Income Tax Act | Section 119(2)(B) Application Cannot Be Rejected Citing Vague & Arbitrary Reasons

The court stated that rejection on merits is unwarranted if the delay in filing the income tax return is not condoned.

The ruling came in response to a petition challenging the order dated 04.10.2023, wherein the Additional/Joint Commissioner of Income Tax rejected an application seeking permission for condonation of delay and the filing of an income tax return for the Assessment Year (A.Y.) 2020-21. The due date for the return, which expired on 31.05.2021, saw a delay of 26 days, with the application under Section 119(2)(b) filed on 26.06.2021.

The rejection order contained two grounds, including questioning the genuineness of the petitioner's claim of hardship. The petitioner cited challenges faced during the COVID-19 pandemic, specifically stating that the accounting staff's unavailability due to pandemic-related issues hindered finalizing the accounts for the financial year 2019-20.

One of the reasons given by the petitioner in response to the show-cause notice and in the application seeking condonation of delay on grounds of genuine hardship was:

“The accounts for FY 2019-20 could not be finalized in time because the accounts staff could not attend duties for a considerable time due to Covid-19 pandemic-related issues and inaccessibility of Directors due to their predominant preoccupation with the treatment of Covid patients, as the hospital was converted into a dedicated Covid care facility.”

The said claim was rebutted with the observation that the applicant's contention that the accounting staff was not available was factually incorrect. This was because the said contention was not supported by any documentary evidence as well.

It was stated therein that the hospital was running throughout the year, and in the absence of accounting staff, it would not be possible to manage day-to-day operations and the routine business of the hospital.

On other grounds pertaining to the genuineness of the claim, it was opined that the responsibility of finalizing the books of accounts and getting them audited was the onus of the applicant. Failure to do so on the grounds of the Covid pandemic or lack of clarity on legal and taxation issues, as such, could not be construed as grounds of genuine hardship.

It was also stated that Covid travel restrictions were gradually eased all over the country in phases and were completely relaxed by the end of the year 2020. Thus, the applicant had ample time to get its accounts finalized within the extended time limit of 31.05.2020 and file the return of income, which it had failed to do so.

In further contention of the petitioner in the application seeking condonation of delay in submitting the return, it was asserted that the hospital premises had been declared a dedicated Covid facility in Valsad, catering to the majority of the population.

Due to the overwhelming situation, the delay had occurred beyond the control of the petitioner. However, the order impugned stated that the petitioner's claim that accounts for the year A.Y. 2020-21 could not be finalized in time due to the preoccupation of accounts staff and the Director with the treatment of Covid patients was considered contradictory and without merit.

The order pointed out that the permission to treat Covid patients was granted on 20.07.2020, which was three and more than ½ months after the end of the financial year 2019-20 (i.e., A.Y. 2020-21), during which the petitioner had failed to file its return.

The explanation provided by the petitioner, stating that the accounts staff was preoccupied with the treatment of Covid patients as the hospital was converted into a dedicated Covid care facility, was rejected as factually incorrect.

In paragraph '9' of the impugned order, it was concluded that the Central Board of Direct Taxes (CBDT), considering the pandemic, had extended the time limit for filing belated income tax returns under subsection (4) and revised income tax returns under sub-section (5) of Section 139 for A.Y. 2020-21 until 31.05.2021.

This extended time limit was notified to mitigate the challenges faced by taxpayers in meeting statutory and regulatory compliances due to the outbreak of Covid-19, enabling them to file their income tax returns.

Despite this extension, the applicant had failed to file its return during the extended time limit and without demonstrating any cogent reason.

The High Court, while relying on the case of M/s. Best Ready Mix Concrete versus the Principal Commissioner of Income Tax, passed in WP(C) No. 37648 of 2023, observed that Section 119(2)(b); sub-section 2(b) provided that the Board could authorize any income tax authority, not being a commissioner (appeals), to admit an application or claim for a refund, etc., after the expiry of the period specified under the Act for making such application or claim and deal with the same on merits in accordance with the law.

The Court further observed that the CBDT circular No. 09/2015, dated 09.06.2015, had been issued to prescribe guidelines on the condonation of delay and the procedure to be followed in dealing with the applications under Section 119(2)(b) of the Income-tax Act.

Taking note of the first ground for rejection of the application seeking condonation of delay in submitting the return, the Court stated that no genuine hardship could be said to have been caused to the petitioner as a result of the arbitrary approach of respondent No. 2.

The Court further mentioned that the delay was merely 26 days, and judicial notice could be taken of the fact that the country was facing an overwhelming situation of the second wave of Covid-19. This situation turned out to be fatal between the last week of March 2021 and June 2021, during which the entire setup of the whole country was paralyzed.

The Court observed, “Hospitals were flooded with patients and lot of death had occurred during the said period. The petitioner being a hospital establishment, having been declared a dedicated Covid facility by the District Administration, demonstrably was dealing with unprecedented adverse circumstances.”

“The claim of the applicant that the delay of 26 days had occurred because of the absence of account staff or the staff being pre-occupied with other Covid duties and also dealing with the hospital administration due to flooding of patients, the claim of the petitioner that it was a genuine hardship, is found to be correct,” the Court added.

Regarding the second ground on the merits of the claim, the Court had stated that it was sufficient to note that the petitioner's claim was for a refund of the TDS deducted by calculating the advance tax paid. Without delving into the detailed merits of the petitioner's profit and loss account, the Additional/Joint Commissioner of Income Tax was not permitted to assert at the admission stage that the applicant had failed to establish the correctness of the claim in a cursory manner.

Thus, the Court set aside the order passed by the Additional / Joint Commissioner of Income Tax.

The Court further said that the application seeking condonation of delay under Section 119(2)(b) of the Income-Tax Act, 1961 for filing income tax return for A.Y. 2020-21 was liable to be admitted by condonation of delay of 26 days in submitting the return for A.Y. 2020-21.

With the admission of the application, the Court permitted the petitioner to file the return by waiving the time limit and the same shall have to be scrutinized in accordance with the provisions of the Income Tax Act, 1961.

With the above observations and directions, the Court disposed of the Writ Petition.

Case No.: R/SPECIAL CIVIL APPLICATION NO. 20543 of 2023

Case Title: M/S AMIT HOSPITAL PVT. LTD. Versus PRINCIPAL COMMISSIONER OF INCOME TAX

LL Citation: 2024 LiveLaw (Guj) 1

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