By TIOL News Service

CHENNAI, JAN 16, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether the delay in filing return under normal circumstances should be condoned, unless the Department have reason to believe that assessee had wantonly & purposely filed the return belatedly for certain malafide reasons. YES IS THE VERDICT.

Facts of the case:

The Assessee-company, engaged in manufacturing of Wind Energy Generators, had filed its return u/s 139(1) for the relevant AY. During assessment proceeding, the AO noted that there was delay of 37 days in filing of return by the Assessee due to certain reasons which were beyond the Assessee's control. Now, the reason behind such disputed delay, as according to assessee was that, it was mandatory on the part of Assessee to get its account audited u/s 44AB and without which the return would not be accepted as a correct return by the system. It was further stated that the Assessee had transferred its Operating & Maintenance business division on a going concern basis as a slump sale to its wholly owned subsidiary company namely, Renewable Energy Generation Pvt Ltd for a consideration of Rs. 310 cr which was based upon independent valuation of two The Chartered Accountants (CAs) namely, M/s.TRC Corporate Consulting Pvt. Ltd and M/s.C.Ramaswamy & B.Srinivasan. In the last moment, the tax auditors orally communicated their unwillingness to complete the audit and to issue a tax audit Report before the due date. Therefore, the Assessee was left with no other alternative, but to look for an alternative auditor, after getting written communication from one S.R.Batliboi & Associates. The Assessee after due deliberations and taking note of various aspects, had approached M/s.CNGSN Associates, LLP, to conduct the tax audit work, but S.R.Batliboi & Associates issued No Objection Certificate to M/s. CNGSN after considerable delay and on insistence of the Assessee. The new auditor completed the audit work and issued tax audit report on December 29, 2014 based on which the Assessee had uploaded its return on January 1, 2015.

However, the Revenue stated that the Assessee failed to establish that the delay in finalization of the tax audit report was only because of the auditor's fault. Further, the Assessee also failed to establish that the work of the tax audit got delayed due to the professional misconduct on the auditor's part, for which the Assessee had not resorted to any legal action against the auditor. When the matter reached High Court, it was held that the delay in receiving tax audit report form CAs, could be a reasonable ground for late filing of return u/s 139 as the same was beyond the control of a taxpayer. The High Court further held that the assessee's application for condonation of delay could not be rejected, simply because of the auditor's fault in delaying the process of audit completion without proper reasons.

High Court held:

++ it is seen that the CBDT while rejecting the request of assessee for condonation of delay of 37 days in filing the return held that the assessee should have accepted the Tax Audit Report as prepared by the auditors initially appointed by them and without doing so, it could not have appointed a new auditor and submit the Tax Report and the delay due to difference of opinion between the auditor and the auditee cannot be accepted as a valid ground for the CBDT to invoke its power u/s 119. To exercise the power enshrined u/s 119, the Board has to consider whether it would be desirable or expedient to do so to avoid genuine hardship in the case of an assessee. The assessee's case is that the auditors appointed by them initially were delaying the process of audit completion without proper reasons inspite of providing expert valuation report from other professional firm to satisfy their concerns. Thus, the assessee having left with no other alternative had to appoint another auditor, for which purpose, a No Objection Certificate was required to be obtained from the erstwhile auditor;

++ the Writ Court after considering the factual position, held that the assessee cannot appoint a new auditor without getting a No Objection Certificate from the existing auditor and therefore, the assessee after getting No Objection Certificate from the erstwhile auditor had uploaded the Return of Income along with the Tax Audit Report and by then, there was a delay of 37 days. Further, the Writ Court rightly pointed out that by the delayed submission of Return of Income, the assessee does not stand to benefit in any manner whatsoever. Thus, the Writ Court was satisfied that the explanation given by the assessee was sufficient for condonation of delay of 37 days in filing the Return and such a delay should not defeat his claim. As rightly pointed out by the Writ Court, no assessee would stand to benefit by filing the return belatedly. Unless the Department have reason to believe that the assessee had wantonly and purposely filed the return belatedly for certain malafide reasons, the delay in filing the return under normal circumstances should be condoned. It is true that the Board has power to exercise its discretion. However, exercise of such discretion should be in terms of Section 119(2)(b). Accordingly, the delay of 37 days in filing the Return along with Audit Report is condoned and the Dy CIT is directed to process the return in accordance with law.

(See 2019-TIOL-124-HC-MAD-IT)