Karnataka H.C : Where return could not be filed within stipulated time due to interim stay on audit report, application for condoning delay could not be rejected

High Court Of Karnataka

Arecanut Processing & Sale Co-Operative Society Ltd. VS. CIT

Assessment Years : 1999-2000 And 2000-01

Section : 119, 80P, 139

Ram Mohan Reddy, J.

Writ Petition Nos. 21140 & 39020 – 39025 Of 2012 (T-It)

April 18, 2013

ORDER

1. Petitioner aggrieved by the order dated 10.1.2012, Annexure-A, of the 1st respondent declining to accept the Explanation for the delay in filing the returns for the assessment years 1999-00 and 2000-01, has presented these petitions.

2. Petitioner a Co-operative Society registered under the Karnataka Co-operative Societies Act, 1959, for short KCS Act’ having its business at Sagar is established with the object of assisting formers in selling their produce so as to secure a good price. The audit of its accounts for the assessment years 1999-00 and 2000-01 by the Co-operative Society Audit Department though concluded and an audit report submitted was called in question in a writ proceeding in which, there was an interim order of stay and by a final order the second Audit report was set aside. Hence the petitioner was unable to submit its returns under Section 139 of the Income Tax Act, 1961, for short the ‘Act’, within the time stipulated.

3. Having secured the opinion of experts in the field of income tax who opined that the petitioner is entitled to exemption from tax under Section 80P (2)(iii), of its entire income from out of the sale of the agricultural produce, filed the return under Section 139 of the Act on 23.11.2004 along with an application to condone the delay by invoking Section 119(2)(b) of the Act read with instruction No. 12 of 2003 and to process the return and grant refund of the tax amount.

4. That application when rejected led to filing W.P.Nos.38165-38171 of 2009, whence a learned Single Judge by order dated 24.1.2011, Annexure-G, regard being had to the opinion in Associated Electro Ceramics v. Chairman, CBDT [1993] 201 ITR 501 (Kar.) holding that the Chairman Central Board of Direct Taxes, for short ‘CBDT’, was empowered to condone the delay in cases relating to carry forward of losses, disposed of the petition permitting the petitioner to approach the Commissioner who was required to consider the condonation of delay on refund application.

5. On remand, the 1st respondent by the order impugned declined to accept the Explanation the application Annexure-‘E’ for condonation of delay, as sufficient cause for the period from 24.8.2002 to 23.11.2004, observing that the petitioner ought to have filed the return on the unaudited books under Sec.44AB of the Act, and that the return of income for the year 1999-00 was not entertainable in view of point No.4 of the Board instruction No. 13/2006 dated 22.12.2006.

6. Having heard the learned counsel for the parties, it is useful to refer to certain provisions of the ‘Act’ and KCS Act. Section 80P (2)(iii) of the Act provides for deduction of the income of Co-operative Societies from the marketing of agricultural produce grown by its members. Section 139 in chapter XIV relating to procedure for assessment provides for filing return of income, also prescribes limitation. Section 119(2)(b) reads thus: “if it considers it desirable or expedient so to do for avoiding genuine hardship in any case or class of cases, by general or special order, authorize [any income tax authority, not being a Commissioner (Appeals)] to admit an application or claim for any exemption, deduction, refund or any other relief under this Act after the expiry of the period specified by or under this Act for making such application or claim and deal with the same on merits in accordance with law”. It is on this premise that instruction No. 12 of 2003 was issued investing jurisdiction in the Commissioner of Income Tax to consider the condonation of delay in filing returns and seeking refunds. During the year 2006, CBDT issued yet another Circular instruction No. 13 of 2006, to cover all pending cases relating to condonation of delay.

7. Refunds are provided for under Section 237 in Chapter XIX of the Act, while the limitation for claim of refund is under Section 239 of the Act.

8. Petitioner being a Co-operative Society registered under the KCS Act is required to have its accounts audited by the Statutory Auditor. Regard being had to the fact that the report of the Statutory Auditor was subject matter in W.P.No.520/ 1993, whence by an interim order there was a stay of the report and under the final order dated 16.6.1998, Annexure-C, the second audit report was quashed while the first audit report dated 7.11.1990 was directed to be proceeded with, the second proviso to Section 44AB of the ‘Act’ undoubtedly applies to the case of the petitioner, and reads thus:

“Provided further that in a case where such person is required by or under any other law to get his accounts audited it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and [furnished by] that date the report of the audit as required under such other law and a further report [by an accountant] in the form prescribed under this section.

9. In the circumstances the finding of the 1st respondent, in the order impugned, Annexure-G, that petitioner ought to have filed the return within time on the basis of the unaudited books and in accordance with law, is without application of mind. In other words, after the petitioner’s books of account were audited and Statutory Auditor submitted two reports, subject matter of challenge before this Court which were stayed by an interim order, therefore, petitioner could not comply with the proviso to Section 44AB of the Act.

10. It is no doubt true that the petitioner submitted returns for the assessment years 1994-95 through to 1999-2000 and 2000-01 on 23.11.2004. Indisputably upto the assessment year 1998-99, returns filed were beyond the period of six years and in terms of instruction No. 12 of 2003 read with 13 of 2006, petitioner was disentitled to condonation of delay in filing the returns. The 1st respondent having not noticed the feet that the return for the assessment year 1999-00 was filed well within the period of six years, fell in error in rejecting the processing of the return for the assessment year 1999-00 as being barred by time. This finding too suffers from non-application of mind.

11. Yet again, there can be no dispute that the filing of the returns for the assessment year 1994 through to 1998-99 beyond the period of six years, when considered in W.P.Nos.38165-171/2009, by order dated 24.1.2011, Annexure-G, this Court rejected the claim for condonation of delay, which order is final and binding.

12. Thus, what was left to be considered by the Commissioner of Income-tax was condonation of delay insofar as it relates to the returns filed for the assessment years 1999-2000 and 2000-01. The Explanation offered by the petitioner for the delay from 24.8.2002 the date of order in W.P.Nos.38165-171/2009 affirming the first audit report and 23.11.2004 the date of filing of the return, is that it had no expertise in the field of income tax and the refunds of tax deducted at source by the customers who purchased the agricultural produce of farmer members. Regard being had to the nature of business of the petitioner and the persons managing the Co-operative Institution, the Explanation offered cannot, but be said to constitute sufficient cause to condone the delay and therefore, its rejection is perverse.

13. It is the case of the petitioner that the sale of agricultural produce of its members is the only source of income, entitled to a deduction under Section 80P (2)(iii) of the Act, but it is for the respondent to process the return filed by the petitioner and effect refund, if the petitioner is entitled to in law. If in the processing of the return, it is found that the petitioner is liable to be charged to tax and a demand raised, it is needless to state that the petitioner cannot advance the plea of limitation in the matter of recovery of the said tax. It is appropriate to direct the petitioner to file an affidavit of undertaking that it would not advance the plea of limitation in the event it is mulched with the payment of tax for the assessment years 1999-00 and 2000-01.

14. In the result, these petitions are allowed. The order, Annexure-A, of the 1st respondent is quashed insofar as it relates to assessment years 1999-00 and 2000-01. The delay in filing the said returns is condoned and the 1st respondent is directed to process the petitioner’s return filed on 23.11.2004 for the assessment years 1999-2000 and 2000-01 and pass orders strictly in accordance with law and effect refund if the petitioner is so entitled. Petitioner to file an affidavit before the Assessing Officer as indicated supra, within four weeks.

[Citation : 358 ITR 337]