Madras High Court
Bhavani Mills Ltd. vs Member (It & J), Central Board Of Direct ... on 30 October, 1998
Equivalent citations: [2000]243ITR636(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT R. Jayasimha Babu, J.
1. The assessee is a textile mill which filed its returns under the Income-tax Act, 1961, belatedly for the assessment years 1988-89, 1989-90 and 1991-92. Those returns were required to be filed on July 31, 1988, December 51, 1989, and December 31, 1991, respectively, but were filed on January 3, 1990, January 3, 1990, and November 24, 1993, respectively. In all the returns, the assessee had claimed carry forward of business loss and unabsorbed depreciation.
2. All these returns were lodged by the Income-tax Officer under Section 139(3) of the Income-tax Act, 1961, as the returns were filed beyond the time specified under Section 139(1) of the Act. Under Section 139(10) of the Act, as it then stood, such returns were deemed never to have been furnished.
3. The petitioner, after an interval of four years, in June, 1994, applied to the Central Board of Direct Taxes under Section 119(2)(b) of the Act for condoning the delay in filing the returns. The reasons put forth in support of the prayer were that there was labour unrest and that the company had now become a sick company. The documents produced to show the labour unrest that had existed related to the period prior to the relevant assessment years, as was rightly recorded by the Board, they have no bearing and do not constitute justification for the belated filing of the returns.
4. The assessee had also pointed out that it was a sick unit, that an application to the Board for Industrial and Financial Reconstruction had been filed in the year 1987 and that the scheme had been framed by the Board in the year 1993. That scheme did not deal with the carry forward loss of the company.
5. Apparently, the Board had not been informed when the matter was considered by it that the scheme had already been framed by the Board for Industrial and Financial Reconstruction on May 31, 1993. The Board rejected the prayer on the ground that if any return was not furnished in accordance with Section 139(3) of the Act, it would not be proper and legal to validate such returns acting under Section 119(2)(b) and that any condonation would have the effect of defeating Section 139(3) of the Act. The Board has not stated that it has no power to condone the delay, but has held that such powers should not be exercised having regard to Section 139(3) of the Act.
6. The very object of conferring power on the Board is to consider the exceptional cases where a departure from the provisions of the Act with regard to the period with which the relief is to be sought, can be regarded as justified. A blanket refusal to exercise the power notwithstanding" the circumstances in which it is invoked, is not an order which is contemplated by Section 119(2)(b). The circumstances are required to be examined and only with regard to those circumstances relief is to be either granted or refused.
7. Though the Board was found to be justified in holding that the labour unrest in the past year was of no relevance in considering the petitioner's prayer with regard to its actions in the year 1990, in relation to the assessment years during which there was no labour unrest, the Board does not appear to have applied its mind to the hardship which the assessee would have to endure by reason of the rejection of the petitioner's prayer for condonation having regard to the fact that it is a sick industrial company.
8. The Board itself had issued circulars on August 31, 1990, on the effect of the orders passed by the Board for Industrial and Financial Reconstruction and the scheme for the rehabilitation of sick units wherein it is stated by the Government, inter alia, as under :
"It is, however, clarified that the Board for Industrial and Financial Reconstruction have no authority to pass orders under Section 17(2) of the Sick Industrial Companies (Special Provisions) Act, authorising a sick company to file its return late or directing the Assessing Officer to allow carry forward of such loss. However, the Board for Industrial and Financial Reconstruction have the authority to direct any operating agency to prepare a scheme under Section 18 of the said Act. Such a scheme will automatically take into consideration the losses suffered by the sick company and may also lay down that carry forward of loss, etc., should be allowed regardless of the fact that the return of income has not been filed within the time allowed under Section 139(3). Once the scheme is sanctioned by the Board for Industrial and Financial Reconstruction, it will have overriding effect over the provisions of the Income-tax Act, 1961, in regard to the matters covered in Circular No. 523 (see [1988] 174 ITR (St.) 1) of October 5, 1988, and in this circular."
9. It is thus clear that even in the view of the Central Board of Direct Taxes the Board constituted under the Sick Industrial Companies (Special Provisions) Act has the power to frame a scheme specifying the manner in which carry forward and set off of loss incurred by the sick company is to be treated and such a provision would have overriding effect over the provisions of the Income-tax Act.
10. It is no doubt true that the Board for Industrial and Financial Reconstruction in the case of the petitioner herein has not in the scheme framed by it provided for any special tax treatment for the carry forward of the loss. It was open to the petitioner to have sought inclusion of such a provision or even to seek the amendment of the scheme after it was made to include such a provision, but the petitioner had failed to do so, and the petitioner has to blame itself for its conduct in not availing of the opportunity which the law had afforded to it by seeking the inclusion of the suitable provision in the scheme framed by the Board for Industrial and Financial Reconstruction.
11. It is only after the scheme was framed, the petitioner in June, 1994, almost one year after the date of framing of the scheme applied to the Central Board of Direct Taxes for condoning the delay in filing the returns which had to be filed four years earlier in 1990. The ground put forth for the condonation being past labour unrest and its current status as a sick company. As observed earlier, the labour unrest was an irrelevant circumstance, as there was no such unrest during those assessment years or at the time the returns were required to be filed or at the time when the returns were actually filed.
12. The primary consideration for granting relief under Section 119(2)(b) is undue hardship. The Board has noticed the fact that the assessee's application for relief under the Sick Industrial Companies (Special Provisions) Act was pending. Though that matter had already stood concluded by the framing of the scheme, the conduct of the ,assessee in failing to apply to the Board earlier as also its failure to seek a suitable provision being incorporated in the scheme framed by the Board under the Sick Industrial Companies (Special Provisions) Act, does not entitle the petitioner to any equitable relief so far as the assessment years 1991-92 and 1988-89 are concerned. So far as the assessment year 1989-90 is concerned, the period of delay is only three days. The Board has not considered as to whether the period of delay being relatively small in relation to that assessment year that would merit condonation in the light of the hardship suffered by the assessee by reason of being a sick industrial company.
13. The impugned order in so far as it concerns the assessment year 1989-90 is set aside and the matter is remanded to the Board for fresh consideration in accordance with law and in the light of the observations made in the course of this order.
14. With the above observation, this writ petition is disposed of. No costs. Consequently, W. M. P. No. 7699 of 1995 is dismissed.