The Orissa High Court (Cuttack Bench) has held that the power conferred under Section 119(2)(b) of the Income Tax Act is a benevolent provision intended to mitigate “genuine hardship” of the taxpayer, and it should be exercised liberally so as to facilitate the taxpayer to avail the legitimate benefit as entitled to, but not in a pedantic or hyper-technical manner.
The Court stated that the Authorities under the IT Act are obligated to act in accordance with law, and tax can be collected only as provided under the Act. If a taxpayer, under a mistake, misconception, not being properly instructed or due to certain intervening circumstances beyond its control, is over-assessed, the Authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected.
The Court found that the petitioner (taxpayer society) is not in default for not being able to furnish its returns along with the audit report(s) within the period specified, because the statutory authority has failed to assist the petitioner in getting its accounts audited as required under the Odisha Cooperative Societies Act, 1962 (OCS Act).
The petitioner has rendered sufficient and reasonable explanation warranting consideration of application for condonation of delay by the Principal Chief Commissioner of Income Tax (PCCIT) invoking Section 119(2)(b) by application of judicious discretion, added the Court, while pointing out that the PCCIT should not have rejected the application on hyper-technical ground or by adhering to pedantic approach.
Accordingly, the Court quashed the order passed by the PCCIT, refusing to condone the delay in exercise of power under Section 119(2)(b), and issued a mandamus to the authority concerned to allow the petitioner to file return(s) of income along with audit report(s).
The Division Bench comprising the Chief Justice Harish Tandon and Justice Murahari Sri Raman emphasized that the term “genuine hardship” under Section 119(2)(b) must be construed liberally. It recognized that the inability to claim a rightful deduction under Section 80P, which would lead to paying more tax, constitutes a “genuine hardship”. Thus, when substantial justice and technical considerations are pitted against each other, the cause of substantial justice deserves to be preferred.
The Bench found that the delay was not attributable to the petitioner but to the failure of a statutory authority, the AGCS, to appoint an auditor. The petitioner was dependent on the performance of this statutory authority, and the delay was a result of circumstances beyond its control.
The Bench also took judicial notice of the Central Board of Direct Taxes (CBDT) Circular No. 13 of 2023 and a letter from the Ministry of Cooperation dated 03.08.2023, to acknowledge the difficulties faced by cooperative societies due to delays in audits under respective state laws for AY 2018-19 to 2022-23 and authorized the CCs IT/DGs IT to condone such delays to mitigate genuine hardship.
Lastly, the Bench criticized the PCCIT for adopting a “pedantic view” and a “misdirected” approach, and concluded that the PCCIT should have confined his inquiry to the assessment years in question (2018-19 to 2022-23) and not allowed past events to weigh heavily on his decision. The PCCIT failed to exercise his discretion judiciously and did not genuinely address the matter before him, acting arbitrarily instead of in good faith.
Briefly, petitioner, a co-operative society registered under the OCS Act, is required to have its accounts audited by an auditor authorised by the Auditor-General of Co-operative Societies (AGCS) as per Section 62 of the OCS Act. The petitioner, however, contended that the delay in filing its returns was due to the failure of the AGCS to appoint an auditor in a timely manner, citing an acute shortage of departmental auditors.
Despite persistent requests from the petitioner, the AGCS instructed the society to engage a Chartered Accountant firm from an approved panel. An auditor was finally appointed who completed the audit for AY 2018-19 to 2022-23, which was after the statutory due date for filing returns. Consequently, the petitioner filed an application for condonation of delay to be able to claim deductions under Section 80P. The PCCIT rejected the application, treating the petitioner as a “regular non-filer” and noting that for the period prior to AY 2020-21, the petitioner had never prayed for condonation of delay.
Appearances:
Senior Advocate Rudra Prasad Kar, along with Advocates Pranaya Kumar Mishra, Aditya Narayan Ray, Narahari Swain, and Himansu Bhusan Jena, for the Petitioner/ Taxpayer
Advocate Subash Chandra Mohanty, for the Respondent/ Revenue
