CCsIT/CCsIT/Pr.CsJT/CsIT:

Authorities vested with the power of acceptance/ rejection of application filed under 119(2)(b)	Amount of claim for any one assessment year.
The Principal Commissioners of Income-tax/ Commissioners of Income-tax (Pr.CsIT/CsIT)	Upto Rs 10 Lakhs
The Principal Chief Commissioners of Income- tax/ Chief Commissioners of Income-tax (Pr.CCsIT/CCsIT)	More than Rs 10 Lakhs but upto Rs 50 Lakhs
The CBDT	More than 50 Lakhs

2. No authority shall entertain condonation application for claim of refund/loss beyond six years from the end of the assessment year. A condonation application should be disposed of within six months from the end of the month in which the application is received by the competent authority, as far as possible.

3. In a case where refund claim has arisen consequent to a Court order, the period for which any such proceedings were pending before any Court of Law shall be ignored while calculating the said period of six years, provided such condonation application is filed within six months from the end of the month in which the Court order was issued or the end of financial year whichever is later.

4. Condonation application for claim of refund/loss shall be considered by the authorities subject to following conditions:

i. Authorities shall ensure that the income/loss declared and/or refund claimed is genuine and also that the case is of genuine hardship on merits.

ii. Authorities are empowered to direct the jurisdictional assessing officer to make necessary inquiries or scrutinize the case in accordance with the provisions of the Act to ascertain the correctness of the claim.

5. A belated application for supplementary claim of refund (claim of additional amount of refund after completion of assessment for the same year) can be admitted for condonation provided other conditions as referred above are fulfilled. Returns claiming refund and supplementary claim of refund would be subject to the following further conditions:

i. The income of the assessee is not assessable in the hands of any other person under any of the provisions of the Act.

ii. No interest will be admissible on belated claim of refunds.

iii. The refund has arisen as a result of excess tax deducted/collected at source and/or excess advance tax payment and/or excess payment of self-assessment tax as per the provisions of the Act.

6. This circular will cover all such applications/claims for condonation of delay under section 119(2)(b) which are pending as on the date of issue of the Circular.

7. The Board reserves the power to examine any grievance arising out of an order passed or not passed by the authorities mentioned above and issue suitable directions to them for proper implementation of this Circular. However, no review of or appeal against the orders of such authorities would be entertained by the Board.

Though it can be seen in some cases where CBDT or its subordinate authorities traversed beyond the scope of their powers given by section 119(2)(b) read with circular 09/2015.

The soul of the circular and section 119(2)(b) can be understood with such case which is recently decided by Hon’ble Karnataka High Court, in the matter of CENTRAL BOARD OF DIRECT TAXES AND OTHERS V/S. VASUDEV ADIGAS FAST FOOD PVT. LTD. Wherein

i. The Respondent Assessee could not file the return of income, for the assessment year 2014-15, within time limit prescribed under income tax act.

ii. Delay was on the ground that there was a change in the majority shareholding of the assessee and dispute arose between the erstwhile management, the matter was also pending at Company Law Board.

iii. Due to continuing dispute in management of the company, the audited accounts of the company could not be approved and adopted in time.

iv. Since the Claim exceeded Rs. 50 Lakhs, Assessee had filed an application before CBDT seeking for condonation of delay in filing the return of income for the said A.Y.

v. CBDT had sought for a report, on the application filed, from its subordinate Authorities i.e, the Principal Commissioner of Income-tax-II, as well as the jurisdictional Additional Commissioner of Income-tax.

vi. Subordinate Authorities had mentioned in their report that the delay in filing the return of income may be condoned

vii. CBDT had examined the return filed by the assessee on the merits and rejected the application on the ground that delay was not caused by any external factors which the respondent had no control over. Further, relying on Circular No. 09/2015 CBDT Rejected the application on the ground that the claim was not genuine by virtually making an assessment of the return filed by the assessee.

viii. Assessee filed writ petition before court, in the year 2018,

Single judge allowed the writ petition and quashed the order of CBDT by passing an order in the said matter. Wherein it was held that

– The ingredients of the expression ‘genuine hardship’ must be determined keeping in view the dictionary meaning thereof and legal conspectus attending thereto. It is well-settled in law that the expression ‘genuine hardship’ should be construed liberally so as to advance the cause of justice.

– The CBDT cannot examine a refund closely to see if the claim is bound to succeed as it amounts to prejudging the case. All that the CBDT can do is to verify if the case of the respondent-assessee needs consideration and does not suffer from apparentdefect.

– The Central Board of Direct Taxes is not expected to go deep into the niceties of law.

ix. Income Tax department preferred a writ appeal against the order of single judge before Karnataka High court.

Karnataka high court dismissed the appeal by passing an order wherein, in addition to order of single judge, it was held that

– CBDT has ignored recommendation of A.O., additional commissioner and principal commissioner for allowing condonation.

– Section 119(2)(b) of the Act empowers the CBDT to issue any general or special order authorizing any Income-tax authority to admit an application or claim for any exemption, deduction, refund or any other relief under the Act, if the time period for taking the benefit of the same has expired under the Act. Thereafter, the said Income-tax authority has to examine the return so filed on merits in accordance with law.

– CBDT by virtually passing an assessment order on the return of income of the respondent, has traversed beyond the scope of its power to condone the delay in filing the return of income under section 119(2)(b) of the Income-tax Act of 1961, and has acted contrary to the provisions of section 119(2)(b).

– The circular issued by the CBDT is binding on the authorities subordinate to it and cannot be binding on itself and power available to the CBDT under section 119(2)(b) is a specific power to pass such orders in cases of genuine hardship.

By referring above matter we can conclude that CBDT not supposed to go deep into the niceties of law before considering application u/s 119(2)(b) of the Income Tax Act 1961. All that the CBDT can do is to verify if the case of the respondent-assessee needs consideration and does not suffer from apparent defect.