$~12.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ WRIT PETITION(CIVIL) No. 6537/2017
Date of decision: 12th March, 2018
B.U, BHANDARI NANDGUDE PATIL ASSOCIATES... Petitioner
Through Ms. Mihira Sood & Mr. Prateek Krishan
Chadha, Advocates.
versus
CENTRAL BOARD OF DIRECT TAXES & ORS. ..... Respondents
Through Mr. Sanjay Kumar & Mr. Rahul
Chaudhary, Sr. Standing Counsel.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE CHANDER SHEKHAR
SANJIV KHANNA, J. (ORAL):
M/s B.U. Bhandari Nandgude Patil Associates, an association of
persons, has filed the present writ petition under Articles 226 and 227 of the
Constitution of India impugning the order dated 8th February, 2017 passed
by the Central Board of Direct Taxes (CBDT, for short) under Section
119(2)(b) of the Income Tax Act, 1961 (Act, for short).
2. The impugned order passed by the CBDT dismisses application dated
11th May, 2011 (wrongly mentioned in the impugned order as 11 th May,
2015) for extension of time for filing of the income tax return for the
Assessment Year 2006-07.
3. The return for the Assessment Year 2006-07 was due under Section
139(1) of the Act on 31st October, 2006. However, the return was filed by
W.P. (C) No. 6537/2017 Page 1 of 12
the petitioner on 30th March, 2007 before expiry of the assessment year in
question as per the extended time provided under Section 139(4) of the Act.
4. By assessment order dated 26th November, 2018, the Assessing
Officer disallowed deduction under Section 80IB of the Act on the ground
that the return of income was not filed within the time limit specified under
Section 139(1) as mandated. Reliance was placed on Section 80AC of the
Act. Disallowance was upheld in the first appeal by the Commissioner of
Income Tax (Appeals) vide order dated 12th October, 2009. The second
appeal preferred before the Income Tax Appellate Tribunal (Tribunal, for
short) was also dismissed vide order dated 31 st October, 2012, inter alia,
holding that for claiming deduction under Section 80IB, return of income
should have been filed before the due date prescribed under Section 139(1)
of the Act.
5. Counsel for the petitioner has stated and accepted that the petitioner
has not preferred any appeal under Section 260A of the Act against the order
of the Tribunal dated 31st October, 2012, which has attained finality.
6. The Tribunal had, however, noted that the petitioner had filed an
application for extension of time in filing of the return before the CBDT and
observed that the Assessing Authority would be free to consider the decision
of the CBDT as per law. Tribunal, for the present, had observed that the
denial of claim for deduction under Section 80IB on account of violation of
Section 80AC of the Act was justified and in accordance with law.
7. Counsel for the petitioner submits that the delay in filing of the return
was on account of illness of the Chartered Accountant, i.e., the statutory
auditor and consequently the return due on 31st October, 2006 was filed on
W.P. (C) No. 6537/2017 Page 2 of 12
30th March, 2007. This delay was the sole ground to deny deduction under
Section 80IB for the Assessment Year 2006-07, which deduction was
allowed in the previous and subsequent Assessment Years 2005-06 and
2007-08, respectively. Consequently, the petitioner would suffer
disallowance of deduction of Rs.3.50 Crores that had resulted in demand of
more than Rs.95.75 lacs, which would cause genuine and grave hardship.
8. In the present case, we are not examining merits of the order dated
31st October, 2012 passed by the Tribunal denying or rather upholding
disallowance of deduction under Section 80IB of the Act. Subject matter of
challenge before us is the order passed by the CBDT dated 8 th February,
2017 rejecting the petitioner's application for extension of time for filing of
the return for the Assessment Year 2006-07 under Section 119(2)(b) of the
Act.
9. Learned counsel for the petitioner is correct that the date of the
application for extension of time has been incorrectly recorded in the
impugned order as 11th May, 2015 as the application for extension of time
was dated 11th May, 2011. However, wrong date recorded in the first
paragraph of the impugned order dated 8th February, 2017, would not be a
good ground and justification to set aside the impugned order, unless date of
the application was the reason for rejection. The date of filing of the
application is not the reason for rejection. This was inconsequential.
Typographical errors are also noticed in other paragraphs. For example,
paragraph 2 refers to purported letter dated 29th November, 2006 and
hearing held on 5th January, 2007, whereas the letter in question was dated
29th November, 2016 and hearing was held on 5 th January, 2017. Mere
wrong mention of the date, a typographical error, in our opinion, would not
W.P. (C) No. 6537/2017 Page 3 of 12
be a justification to set aside the impugned order and remit the case for
reconsideration.
10. The fact remains that the petitioner had filed application under
Section 119(2)(b) for extension of time for filing of return for Assessment
Year 2006-07 on 11th May,2011, more than four years after the return of
income was belatedly filed under Section 139(4) on 30 th March, 2007. The
due date for filing of return was 31st October, 2006. The Assessing Officer
had rejected the claim for deduction under Section 80IB of the Act vide
order dated 26th November, 2008 and the first appeal was dismissed vide
order dated 12th October, 2009. It was only when the matter was pending
before the Tribunal that the petitioner filed the said application for extension
of time.
11. The impugned order also examines whether the reason and
justification given by the petitioner for the delay in audit, i.e., the illness of
the auditor. Field unit authorities were asked to verify the assertion on merits
and had queried with the auditor who had responded as under:-
"Query (i) Whether submission of the assessee that
audit was not completed in time by the Auditors is true?
Reply: Yes, the submission of the assessee that the
"delay in completing the audit was on my part" is
correct.
Query(ii) If so, please explain in detail the reasons
for not completing the audit in time.
Reply: The delay in completing the audit of the
aforesaid assessee for the A.Y.2006-07 was due to some
medical urgency at my end.
Query(iii) If no, confirm accordingly the lapses if
any on the part of the assessee.
W.P. (C) No. 6537/2017 Page 4 of 12
Reply: --
Query(iv) Has assessee taken any action agaisnt the
CA firm for stated delay in completion of audit with
details thereof; if any.
Reply: No action has been taken against me by the
assessee.
Query (v) Whether delay in audit was caused by
some illness or any other factor? If so, details of such
illness factor.
Reply: No response received.
Query(vi) Evidence in support of such illness and
evidence in support of any such factor causing delay.
Reply: No response received.
Query(vii) How many audits were delayed during
the relevant year?
Reply Our all other audits are completed in time and
this being the big Audit assignment, my personal
attention was required to complete the same.
Query(viii) No. of audits conducted for A.Y.2006-07
and details thereof
No Name and Address of the Due date of Audit Date of
Assessee completion of
Audit
Reply: No response received.
4. In the showcause letter dated 15.11.16, the above
response was confronted to the assessee and it was put
to him that the above response did not show the
existence of a reasonable cause for delay on the part of
the auditor. In the reply dated 29.11.16, the assessee has
stated that he is not aware of the auditor's response on
the issues stated. It was also argued that "the assessee
W.P. (C) No. 6537/2017 Page 5 of 12
has adopted the percentage completion method in
recognizing revenue. Project completion method could
also have been alternatively adopted by the assessee
resulting in postponement of revenue and deferment of
the claim u/s 80IB(10). In such an event, the issue of
claiming deduction u/s 80IB(10) would have arisen in a
subsequent year and would have been allowed. This
proposition is also supported by the Hon. CBDT's
Instruction No. 4/2009 dated 30/06/2009."
Answers given in response to the queries were ambivalent and
abstruse for the auditor had failed to give details of his illness or dates/
period when he was allegedly incapacitated on account of illness. Auditor
did not also furnish any evidence and material in support of his illness.
Interestingly, in response to one of the queries, the auditor had accepted that
all other audits were completed in time. Audit in the case of the petitioner
was the only audit that was delayed because it was a big assignment and
personal attention of the auditor was required. The petitioner had not taken
any action against the auditor.
12. Subsequently, the petitioner had filed an affidavit of the auditor to the
following effect:-
"Affidavit.
"I, CA Hitesh Badani (Mem. No. 37649) of Badani
Associates, Chartered Accountants from Pune do hereby
state on solemn affirmation as under:
1. Badani Associates, of which I was the proprietor, was the
Tax Audit of M/s B U Bhandari Nangude Patil Associates
(PAN AAGPB8429C) for F.Y. 2005-06 relevant to A.Y.
2006-07.
2. "I had conducted the audit of M/s B U Bhandari Nangude
Patil Associates for the said year and completed the same
on 21.03.2007.
W.P. (C) No. 6537/2017 Page 6 of 12
3. In relation with the petition u/s 119(2)(b) filed by M/s B
U Bhandari Nangude Associates for condoning the delay
in the filing of return for A.Y. 2006-07, I had filed letter
dated 25.07.2014 confirming the delay in audit at my end.
4. Further, in response to a letter dated 05.01.2015 sent to
me by the Income Tax Officer, Ward 2(1), Pune, I had
responded vide letter dated 12.01.2015 acknowledged by
the office of the Income Tax Officer, Ward 2(1), Pune on
14.01.2015. There was no further communication
between us.
5. I have been informed that M/s B U Bhandari Nandgude
Patil Associates has received a letter dated 15.11.2016
observing that the Auditor has not filed any evidence to
substantiate the illness/medical urgency. In this context, I
wish to state that this issue raised in Dec., 2014 and the
illness pertains to the year 2006-07 and that I had no to
maintain record/evidence of such illness which was 8 to 9
years old.
6. I wish to reiterate the aforesaid facts in confirmation of
the submission that the delay in conducting of the audit
was ay my end.
I declare that whatever is stated above is true and correct
to the best of my knowledge belief."
13. The auditor it is accepted had failed furnished even a single document or
prescription regarding his illness, purportedly for the reason that he had not
maintained record or evidence of illness that had occurred 8 to 9 years back.
This was notwithstanding that the purported illness would have been serious
and prolonged for this was the sole reason and ground for delay of 5 months.
Interestingly, as observed above, the petitioner had belatedly filed the
application for extension of time on 11th May,2011 more than four years
after the return of income was filed. Petitioner was responsible and would
have to suffer if evidence had dissipated with efflux of time and due to
delay.
W.P. (C) No. 6537/2017 Page 7 of 12
14. CBDT after examining the entire aspects, has come to the following
finding and conclusion:-
"7. In the submission dated 5.1.2007, it is also
argued that "no steps were taken by the auditor in 2007 as
the assessee was given to understand that the claim would
be available even if the return filed upto 31.03.2007.
However, the assessment order for A.Y. 2006-07 was
passed on 26.11.2008 where the claim u/s 80IB(10) was
rejected. Even the appeal filed before the CIT(A) was
rejected vide order dated 12.10.2009. Steps were then
taken for change of auditors and the audit for A.Y. 2010-
11 was carried out by the new auditors M/s V.L. Jain and
Co."
At the time of hearing on 5.1.2007 the issues raised
earlier was reiterated.
8. The facts of case the assessee's submissions and the
authorised representative's arguments have been
considered. The argument that the assessee could have
followed percentage completion method in which case the
issue of claiming deduction u/s 80IB(10) would have
arisen in a subsequent year, is a hypothetical argument
and therefore, not relevant to the present proceedings.
9. The main issue raised by the assessee in this case is
that the delay in audit has led to delay in filing of return
which had led to his claim of 80IB(10) being disallowed
and this had caused genuine hardship to him. It should be
noted first that disallowance of any claim will normally
lead to hardship. The Legislature has provided time
limits for certain obligations under the Act and these time
limits have to be observed to be able to claim certain
deductions, allowances and avoid interest and penalty.
This may be termed a hardship but it is hardship imposed
by law in the interest of proper regulation of the Act. If
these time limits were to be relaxed in a particular case,
mere fact that a default occurred due to some reason is not
enough to establish the claim of genuine hardship.
W.P. (C) No. 6537/2017 Page 8 of 12
10. In determining whether genuine hardship is caused to
the assessee one has to see whether the delay in filing of
return was due to a reasonable cause or not. In this case,
delay is attributed ti(sic to) the Auditor. However in such
a case on has to see whether the Auditor had a reasonable
for cause for delay and whether the assessee pursued the
matter due to diligence to get his audit done in time.
11. On the question whether the auditor had a reasonable
cause or not, the fact do not show any medical exigency
of the kind which would cause so much delay when a
statutory deduction of such a large amount was at stake.
The auditor has not even been able to mention the nature
of illness. In fact considering the hardship caused to the
assessee, it would be expected that the assessee will
himself have information on the illness having obtained it
from the auditor at the relevant time. In this connection,
it is noted that the auditor has mentioned that it was a big
audit assignment and it needed his personal attention. Yet
such an assignment is the only delayed without any
memory of the extraordinary medical exigency which had
caused it. It is also noted that the delay in audit is of five
months and not a few days and therefore, a general
explanation of medical exigency without any details does
not explain the justification for long delay.
12. The assessee has also not been able to show that it
pursued the matter with any diligence after all the
responsibility of filing the return in time is the assessee
and he is expected to be even more diligent if a large
claim of deduction is involved. There is nothing to show
that the assessee pursued the matter with auditor to get
audit done. The fact that all other audit were done timely
by the auditor except for this audit also does not help the
assessee's case as any medical exigency of the magnitude
being claimed would have delayed at least a few more
audits."
15. We have considered the said findings recorded by the CBDT, which
are primarily factual and also lucid and cogent. Deduction under Section
W.P. (C) No. 6537/2017 Page 9 of 12
80IB was not examined and considered on merits by the Assessing Officer.
The contention that if the petitioner had followed percentage completion
method claim for issue of deduction under Section 80IB would have arisen
in subsequent year was a hypothetical. Petitioner was required and CBDT
was justified in asking the petitioner to establish the reason propounded. In
the absence of details of alleged illness and a single document to support the
bland assertion, we are not inclined to hold that the impugned order suffers
from perversity or error in decision making process in reaching the
conclusion. Impugned order is not arbitrary or whimsical, to justify
interference in exercise of our power of judicial review. The respondent
authorities have taken all the arguments and materials into consideration.
Procedural flaw is not alleged.
16. The findings recorded in the impugned order and the facts discussed
above reveal :-
(i) Return for the assessment year 2006-07, which was to be filed
under Section 139 (1) of the Act on 31st October, 2006 was filed by
the petitioner after five months on 30th March, 2007.
(ii) The petitioner was denied benefit of deduction under Section
80IB in terms of Section 80AC of the Act.
(iii) The order passed by the Tribunal confirming the findings of the
Assessing Officer and the first appellate authority denying deduction
under Section 80IB has attained finality.
(iv) The petitioner had applied to extension of time for filing of
return under Section 119 (2)(b) for the assessment year 2006-07 vide
application dated 11th May, 2011, nearly four years after the return
was filed.
W.P. (C) No. 6537/2017 Page 10 of 12
(iv) This delay in filing of application for extension of time to file
return of income was entirely attributable to the petitioner.
(v) Sole and only reason given was medical exigency and illness of
the auditor that had consequently resulted in delay in filing of the
return.
(vi) Auditor did state that due to medical emergency at his end, there
was delay in completing audit. However, the auditor did not give (a)
details of illness and nature of medical emergency (b) how long did
the medical treatment or emergency last and (c) prescription or
documents in support of his assertion. Auditor had also accepted that
other audits were completed in time.
(vii) Contention that medical evidence had dissipated and therefore
not produce is unacceptable, for the petitioner cannot take benefit and
advantage of the delay and failure.
(vii) CBDT has refused to grant extension of time for filing of return
in view of the vague assertions, absence of details and adequate proof.
(viii) Delay of 5 months was substantial.
17. Statutory time limits fixed have to be adhered to as it ensures timely
completion of assessments. Discipline on time limits regarding filing of
returns have to be complied and respected, unless compelling and good
reasons are shown and established for grant of extension of time. Extension
of time cannot be claimed as a vested right on mere asking and on the basis
of vague assertions without proof. Statutory audits it is a common
knowledge are not undertaken by one person but by a team consisting of
auditor(s), article clerks and others.
18. In the present case, we do not know the nature of illness or medical
emergency suffered by the auditor and how long the auditor was
W.P. (C) No. 6537/2017 Page 11 of 12
incapacitated and could not work. The assertions made to justify extension
of time have to be proved and established. Any indulgence on the pretext
that the petitioner has been denied benefit under Section 80IB, which on
merits would have been allowed, would be contrary to law, if it is held that
there was no reasonable ground or reason for extension of time in filing of
the return.
19. Resultantly, we do not find any merit in the present writ petition and
the same is dismissed, without any order as to costs.
SANJIV KHANNA, J.
CHANDER SHEKHAR, J.
MARCH 12, 2018
VKR/NA
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