Wp/40548/2013 Of Sri Deepak Varma v. The Commissioner Of Income Tax

IN THE HIGH COURT OF KARNATAKA AT BANGALOREDATED THIS THE 23 DAY OF JULY, 2014 BEFORE THE HON'BLE MRS.JUSTICE B.V.NAGARATHNA ;WRIT PETITION NO.40548/ 2013 (IT) BEIWEEN SRI DEEPAK VARMAS/O SRI SATYAPAL VARMA,AGED 58 YEARS, RESIDING AT NO.10O,H.M.ASTORIAN, BENSON CROSS ROAD,NANDIDURGA ROADBANGALORE.PETITIONER (BY SMT.VANI H., ADV.) AND 1.)THE COMMISSIONER OF INCOME TAX.BANGALORE-IVC.R.BUILDING, QUEENS ROAD.BANGALORE-560 OO1..2 |INCOME TAX OFFICER,CIRCLE-8(2), SAMPIGE ROADMALLESWARAM|BANGALORE-560 OO2..RESPONDENTS (BY SRI. K.V.ARAVIND, SENIOR STANDING COUNSEL|FOR R1 & R2) OR OK THIS W.P. IS FILED UNDER ARTICLES 2276 AND22/ OF THE CONSTITUTION OF INDIA PRAYING TO SETASIDE THE ORDER DATED 31.7.2013 PASSED BY THE!FIRST RESPONDENT VIDE ANNEXURE-P. THIS PETITION COMING ON FOR PRELIMINARY|HEARING IN ‘B’ GROUP THIS DAY, COURT MADE THE!FOLLOWING:-_ ORDER This writ petition has been filed by thepetitioner being aggrieved by the order of thefirst respondent — Commissioner of Income Tax-IV, Bangalore, on 31/07/2013 (Annexure “P”),.passed under Section 119(2)(6) of the IncomeTax Act, 1961 (nereinafter, referred to as the“Act”, for the sake of brevity). 2. -Tne facts germane to the disposal ofthis writ petition are that the petitioner, who isan individual assessee and owner of the flat atsBombay, nad let out tne flat to M/s.DHL Express(India) Pvt. Ltd., under a leave and licenceagreement dated 01/03/2007. #£=The petitionehad received a sum of Rs.1,50,000/- per month,as the monthly rentals, subject to deduction of.tax at source. Petitioner nad also. receivedRs.20,000/-.Der|month,towardsfurniture, 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|2006-07andtheassessmentYear2007-08. The lessee had deducted tax at source|with regard to the advance rentals while making>the payment to the petitioner. On the aforesaidpremise, 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 toan extent of Rs.4,00,854/- on account of theadvance rentals received by the petitioner, heclaimed a refund of Rs.1,90,/744/- in the originalreturn of income filed by him. © being | 3.The leave and license agreement.which commenced from 01/03/2007 was to. expire on 30/11/2010 after a period of 33.months.However,that|WaSprematurelyterminated after a period of 18 months. Therewere negotiations between the parties and in|September 2008 petitioner returned a sum ofRs.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, thepetitioner filed revised return for the assessment|year 2007-08 on 16/07/2009, seeking refund ofRs.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 Y% months. Petitioner also filed an.application under Section 119(2)(b) of the Act, seeking condonation of delay in filing revised|return and for refund of the excess tax paid on)scrutiny of the revised return. By order dated31/10/2012, 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 dated12/02/2013,theimpugnedorder|dated31/10/2012 was quashed and the matter was.remanded|tOthefirst.respondent.forreconsideration.In|accordancewithlaw.Pursuant to the order of remand, the impugned|order dated 31/07/2013 has been passed andthat order is assailed in this writ petition. 4I have heard learned counsel! for thepetitioner 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| my attention to instruction No.13/2006 dated|22/12/2006, which has been issued by theCentral Board of Direct Taxes (CBDT) pursuantto clause (Db) of sub-section (2) of Section 119 ofthe Act. She contended that the first respondentought to have condoned the delay in filing therevised return and permitted processing of therevised return filed on 16/07/2009 by the.petitioner. That there was a short delay of 3 2)months in filing the revised return on account ofgenuine andbone fidereasons. She gave.reasons as to wny the revised return had to be)filed, seeking refund in view of the agreement|dated 01/03/2007 being terminated between thepetitioner and M/s.DHL Express (India) Pvt. Ltd., prematurely which had resulted in return of the)advance rentals and otner deposits made by tnatentity 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. 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 takesnote 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 thereturn 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 genuinehardship to the petitioner. In Support of her|Submissions, she has placed reliance on two.decisions. The first being of the Bombay High| Court in case ofSitaldas K.Motwoanl svDirector-General of Income-tax [(2010)323 ITR 223)and|Pala Marketing Co-operative Society Ltd. v. Union of India andOthers [(2009) 311 ITR 177 (Ker.)], tolcontend 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 counselappearing 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.Itwas contended that merely because certainsubsequent events had transpired after filing ofthe original return, would not entitle the.petitioner to file revised return and seek refund.He also contended that reasons have been. rightly appreciated in the impugned order for not.condoning the delay, as the petitioner hadsufficient time to file the revised return on orbefore 31/03/2009. He therefore, submitted that|there is no merit in this writ petition. 6.|Per contra,learned standing counselappearing 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.Itwas contended that merely because certainsubsequent events had transpired after filing ofthe original return, would not entitle the.petitioner to file revised return and seek refund.He also contended that reasons have been. rightly appreciated in the impugned order for not.condoning the delay, as the petitioner hadsufficient time to file the revised return on orbefore 31/03/2009. He therefore, submitted that|there is no merit in this writ petition. J SHaving 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.Y2 months as the last date for filing of revisedreturn was 31/03/2009. While considering an)application under clause (b) of sub-section (2) ofSection 119 of the Act, the authority while goinginto 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 therevised return was filed with a.bone fideintention and for genuine and bonafide reasons. 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 thatexplanation, the authority would have to takeinto consideration Instruction No.13/2006. Ifthe 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 thedelay is not condoned, then it would result in.genuine hardship to the assessee. It is in thiscontext 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. 8.)In|theinstantCaS€,|thefirst.respondent —- authority has noted the reasons asto 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 thatthere were four months available to the assesseeto 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 theapplication had to be rejected on that ground.The first respondent has also stated that therewas a supplementary refund claim made and for.that reason also, the application had to berejected. — QOBefore giving a finding as to whether|the first respondent has rightly considered theapplication filed by the petitioner, it is necessary to go into the relevant decisions on clause (Db) ofsub-section (2) of Section 119 of the Act. TheSaid sub-section uses the expression “avoiding.genuine hardship’. This expression is relatable totheaSSeSS@2EeTheexpression“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 (notbogus or merely a ruse). The ingredients of realhardship must be determined keeping in mind)the dictionary meaning thereof and the legalconspectus 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. to go into the relevant decisions on clause (Db) ofsub-section (2) of Section 119 of the Act. TheSaid sub-section uses the expression “avoiding.genuine hardship’. This expression is relatable totheaSSeSS@2EeTheexpression“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 (notbogus or merely a ruse). The ingredients of realhardship must be determined keeping in mind)the dictionary meaning thereof and the legalconspectus 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 theHon'ble Supreme Court have been considered by|the Gujarat High Court in the case ofGujaratElectric Co. Ltd. v. CIT [(2002) 255 ITR 396 (Guj) Jwherein, it was held that when the|revised return was filed belatedly on account of|the ill-health of the officer who was looking aftermatters pertaining to taxation, the Court heldthat it was a reason required to be consideredfor the purpose of condoning the delay under.clause (Db) of sub-section (2) of Section 119 ofthe Act. 11. InSitaldas K.Motwanli vy. DirectoGeneral of Income-tax [(2010) 323 ITR223],the Bombay High Court has explained thephrase “genuine hardship” in the following:mMmannefr “Having heard both the parties,weMUSTobservethat|whileconsidering the genuine hardship,respondent No.1 was not expected toconsider a_ solitary ground as_ twhether the petitioner was prevented|by any substantial cause from filing:return within due time. Other factors| detailed hereinbelow ought to have|been taken [Into account. XX XxX X “The Madras High Court in theCaseofR.SeshammealV.ITO.[1999/2357 ITR 185, was pleased toobserve as under (page 187): “This is hardly the manner inwhich the State is expected to dealwith the citizens, who in their anxiety|to comply with all the requirements ofthe Act pay monies as advance tax tothe State, even though the monieswere not actually required to be paid|by them and there-after seek refundof the monies so paid by mistakeafter the proceedings under the Actare—droppedby theauthoritiesconcerned. The State is not entitled|to plead the hyper technical plea oflimitation in such a situation to avoid|return of the amounts. Section 119|of the Act vests ample power in theBoard to render justice in such a)situation. The Board has _ acted 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 allthe conditions mentioned [n Circular|datedOctober12,1993.TheLegislature has conferred the power|to condone delay to enable theauthorities to do substantive Justiceto the parties by disposing of the)matter on the merits. The expression.“genuine”has|recelvedaliberalmeaning in view of the law laid down.by thedpex|COUrTreferredCO hereinabove and while considering|this|aspect,|theauthoritiesare|expected|to.bear|In|mindthatordinarily the applicant, applying for|condonation of delay does not standto benefit by logging its claim late.Refusing to condone delay can result|in a meritorious matter being thrown|out at the very threshold and cause ofjustice being defeated. As againstthis, when delay is condoned the highest that can happen is that acause would be decided on the merits|after hearing the. parties. When|substantialJusticeand|technical|considerations are pitted against each|other, the cause of substantial Justicedeserves to be preferred for the otherside cannot claim to have a vested|right in injustice being done because|of a non-deliberate delay. There is no-presumption that delay is occasioneddeliberately, or on account of culpablenegligence, or on account of mala)fides. A litigant does not stand tobenefit by resorting to delay. In facthe runs a serious risk. The approachof the authorities should be Justice|oriented so as to advance the cause|of justice. If refund is due to theapplicant, mere delay should notdefeat the claim for refund. Whether the refund claim Iscorrect and genuine, the authority|must satisfy itself that the applicanthas a prima facie correct and genuineclaim, doesnotneal)that|theauthority should examine the merits of the refund claim closely and come.to a conclusion that the applicant’sclaim [Is bound to succeed. This|would amount to prejudging the case|on the merits. All that the authorityhas to see Is that on the face of it thepersonapplyingforrefundaftercondonation of delay has a case which.needs consideration and which [s not|bound to fail by virtue of someapparent defect. At this stage, theauthority is not expected to go deep|into the niceties of law. While|determining whether a refund claim ts_correct and genuine, the relevantconsiderationISwhether.Of)theevidence led, it was possible to arriveat the conclusion in question and notwhether that was the only conclusion|which could be arrived at on thet|evidence. 12.In.PalaMarketing|Co-operativeSociety Ltd., v. Union of India and others [(2009) 311 ITR (Ker) ]tne Kerala Hign Courtwhile considering the expression “genuine nardshnip™nas opserved as under:-. FFven thnougn courts while consideringapplication for condonation of delay undersection 5 of the Limitation Act may be Justifiedin considering the merits of tne case andaCOMSECQUElNICTO thepartyforhlofconsideration of the case on tne merits, I do|notthinksection119(2)(b)IS|Justaf)incorporation of section 5 of the Limitation Act.What is stated in section 119(2)(b) ts that ifthe Board considers desirable or expedient foravoiding genuine hardship to the assessee, itsnould condone the delay. In otner words,wnat the Board snould consider is nardsnip tothe party if delay is not condoned. The Boardshould condone the delay if failure to condonethe delay causes genuine Narasnip to theassessee, no matter whether the delay in filing:returnIS|meticulouslyexplainedOF|not.Strangely the Board nas stated in its order thatit is not possible to investigate (scrutinise) thereturn of income because the statutory timelimit nas already elapsed. I do not know on.wheat basis this statement [s made pecauseeven in a case where the claim of refund Ismade, the Assessing Officer has to examinethe liability for income-tax of the petitioner anarefund is made only if tax is not payable or theamount paid is in excess of the tax, interest,etc., payable. In other words, once the Board allows the application under section 119(2)(b)of the Act, the matter goes to the AssessingOfficer for considering the assessee’s claim forrefund under section 7237. Section 23/7 makesit clear tnat the Assessing Officer wnileconsideringapplicationforrefundshouldconsider the amount of tax chargeable on theclaimant under the Act and refund arises onlyif the payment is in excess of the tax payableunder tne Act. In other words, the Assessing.Officer has powers of assessment undersection 237 while considering an application forrefund. Refund ts payable only if it is in excessof tax and other amounts payable under theAct. In otner words, an assessee wno escapesassessmentInvitesassessmentIf alnapplication for refund is made under section23/.. allows the application under section 119(2)(b)of the Act, the matter goes to the AssessingOfficer for considering the assessee’s claim forrefund under section 7237. Section 23/7 makesit clear tnat the Assessing Officer wnileconsideringapplicationforrefundshouldconsider the amount of tax chargeable on theclaimant under the Act and refund arises onlyif the payment is in excess of the tax payableunder tne Act. In other words, the Assessing.Officer has powers of assessment undersection 237 while considering an application forrefund. Refund ts payable only if it is in excessof tax and other amounts payable under theAct. In otner words, an assessee wno escapesassessmentInvitesassessmentIf alnapplication for refund is made under section23/.. 13.In lignt of the aforesaid decisions and theobservations made there under and keeping in mindInstruction No.13/2006, which have been issued tothe CBDT for guidance of the respondent - authority,tne correctness and legality of the impugned orderwould have to be considered. The reason as to whytne petitioner filed the revised return is on account ofthe premature termination of the leave and licence| agreement dated 01/03/2007, after a period of 18)montns and that the agreement did not last for a fullperiod of 33 months. On account of premature|termination of the agreement, the petitioner nad toreturn the advance rentals aS well as the security|deposit to M/s.DHL Express (India) Pvt. Ltd., thelessee. Tnose amounts nad been received by the.petitioner during the financial year 2006-07. Whilefiling the return for that year, those amounts werereflected in the return and infact, the TDS deductedin respect of those amounts paid to the petitioner-assessee was also reflected and the said amountsnad also suffered tax. But on account of thne'premature termination of the agreement as the|petitioner had to refund the amounts received byway of advance rentals and security deposit toM/s.DHL Express (India) Pvt. Ltd., the petitioner wasconstrained to file the revised return. No doubt, therevised return had to be filed by 31/03/2009 but inthis context, thebone fidereason of the petitioner innot filing tne revised return in time nad to be.considered by the respondent authority. Petitioner| nad explained the delay by _ stating that thnegotiations 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 andM/s.DHL Express (India) Pvt. Ltd., and during tnisperiod i.e., November 2008 nis mother died and hisfather died in June 2009 after illness and therefore,for those reasons, he was unable to file the revisedreturn on or before 31/03/2009. Having regard tothe explanation given by the petitioner for the delayin filing the return by 3 Y% months, I am of the viewthat the first respondent ought to have consideredtne aforesaid explanation in light of the facts of thecase and also the fact that the petitioner had not|delayed the filing of the revised return due tonegligence, carelessness or due to any otnerfrivolous reason. In that view of the matter, firstrespondent ougnt to Nave condoned the delay infiling the returns rather than taking a very strict andpedantic view of the matter. Accepting the aforesaidreasons the delay in filing tne return is condoned or otherwise genuine nardship would be caused to thepetitioner. 14.Hence, for the aforesaid reasons, the|impugned order is quasned. Second respondent isnow directed to process the revised return inaccordance witn Jaw. otherwise genuine nardship would be caused to thepetitioner. 14.Hence, for the aforesaid reasons, the|impugned order is quasned. Second respondent isnow directed to process the revised return inaccordance witn Jaw. 15.At this stage, learned standing counselfor the respondents would submit that on processingof the revised return, incase petitioner is liable toany fresn demands to be made py the Assessing|Officer at that stage, petitioner cannot take up theplea of limitation, on raising the demand. Hecontends that processing of the revised return wouldnow be taken up, as on account of there being|litigation between the parties-as the earlier orderpassed by the first respondent - authority had alsobeen assailed by the petitioner and this Court hadset aside that order and on remand-the impugnedorder has been passed recently. 16.Learned counsel for the petitioner statesthat no such plea of limitation would be raised by thepetitioner, in case any fresh demand is raised on processing of the revised return filed by thepetitioner. Submission of the learned counsel for thepetitioner is placed on record. 1/.In the result, Annexure “P” is quasned.Delay in filing the revised return dated 16/07/2009 iscondonedfortheassessmentYd|200/-O08. Respondent No.2 is directed to process the revisedreturn filed by the petitioner in accordance with law. 18.Writ petition is allowed in the aforesaidcerms. Sd/-| JUDGE. *MNVS