Bhavani Mills Ltd. vs Member (IT and J), Central Board of Direct Taxes and Others

R. Jayasimha Babu, J.—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.

All these returns were lodged by the Income Tax Officer u/s 139(3) of the Income Tax Act, 1961, as the returns were filed beyond the time

specified u/s 139(1) of the Act. u/s 139(10) of the Act, as it then stood, such returns were deemed never to have been furnished.

The petitioner, after an interval of four years, in June, 1994, applied to the Central Board of Direct Taxes u/s 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.

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.

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 u/s 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.

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.

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.

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 u/s 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

u/s 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 u/s

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 COMMISSIONER OF Income Tax Vs. GWALIOR

SUGAR CO. (P) LTD., of October 5, 1988, and in this circular.

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.

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.

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.

The primary consideration for granting relief u/s 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.

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.

With the above observation, this writ petition is disposed of. No costs. Consequently, W. M. P. No. 7699 of 1995 is dismissed.