Punjab & Haryana High Court Sets Aside PCIT Order Rejecting Delay Condonation In HMT VRS Tax Claim

The Punjab & Haryana High Court on 23 September set aside the Principal Commissioner of Income Tax's (PCIT) rejection of an HMT Limited's employee's request to condone the delay in filing a revised return to claim an additional exemption on VRS compensation.

A Division Bench of Justices Deepak Sibal and Sunish Bindlish held that delay in filing a revised income tax return cannot be treated as a standalone test while considering a request for condonation under CBDT Circular No. 9/2015. The judges observed:

“The petitioner had thus explained that he filed his original return on the basis of the employer's Form 16 and that the legal position on which the Section 10(10B) claim rests only became known to him through later decisions in the cases of similarly situated employees. That is an explanation of why the claim was not made earlier. Thus, explanation for the delay was offered by the petitioner. This is contrary to the department's assertion that no reason was given by him. Whether the explanation is ultimately accepted is a separate question. The department's plea that "no reasons were mentioned" is not borne out from the record.”

The Court was dealing with a batch of 21 petitions filed by former employees of HMT Limited's Tractor Division at Pinjore, challenging PCIT orders rejecting their requests to condone the delay in filing revised returns for Assessment Year 2017-18. HMT's Tractor Division was shut down pursuant to a Union Cabinet decision in 2016. Rajbir Singh, one of the petitioners, had opted for the Voluntary Retirement Scheme (VRS) and received Rs. 29,14,500.

HMT's Form-16 treated Rs. 24,14,500 as taxable after allowing an exemption of Rs. 5 lakh under Section 10(10C) of the Income Tax Act. Singh accordingly filed his return claiming exemption under that provision.

Subsequently, in cases involving similarly situated HMT employees, the Commissioner (Appeals) granted exemption under Section 10(10B), holding that the VRS offered on closure of the undertaking amounted to a forced VRS. The Income Tax Appellate Tribunal also allowed appeals filed by similarly situated employees.

Singh thereafter approached the PCIT seeking condonation of delay so that he could file a revised return claiming exemption under Section 10(10B), which would result in a refund of Rs. 7,19,819.

The PCIT rejected the application, noting that the appellate order relied upon by Singh had not been accepted on merits by the Department, no order had been passed in his own case and no genuine hardship was made out.

The Court found that the PCIT had not independently examined whether the claim was correct and genuine or whether the case involved genuine hardship, as required under CBDT Circular No. 9/2015. It observed that the Revenue's failure to challenge the appellate order in the case of a similarly situated employee due to the low tax effect could not, by itself, determine the correctness or genuineness of Singh's claim.

The Bench also found that the PCIT's conclusion on genuine hardship was contained in a single unreasoned sentence. It had failed to consider relevant circumstances, including Singh's loss of employment following the closure of the Tractor Division, the substantial refund claimed and the orders passed in favour of similarly situated employees.

It rejected the Department's contention that Singh had failed to explain the delay. It noted that he had stated in his application that the original return was filed on the basis of Form-16 and that the legal position regarding the exemption under Section 10(10B) became known only after decisions in cases involving similarly situated employees.

Further, the judges distinguished proceedings under Section 119(2)(b) from an application for condonation under Section 5 of the Limitation Act. It held that under the CBDT circular, the relevant considerations are the correctness and genuineness of the claim and the existence of genuine hardship. The delay is relevant as part of the circumstances, but is not a standalone test.

Accordingly, the High Court quashed the PCIT's order dated 19 January 2022 and remitted the matter to the PCIT for fresh consideration of Singh's application. It directed the PCIT to provide Singh an opportunity of hearing and pass a reasoned order within three months. It clarified that it had expressed no opinion on the merits of the claim for exemption.

For Petitioner: Mr. Nikhil Goyal and Ms. Shweta, Advocates

For Respondent: Mr. Sourabh Kapoor, Senior Standing Counsel, through VC, assisted by Ms. Muskaan Gupta and Mr. Vivek Sharma, Advocates