Court Overturns Tax Refund Denial, Citing Compassionate Grounds

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Case Name:

Laddulal Sharma Vs Principal Commissioner of Income Tax (High Court of Madhya Pradesh)

Writ Petition No.9350/2019

Date: 14th January 2020

Key Takeaways:

1. The court recognized genuine hardship as a valid reason for delay in tax-related submissions.

2. Age and health issues of family members can be considered legitimate reasons for delays.

3. The court emphasized the importance of exercising discretion in favor of taxpayers when there's no attempt to evade taxes.

4. This case highlights the significance of Section 119(2)(b) of the Income Tax Act, 1961, which allows for condonation of delay in certain circumstances.

Issue: 

The main question here was: Should the delay in submitting the tax return acknowledgment (Form No. V) to the Central Processing Center (CPC) in Bangalore be condoned, allowing the processing of the petitioner's tax refund claim?

Facts: 

1. Laddulal Sharma, a 76-year-old practicing advocate, filed his income tax return for the 2015-16 assessment year on December 2, 2015. This was 86 days late from the extended due date of September 7, 2015. 

2. Sharma was entitled to a refund of Rs.43,590/- based on his tax deductions. 

3. After filing the return electronically, Sharma was supposed to send a signed acknowledgment to the CPC in Bangalore within 120 days. However, he sent it after a delay of 335 days, which the CPC received on March 1, 2017. 

4. Sharma explained that the delay was due to his wife's critical illness and hospitalization. 

5. He applied for condonation of delay under Section 119(2)(b) of the Income Tax Act on November 7, 2017. 

6. The Principal Commissioner rejected his application on March 15, 2019, stating that no reasonable cause was provided for the delay. 

Arguments:

Sharma's side:

1. He argued that his wife's critical illness prevented him from submitting the acknowledgment on time.

2. He cited a CBDT circular dated June 9, 2015, which allows the Principal Commissioner to condone delays in such cases.

3. He emphasized that he had filed the return electronically within the statutory period for belated returns under Section 139(4) of the Income Tax Act.

Tax Department's side:

1. They admitted that the Commissioner has the power to condone delays but argued that Sharma couldn't prove genuine hardship in his case.

2. They stated that condonation of delay is not automatic and requires a valid reason.

Key Legal Precedents:

The judgment doesn't mention specific case law precedents. However, it does refer to:

1. Section 139(4) of the Income Tax Act, 1961, which allows for filing belated returns.

2. Section 119(2)(b) of the Income Tax Act, 1961, which gives the Principal Commissioner discretion to condone delays.

3. A CBDT circular dated June 9, 2015, providing guidelines for condonation of delay.

Judgment:

The court ruled in favor of Sharma, quashing the order dated March 15, 2019. Here's the breakdown:

1. The court found that Sharma had a genuine reason for the delay due to his wife's illness and hospitalization.

2. It criticized the Principal Commissioner for brushing aside the illness factor.

3. The court emphasized that this wasn't a case of tax evasion, but merely a delay in submitting a form.

4. It directed the tax department to process Sharma's refund claim of Rs. 43,590/- for the 2015-16 assessment year, ignoring the delay.

5. The department was given three months from the receipt of the court order to process the refund. 

FAQs:

1. Q: Does this judgment mean all delays in tax submissions will be condoned?

  A: Not necessarily. The court looks at each case individually, considering factors like genuine hardship and absence of tax evasion.

2. Q: What's the significance of Section 119(2)(b) of the Income Tax Act?

  A: It gives tax authorities the discretion to condone delays in certain circumstances, allowing for some flexibility in the tax system.

3. Q: How might this judgment affect future cases?

  A: It may encourage tax authorities to be more lenient when considering delay condonation requests, especially for elderly taxpayers or those facing health issues.

4. Q: What should taxpayers learn from this case?

  A: While it's crucial to meet tax deadlines, if unavoidable circumstances cause delays, it's worth explaining the situation and seeking condonation.

5. Q: Does this judgment change any tax laws?

  A: No, it doesn't change laws, but it does provide an interpretation of how existing laws and circulars should be applied in cases of genuine hardship.

Shri P.M Choudhary, learned senior counsel along with Shri Anand Prabhawalkar, learned counsel for the petitioner. Ms. Veena Mandlik, learned counsel for the respondent.

The petitioner before this Court, a practicing advocate, has filed this present petition being aggrieved by the order dated 15.03.2019 passed by the Principal Commissioner, Income Tax – I, Indore under Section 119 (2)(b) of the Income Tax Act, 1961 for the Assessment Year 2015 – 16.

The petitioner's contention is that the petitioner is an advocate practicing before this Court and is a regular income tax payee. The subject matter of the present writ petition relates to the Assessment Year 2015 – 16 and at the relevant point of time, the petitioner was serving as a Deputy Government Advocate for pleading cases of Government before the High Court of Madhya Pradesh, Bench at Indore..

The petitioner filed his return of income on 02.12.2015 for the assessment year 2015 – 16 declaring the income from the salary received from the State of Madhya Pradesh as well as income from other sources. The due date for filing the return for the year under consideration was 07.09.2015 (the original date was 31.07.2015 and it was extended to 07.09.2015). The return was filed belatedly by a delay of 86 days.

The contention of the petitioner is that there was a delay of 86 days and Section 139 (4) of the Income Tax Act, 1961 permits the assessee to file return who has not filed return within the prescribed due date. He is permitted to file return before expiry of one year from the end of relevant Assessment Year or before completion of the assessment, whichever is earlier. The petitioner, as per computation of income, was entitled for a refund of Rs.43,590/-.

The petitioner has further stated that the procedure provided for filing electronic return is that after uploading the return electronically, the assessee is required to forward the duly signed acknowledgment generated online to the Central Processing Unit of the Income Tax Department within 120 days from the date of uploading of the return and in the present case, the last date for filing the acknowledgment was 01.04.2016.

The petitioner has further stated that his wife was critically ill and he could not submit the acknowledgment to the CPC, Banglore within the prescribed limit but it was sent after a delay of 335 days. The CPC, Banglore has received the said acknowledgment on 01.03.2017. The petitioner's contention is that the return was electronically uploaded well within the statutory period prescribed for filing belated returns under Section 139 (4) of the Income Tax Act, 1961 but there was a technical default of not sending the acknowledgment to CPC, Banglore within 120 days from the date of filing of such return.

The petitioner has further stated that to meet the situation, the petitioner has submitted an application under Section 119 (2)(b) of the Income Tax Act, 1961 before the Commissioner of Income Tax – I on 07.11.2017 and categorically stated that he is 76 years of age and on account of illness of his wife, he was not able to send the acknowledgment to CPC within the stipulated time. It was also brought to the notice of the Commissioner that an amount of Rs.43,586/- has been deducted as TDS from the income received as salary by the petitioner and he is entitled for refund. The petitioner has filed filed Form – 26AS reflecting the TDS.

The petitioner has also placed reliance upon circular issued by CBDT dated 09.06.2015 and his contention is that the Principal Commissioner was competent to condone the delay as provided under the circular where the amount of claim is less than Rs.10,00,000/- for any one Assessment Year. The petitioner's grievance is that the Principal Commissioner has rejected the prayer for condonation of delay vide order dated 15.03.2019 stating that no reasonable cause has been provided by the petitioner for the delay caused in sending ITR-V to CPC, Banglore.

The petitioner has prayed for the following reliefs :-

(A) The Hon'ble Court may be pleased to issue a writ of certiorari and / or any other appropriate writ, direction or order requiring the respondents to certify to this Hon'ble Court all the records of this case in which the impugned order dated 15.03.2019 (Annexure-P/1) has been passed and after examining the legality and / or propriety thereof, quash the same.

(B) The Hon'ble Court may be pleased to issue a writ of mandamus and / or any other appropriate writ, direction or order, directing the respondent to exercise the discretion contemplated u/s 119 (2)(b) of the Income Tax Act, 1961 and condone the delay caused in sending acknowledgment to CPC, Banglore.

(C) Any other appropriate writ, direction or order and grant such other appropriate relief which this Hon'ble Court may deem fit in the facts and circumstances of the case.

(D) To award the cost of this petition in favour of the petitioner.

A reply has been filed by the Income Tax Department and they have admitted in the return that the Commissioner does have the power to condone the delay, however, in the present case, as reflected from order dated 15.03.2019, the petitioner could not prove any circumstances showing genuine hardship in his case and accordingly, the application for condonation of delay was rejected.

The respondent has further stated that the scheme does provide for condonation of delay and the same is not automatic, however, there has to be a genuine and valid reason for condonation of delay.

This Court has carefully gone through the writ petition as well as the reply filed by the respondent. In the present case, the petitioner did submit his return keeping in view Section 139 (4) of the Income Tax Act, 1961. The return was filed electronically and the CPC, Banglore received duly signed acknowledgment, which was generated online at the time of filing of the return on 01.03.2017. The petitioner was required to submit acknowledgment to CPC, Banglore within 120 days from the date of filing of the return and on account of the fact that petitioner's wife was critically ill, he could not submit the acknowledgment to the CPC, Banglore within 120 days from the date of filing of such return. It is nobody's case that the petitioner did not file return keeping in view Section 139 (4) of the Income Tax Act, 1961. There was certainly a delay and the petitioner is aged about 78 years, his wife was critically ill, she was hospitalized for more than two months and he was running from pillar to post for the treatment of his wife.

The Central Board of Direct Taxes, to cater to such contingency, has issued a circular dated 09.06.2015 and a discretion has been provided to the Principal Commissioner to condone the delay in such cases. The petitioner did mention about the illness of his wife, about hospitalization of his wife and in all fairness, the delay should have been condoned. It is not a case of evasion of income, it is not a case where no income tax return was filed, it is only a case, in which, Form No.V was not forwarded to the CPC, Banglore in the prescribed time. The return for assessment year 2015 – 16 was filed on 02.12.2015 and Form No.V was received by the CPC, Banglore on 01.03.2017.

Reasonable cause was explained in the application submitted by the petitioner and the Principal Commissioner has brushed aside the factum of illness of the wife of the petitioner by stating that after discharge from the hospital, the assessee's wife has taken routine treatment and the assessee was not prevented from the filing the return up to March, 2017 under Section 139 (4) of the Income Tax Act, 1961.

The present case is certainly a case of genuine hardship to the assessee and the discretion should have been exercised in favour of the assessee. The TDS, which the assessee was claiming, was in respect of tax deducted at source by the State of Madhya Pradesh, as the assessee was a Government Advocate, and therefore, the order dated 15.03.2019 is hereby quashed. The assessee's application dated 07.11.2017 for condonation of delay under Section 119 (2)(b) of the Income Tax Act, 1961 claiming refund of Rs.43,590/- in respect of Assessment Year 2015 – 16 is allowed.

The respondent is directed to process the case of the petitioner for refund, as claimed by the assessee, ignoring the delay. The exercise of processing the case and passing the final order ignoring the delay be concluded within a period of three months from the date of receipt of certified copy of this order.

With the aforesaid, the present Writ Petition stands allowed.

Certified copy, as per rules.

(S.C. SHARMA)

J U D G E

(SHAILENDRA SHUKLA)

J U D G E