Section 119(2)(b) of the Income Tax Act, 1961 - CBDT needs to act judicially, not arbitrarily - T. N. Pandey - Article published in Business Advisor, dated September 10, 2014 http://www.magzter.com/IN/Shrinikethan/Business-Advisor/Business/

1. Volume VIII Part 5 September 10, 2014 3 Business Advisor
Section 119(2)(b) of the Income Tax Act,
1961: CBDT needs to act judicially, not
arbitrarily
T. N. Pandey
Section 119 of the Income-tax Act, 1961(Act) refers to
the powers of the Central Board of Direct Taxes (CBDT)
to issue instructions to subordinate authorities.
Clause (b) of sub-section (2) of this section relates to
instructions to avoid genuine hardship in any case or
class of cases by a general or special order and reads as
under:
“119(2)(b) : 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 authorise the IT authority, not being a
Commissioner (Appeals) to admit an application or claim for any exemption,
deduction, refund or any other relief under this Act after the expiry of the
period specified by or under this Act for making such application or claim and
deal with the same on merits in accordance with law.”
The provision thus in the situations mentioned could be used by the CBDT
to admit an application or claim for any (i) exemption; (ii) deduction; (iii)
refund; or (iv) other relief under the Act after the expiry of the period
specified by or under the Act for making such application or claim and deal
with the same on merits in accordance with law.
2. Nature of power bestowed on the CBDT
The CBDT has sufficient power to consider the desirability or expediency of
awarding a relief under the Act even after the expiry of the period of
limitation provided under any specific provision and dispose of the matter
on the merits in accordance with law provided it is intended for avoiding
genuine hardship in a given case (see Mysore Sales International Ltd. v.
CBDT (1998) 233 ITR 663 at 665 (Karn.)). In this case, the CBDT was
directed to pass appropriate orders in terms of section 119(2)(b), provided
the application filed made out a case for invoking the said jurisdiction of the
CBDT.

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2.1 In some court decisions the nature of this power has been explained. In
H.S. Anantharamiah v. CBDT (1993) 201 ITR 526(Kar), the High Court has
explained the nature of power available to the CBDT under this provision. It
has been said by the Court that in considering an application under section
119(2)(b) for condoning delay, inter alia, for filing a return of income, the
Board discharges a quasi-judicial function and, therefore, the Board is
required to afford an opportunity of hearing to the assessee either oral or
through submission of written arguments with reference to the points made
against the assessee for not granting the relief sought for by him. In some
other decisions, the observations are that section 119 does not provide for
an oral hearing on such applications but there has been no disagreement on
the issue that power available u/s 119(2)(b) has to be exercised judicially –
not summarily or in an arbitrary manner.
2.2 “Deal with the same on merits” – requires application of mind to
merits of the case but does not require recording reasons
Section 119 of the Act empowers the Board to grant relief to assessees if it is
satisfied that any claim or application, which was required to be made
within the prescribed time, was not so done for good reasons and to relieve
the assessee from hardship. When an application under section 119 is
considered by the Board, the Board is not required to write an order
recording reasons. What the Board, however, should do is to apply its mind
to the merits of the case. Thus, where an oral hearing was given to the
assessee and written arguments also permitted to be filed, it was held that
the Board had applied its mind to the merits of the case (John Shalex Paints
Pvt. Ltd. v. CBDT (1993) 201 ITR 523 (Kar); Pallavan Transport Consultancy
Services Ltd. v. Union of India (1928) 233 ITR 745 (Mad); Kusumben M Parikh
v. CDT (2000) 242 ITR 501(Guj)).
2.3 Board’s power to condone delay is quasi-judicial – Assessee must be
given opportunity to be heard.
Section 119(2)(b) of the Act empowers the Board to admit an application or a
claim or return filed after the expiry of the period specified, for avoiding
genuine hardship caused in any case or class of cases. Thus, the statute
makes it incumbent upon the Board to consider the case placed under
section 119(2)(b) of the Act, by an assessee who files his return beyond time.
This power has to be exercised by the Board alone and not by any other
authority. It is not possible to hold that this power is administrative. The
Board is required to exercise its discretion by taking into consideration all
the relevant facts and circumstances and determine whether the delay in
filing the return should or should not be condoned. The order must be

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based on reasons. It is not an arbitrary exercise of power. This power has all
the traits of judicial power. The power exercisable by the Board under
section 119(2)(b) is quasi-judicial in nature and hence, it has to conform to
the principles of natural justice. It has to afford an opportunity to the party
who is going to be affected by the decision of the authority. Therefore, the
Board is required to afford an opportunity of hearing to the assessee either
oral or through submission of written arguments, with reference to the
points made against the assessee for not granting the relief sought for by
him. As long as the point held against the applicant is made known to him,
and his say is obtained and the same is taken into consideration, the
principles of natural justice are complied with. Accordingly, application for
condonation of delay in filing a return cannot be rejected on the basis of the
information gathered from the Assessing Officer behind the back of the
assessee.
3. Power of condonation of delay is to be exercised judicially (See Tea
Consultancy and Plantation Services (India) Pvt. Ltd. v. Union of India (2005)
278 ITR 356 (Del.)).
3.1 In exercising the power u/s 119(2), section 5 of the Limitation Act would
not be a bar, except where such power of condonation is excluded either
specifically or by implication. Income tax law has many provisions, some of
which specifically confer the right to condone delay, as for example, in
respect of appeal under section 246 of the Act, so that, where there is no
such power, condonation is not possible for the authorities as it is assumed
that, by implication, such power is excluded.
4. CBDT considered reasons insufficient
The application filed by a co-op. bank was rejected by the Government of
India, Ministry of Finance, through the CBDT, as the same was considered
to be worthy of no credence/ acceptance on the view that the reasons given
were merely of a general nature while the same were not so. No
circumstances of an exceptional nature which were beyond the control of
the applicant for delaying the return were mentioned justifying the delay.
Income tax law has many provisions, some of which
specifically confer the right to condone delay, as for example,
in respect of appeal under section 246 of the Act.

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The view expressed for rejecting the application was that the petitioner bank
had been operating for the several years and was, therefore, aware of its
statutory obligation under section 44AB of the said Act, so as to get its
accounts audited within specified time to file the return of income within
due date.
5. High Court’s view
The High Court did not find any merit in the reasons given (supra) for
rejecting the application for condonation. The HC held that it would have to
be noted that the petitioner was a multi-State co-operative bank operating
under the Multi State Co-operative Societies Act, 1984. The power to
appoint the statutory auditors was that of the Central Registrar, who was
the Registrar of the Co-operative Societies, Maharashtra State. The said
authority had appointed the statutory auditors on 3.9.2001. The said
authority appointed chartered accountants to be statutory auditors in place
of the departmental auditors. This charge was made in respect of all the
societies. Therefore, the petitioner cannot be blamed for the delay in
carrying out its audit, as the same was beyond its control. Though the
departmental auditors might have started the audit, it appears that
pursuant to the said policy decision that was taken, the departmental
auditors were replaced by the chartered accountants to be the statutory
auditors, which was done by letter dated 3.9.2001. Therefore, the said
reason mentioned by the petitioner in its application deserved to be
accepted.
5.1 The High Court also took into consideration Circular 8 of 2001 issued
by the CBDT and has said that application for condonation of delay should
have been considered in the light of this circular also. The High Court found
the delay in appointment of statutory auditor as sufficient cause which
should justify the delay in filing the return and hence did not consider it
necessary to examine after grounds given saying, “The other grounds raised
in the petition to assail the impugned order need not be gone into,” and
allowed the writ petition (See Bombay Mercantile Cooperative Bank Ltd. v.
CBDT (2011)332 ITR 87 (Bom.)).
5.2 In Madhya Pradesh State Electricity Board v. UOI (2011) 331 ITR 50 (MP),
the return of loss of Rs 1,500 crore could not be filed in time because of the
bifurcation of State into Chhattisgarh and Madhya Pradesh was awaiting
agreement between two States regarding division of the assets and
liabilities, so that the future of the assessee, a Government undertaking,
was not known. There was a delay of 16 months in filing the return for three
AYs 2000-2001, 2001-2002 and 2002-2003. The assessee approached the

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CBDT under section 119(2)(b) for relaxation of time limit in view of genuine
hardship faced by the assessee to file the returns within time. Two years
were not condoned by the Board leading to the filing of the writ in the High
Court. The Court set aside the orders rejecting condonation and directed
that the assessee was to be allowed an opportunity to file a supplementary
application supported by an affidavit.
6. Concluding comments
The Courts have been quite considerate in considering the applications for
condonation of delays unless the delay is attributable to deliberate conduct
because the view had been that no one gains by delays. Delays are caused
when there are specific grounds beyond the control of the party involved
where such grounds have to be taken into consideration.
Regretfully, such spirit of Courts has not percolated to the administrative
authorities who, occasionally, forgetting their quasi-judicial character, often
take rigid views, as in the case under consideration, causing unnecessary
hardships to the taxpayers and leading to avoidable proliferation of
litigation. If the CBDT would have considered the facts in the cases under
discussion, they too could have come to the same conclusion as the High
Court. This is possible only if there is change in the attitude.
6.1 The powers of the CBDT u/s 119(2)(b) of the Act are to address genuine
hardships of the taxpayers by issue of special or general orders to IT
authorities. The orders can relate to exemptions, deductions, refunds or any
other reliefs such as delays in filing IT returns by condonation where the
claims could not be made in time.
The provision is taxpayer-friendly but its implementation is not being done
in accordance with the letter and spirit of the provision and the same needs
to be implemented with sympathy, compassion and in the right way to avoid
unnecessary litigation.
(T. N. Pandey is Former Chairman, Central Board of Direct Taxes)
The provision is taxpayer-friendly but its implementation is
not being done in accordance with the letter and spirit of the
provision.