The phrase 'genuine hardship' must be interpreted liberally

CA V.K. Subramani

Filing ITR of every year is an annual compliance requirement under the law. The end result of the business activity may be 'profit' or 'loss'. In the case of 'loss' filing of ITR before the 'due date' entitles the taxpayer to carry forward the same to subsequent years and adjust such 'loss' against 'income'. It is like forward adjustment. But it is more rational that when the assessee incurs 'loss' the system should give refund out of tax paid in the past years to help him overcome the distress. May be, like restriction on carry forward, the backward adjustment also may be limited to some number of years. There could be a tendency among the tax payers to recover past paid taxes if such system is in place and perhaps because of that, the law does not provide for such back years' adjustment referred earlier.

Section 119(2)(b) says that the Board may 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 (other than CIT (Appeals)), to admit an application or claim for any exemption, deduction, refund or any other relief under the Act after the expiry of the period specified by or under the Act for making such application or claim or deal with the same on merits in accordance with law.

In R.K. Madhani Prakash Engineers J.V. v. Union of India (2023) 458 ITR 48 (Bom) : 2023 TaxPub(DT) 4569 (Bom-HC) the petitioner a joint venture of a firm and company filed its ITR with a delay of 43 days. The ITR was filed as AOP instead of the correct status being 'firm'. The assessee had a refund of Rs.82.13 lakhs. The assessee sought condonation of delay in filing ITR. The assessee explained that the delay in filing ITR was due to the concerned person who was entrusted with the work of filing the return being indisposed due to medical reasons. The assessee was finally denied the benefit of refund due to rejection of condonation petition.

The court took note of the CBDT Circular F.No 312/22/2015-OT dated 9th June, 2015 where the application/claim for amount exceeding Rs.50 lakh shall be considered by the Board. In the order rejecting the assessee's condonation petition, it was stated that 'This order is passed with the approval of the Member (TPS & Systems), CBDT'. There was nothing to indicate that the Board has considered the assessee's application. The court held that it seems that the order was passed by Director and not by the Member also.

The court took note of the decision in the case of Sitaldas K. Motwani v. DGIT (2010) 323 ITR 223 (Bom) : 2010 TaxPub(DT) 1180 (Bom-HC) where the court discussed the expression 'genuine hardship' and held that it has to be construed liberally when the Legislature conferred the power to condone the delay to enable authorities to do substantive justice to the parties by disposing of the matter on merits. It held that the refusal to condone the delay can result in a meritorious matter being thrown out at the very threshold and cause of justice being defeated.

The Court also took note of the decision in the case of Gujarat Electric Co. Ltd. v. CIT (2002) 255 ITR 396 (Guj) : 2002 TaxPub(DT) 0214 (Guj-HC) where it held that 'The Board was not justified in rejecting the claim for refund on the ground that a case of genuine hardship was not made out by the petitioner and delay in claiming the relief was not satisfactorily explained, more particularly when the returns could not be furnished in time due to ill health of the Officer who was looking after the taxation matters of the petitioner'.

It also referred to decision in the case of R. Seshammal v. ITO (1999) 237 ITR 185 (Mad) : 1999 TaxPub(DT) 0852 (Mad-HC) where it was held that 'This is hardly the manner in which the State is expected to deal with the citizens, who in their anxiety to comply with all the requirements of the Act pay moneys as advance tax to the State, even though the moneys were not actually required to be paid by them and thereafter seek refund of the moneys so paid by mistake after the proceedings under the Act are dropped by the authorities concerned. The State is not entitled to plead the hyper-technical plea of limitation in such a situation to avoid return of the amounts. Section 119 vests ample power in the Board to render justice in such a situation. The Board has acted arbitrarily in rejecting the petitioner's request for refund'.

The apex Court in B.M. Malani v. CIT (2008) 306 ITR 196 (SC) : 2008 TaxPub(DT) 2326 (SC) in page 207 has observed that 'the ingredients of genuine hardship must be determined keeping in view the dictionary meaning thereof and legal conspectus attending thereto. For the said purpose, another well known principal, namely, a person cannot take advantage of his own wrong, may also have to be borne in mind'.

Thus, in R.K. Madhani Prakash Engineers J.V. the writ was allowed by quashing the order and remitting the matter back to the Board for de novo consideration. It directed that the Board/member of the Board to grant personal hearing and pass the order and sign the order. It held that the order cannot be passed by anyone else even with the approval of the Board.