HIGH COURT OF KERALA

Pala Marketing Co-operative Society Ltd.

v.

Union of India

C.N. RAMACHANDRAN NAIR, J.

WP (C) NO. 21977 OF 2007(N)

November 26, 2007

Section 119 read with section 237 of the Income-tax Act¸ 1961 - Assessment year 1997-98 - Whether in order to consider bulleted return for refund on merit, delay has to be necessarily condoned by Board under section 119(2)(b) - Held, yes - Whether Board should condone delay if failure to condone delay if failure to condone delay causes genuine hardship to assessee, no matter whether delay in filing return is meticulously explained or not - Held, yes

FACTS

The assessee, a co-operative society, was engaged in marketing agricultural produce of its members. Even though assessee was entitled to exemption under section 80P it remitted an advance tax of Rs. 10 lakhs during the accounting year relevant to assessment year 1997-98. Owing to delay in audit the assessee filed belatedly its return claiming refund of advance tax and TDS remitted by the others. The rejected the return as time barred and consequently declined refund. Assessee’s application under section 119(2)(b) for condonation of delay in filing the refund claim was rejected by the CBDT.

On writ petiton,

HELD

If delay is not condoned by the Board under section 119(2)(b), such application cannot be processed under Section 139 (1) or 139(4). Therefore, in order to consider belated return for refund on merit, delay has to be necessarily condoned by the Board under Section 119(2)(b) it is stated that if the Board considers desirable or expedient for avoiding genuine hardship to the assessee, it should condone the delay. In other words, what the Board should consider is hardship to the party if delay is not condoned. The Board should condone the delay if failure to condone the delay causes genuine hardship to the assessee, no matter whether the delay in filing return is meticulously explained or not. Strangely the Board had stated in its order that it was not possible to investigate (scrutinize) the return of income because the statutory time limit had already elapsed. It was not clear on what basis that statement was made because even in a case where claim of refund is made, the Assessing Officer has to examine the liability for income tax of the assessee and refund is made only if tax is not payable or the amount paid is in excess of the tax, interest, etc., payable. In other words, once the Board allows the application under Section 119(2)(b) the matter goes to the Assessing Officer for considering assessee’s claim for refund under section 237. Section 237 makes it clear that the Assessing Officer while considering application for refund should consider the amount of tax chargeable on the claimant under the Act and refund arises only if payment is in excess of the tax payable under the Act. In other words, the Assessing Officer has powers of assessment under section 237 while considering an application for refund. Refund is payable only if it is in excess of tax and other amounts payable under the Act. In other words, an assessee who escapes assessment invites assessment it an application for refund is made under section 237. [Para 3]

So far as the merits of the assessee’s claim for condonation of delay was concerned, the assessee was bound to get its accounts audited under Section 64 of the Kerala Co-operative Societies Act 1965. The delay in audit by the auditor appointed under the Act not attributable to the assessee. Even though revenue submitted that assessee was free to get the accounts audited by any accountant defined under the Act. That contention could not be accepted because audit covered by other statues are recognized under second proviso to section 44A(b) Until 2001 audited accounts and report in the prescribed form could be filed through the statutory audit. However, only from 1-4-2001 report from auditor is required and even thereafter the audit report prepared by auditor appointed under the special statute could be submitted. Besides showing sufficient cause for delay in filing the return for refund assessee had also established his case of genuine hardship in as much as it has suffered losses in the five succeeding years. The genuine hardship contemplated under Section 119(2)(b) obviously is financial hardship caused to the assessee if delay is not condoned. If delay in this case is not condoned, the co-operative society will be deprived of Rs. 10 lakhs and odd which it was otherwise not liable to pay by virtue of the exemption claimed under Section 80P. In the circumstances, impugned order was quashed assessee’s entitlement for condonation of delay under Section 119(2)(b) the Assessing was dumped to process assessee’s claim for refund under Section 237 and grant refund to the extent found eligible. [Para 4]