Bombay HC Rejects CBDT Order Denying Delay Condonation for Recast Accounts Under NCLT

The CBDT’s order has been quashed by the Bombay High Court rejecting the application filed by CG Power and Industrial Solutions Ltd asking for the condonation of delay in filing income returns based on the recast of accounts under NCLT’s order.

Any assessment order passed u/s 143(3) or 144C as well as the resulting notices or orders for AYs for which re-casted accounts have been filed, will not endure, the High Court stated.

The Division Bench Justice K.R. Shriram and Justice Dr. Neela Gokhale marked that when the accounts were recast based on the order of NCLT and such accounts were accepted by NCLT and also filed with the RoC under MCA how can the Income Tax Department raise these foolish objections that the late filing the income returns based on the re-casted accounts must not be even condoned.

Concerning the case, the legal auditors of the taxpayer resigned before the completion of their term. Their resignation including reasons was informed before the Registrar of the Companies (the ROC). Since the statutory auditors tendered their resignation before completing their term, an inquiry was conducted u/s 206(1) of the Companies Act, 2013 (2013 Act) by the ROC accompanied by direction for a detailed inspection u/s 206(5) of 2013 Act of the books of account and records.

The inspection report which was issued by the Regional Director, Ministry of Corporate Affairs (MCA) and filed with the Stock Exchange included references to unauthorized and unrevealed transactions. MCA has furnished an application to NCLT u/s 130 of the 2013 Act for a restatement of books of account and PCCIT was in the list of the respondents to the stated application under the suggestion in the cited report for the recasting of books of account and the financial statements.

Reopening of the books of account and recasting of financial statements have been allowed under NCLT. The taxpayer’s books of accounts and its subsidiaries for 5 years ending Mar 31, 2019, were reopened and recast by a CA firm designated by MCA and the audit of such recast books of accounts was drawn by another CA firm duly appointed by the MCA.

To take on record the recast financial statements of the taxpayer and its subsidiaries for the FYs 2014-15 to FY 2018-19 which were duly audited including with appropriate audit report, MCA has furnished the applications filed before NCLT. The NCLT in its order noted that neither respondents (which is in PCCIT) nor any of the Indian subsidiaries of the taxpayer had raised or communicated any objection to the stated restated standalone and consolidated financial statements and ordered that restated financial statements were carried on record u/s 130 of the 2013 Act so that it may be treated as final.

Taxpayer based on the NCLT order, filed applications with the CBDT for condonation of delay u/s 119(2)(b) in filing the revised returns for AYs 2015-16 to 2020-21, which was rejected.

CBDT is not justified in holding that there is no genuine difficulty in the present case and CBDT has not furnished any reasons to carry that there is no genuine difficulty, the Bench witnessed. 

Co-ordinate bench decision in K.S. Bilawala wherein it was emphasized that the phrase “genuine hardship” must be acknowledged liberally and that authorities must know that the ability to condone the delay has been conferred to allow the authorities to do substantial justice to the parties by disposing of the case on merits, the Bench highlighted that just after returns established on re-casted accounts are authorized to be filed and taken on record that assessment order can be passed and Revenue can reopen assessment.

Read Also: Bombay HC: To Ensure Justice, CBDT is Empowered to Condone Delayed Tax Returns

CBDT considering that PCCIT who was one of the respondents to the application filed before NCLT for recasting of books and financial statements has carried a weird stand that since no response or reaction of the department was furnished to the NCLT, it was not shown or told by the department that it accepts the re-casted financial statements.

As per the Bench, it said that the NCLT during the ordering recast of amounts carried the rights of the Government to carry on with the proceedings due before the SFIO, ED, and CBI, therefore noted that until the revenue allowed filing the returns designated on the re-casted books of accounts, concerns raised by the Central Board of Direct Taxes (CBDT) cannot be addressed.

PCCIT forwarded a letter to CBDT received via ACIT wherein ACIT repeated for condonation of delay so that the tax implication can be ascertained, and thereafter, vide letter on Dec 02, 2022, PCCIT suggested a rejection of condonation of delay application prompted via a letter of CBDT wherein the PCCIT was once again requested to provide the precise comments/recommendations on the taxpayer’s application merits concerning Board Circular No. 9 of 2015, Bench remarked.

Hence, encountering no explanation whatsoever why there was a difference in the stand taken from what was taken before, the High Court authorized the petition of the taxpayer asking the Revenue Department to allow the Assessee to file amended returns in physical form based on the re-cast of books of account and financial statements for AYs 2015-16 to 2020-21 and to carry out assessment/appellate proceedings established on it.