By Adv. Sri.harisankar v. Menon

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.VINOD CHANDRAN FRIDAY, THE 23RD DECEMBER 2011 / 2ND POUSHA 1933 W.A.No.1972 of 2010 ---------------------- AGAINST THE JUDGEMENT IN W.P.(C).No.12653/2004 DATED 31/08/2010 .................... APPELLANT/ PETITIONER:- ---------------------- M/S.LINK LINE ENTERPRISES, P.O.ROAD, THRISSUR, REPRESENTED BY ROSILY OUSEPH, PARTNER. BY ADV. SRI.HARISANKAR V. MENON SMT.MEERA V.MENON SRI.MAHESH V.MENON RESPONDENTS/ RESPONDENTS:- ---------------------------- 1. ASST. COMMISSIONER OF INCOME TAX, INVESTIGATION CIRCLE-I, DIVISION-I, THRISSUR. 2. CHIEF COMMISSIONER OF INCOME TAX, CENTRAL REVENUE BUILDING, I.S.PRESS ROAD, ERNAKULAM, KOCHI-18. BY STANDING COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.JOSE JOSEPH. THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON ON 08/12/2011, ALONG WITH W.A.NOS. 2008 OF 2010 & 2007 OF 2010, THE COURT ON 23/12/2011 DELIVERED THE FOLLOWING:- C.N.Ramachandran Nair & K.Vinod Chandran, JJ. ----------------------------------------------------------------------- W.A.Nos.1972 of 2010, 2007 of 2010 & 2008 of 2010 ----------------------------------------------------------------------- Dated this, the 23[rd] day of December, 2011 JDGMENT K.Vinod Chandran,J. The short question canvassed in the above Writ Appeals isthe scope of the power under Section 154 of the Income Tax Act (forshort “the Act”) to rectify any mistake apparent from the record. 2. The appellants are respectively two firms and one of the partners of the said firms. The facts relevant to the subject ofchallenge made in the writ petition have been detailed by the learnedSingle Judge. For the purpose of the disposal of these appeals, sufficeit to say that the premises of the assessees were searched underSection 132 of the Act and pursuant to a notice under Section 148 ofthe Act, the assessments against the assessees were completed forthe years 1988-89 to 1995-96 and interest was also levied underSection 234A, 234B and 234C. The assessee filed an applicationunder Section 119(2)(a) for waiver of interest imposed under Sections234A, 234B and 234C for the assessment years 1989-90 to 1995-96.The application was filed invoking the powers of the ChiefCommissioner of Income Tax, conferred under notification dated 23.5.1996 issued under Section 119(2)(a) of the Act. It is to benoticed that interest under Section 234A, 234B and 234C ismandatory and that there is no statutory provision to waive the same.However, to reduce the rigour, in deserving cases, beneficialprovision has been provided under Section 119(2)(a) and the CentralBoard of Direct Taxes has, invoking the powers under such beneficialprovision, issued Circular conferring powers on the ChiefCommissioner/Director General to waive such interest, but only onthe conditions specified in the Circular. The Chief Commissioner ofIncome Tax by orders dated 26.11.1999, 22.10.1999 and 26.11.1999produced respectively as Exhibit P8, P7 and P4 in the writ petitionswaived the interest in full. The Chief Commissioner in the said orderfound that the hardship pleaded by the assessee as also the filing ofreturns and payment of taxes would entitle the assessee to waiver ofinterest as claimed by him. 3. However, later notice under Section 154 was issued on26.12.2003 proposing rectification of the order granting waiver on theground that the assessee was not entitled to be considered for suchwaiver on account of non-satisfaction of the conditions in thenotification. The proposal made was confirmed by the ChiefCommissioner after hearing the assessee on the ground that the - 3 - 3. However, later notice under Section 154 was issued on26.12.2003 proposing rectification of the order granting waiver on theground that the assessee was not entitled to be considered for suchwaiver on account of non-satisfaction of the conditions in thenotification. The proposal made was confirmed by the ChiefCommissioner after hearing the assessee on the ground that the - 3 - assessee did not fall within the terms of the notification for the shortreason that the assessee had filed return only after search andseizure and after issuance of notice pursuant to such search andseizure. The notification, according to the Commissioner, entitled anassessee to claim waiver only where it was satisfactorily proved thata return of income could not be filed by the assessee due tounavoidable circumstances and that such return of income is filedvoluntarily by the assessee or his legal heirs without detection by theassessing officer. Since the assessee filed return only after searchand detection of concealed income, the waiver of interest initiallygranted was found to be against law and hence the ChiefCommissioner cancelled the first order granting waiver and restoredthe interest levied. The writ petition filed challenging the rectifiedorder issued under Section 154 was dismissed by the learned SingleJudge, against which this appeal is filed. 4. The learned counsel for the assessee in all these WritAppeals, Sri.Harisankar V.Menon, would contend before us that thesaid rectification made in the case of all the assessees by separateorders dated 25.2.2004 is incompetent for the reason of the samebeing beyond the scope of the powers conferred under Section 154of the Act. The learned counsel would urge before us that a reading of the respective orders, which runs to 8 to 9 pages, would itselfshow that what is sought to be rectified is not an apparent mistake onthe face of the record, but would definitely constitute an adjudicationof an issue and can only be deemed to be a mere change of opinionwhich is beyond the scope of rectification under Section 154. Thelearned counsel would also take us through the decision of theHon'ble Supreme Court in Deva Metal Powders Pvt. Ltd. v.Commissioner, Trade Tax, U.P., [2007] 10 VST 751, to buttress hisarguments. 5. We have given anxious consideration to the facts ofthe case, the law on the subject as also the impugned judgment ofthe learned Single Judge. Obviously there can be no dispute that theearlier orders of the Chief Commissioner, which were rectified byorders dated 26.11.1999, 22.10.1999 and 26.11.1999 respectively,were incompetent in as much as the Chief Commissioner passed thefirst order without even referring to the conditions in the notification,the proof of satisfaction of which, only, entitles the assessee for awaiver. Obviously assessee's case was not covered by the terms ofthe notification entitling him to be considered for waiver of interestunder the notification issued under Section 119(2)(a) of the Act. Thenotification so issued ([1997] 225 ITR (Statutes) 101) inter alia confers power on the Chief Commissioner and Director-General ofIncome Tax to reduce or waive interest under Section 234A, Section234B or Section 234C of the Act in the classes of cases or classes ofincome specified in paragraph 2 of the said notification. As noticedearlier, this power is conferred under a Circular issued invoking thepowers of a beneficial provision and the eligibility to be consideredunder the Circular is to be strictly construed on the conditionsspecified in the notification. The power to waive or reduce suchinterest conferred by the said notification is a matter of satisfaction ofthe officer on whom such power is conferred. This is evident by the confers power on the Chief Commissioner and Director-General ofIncome Tax to reduce or waive interest under Section 234A, Section234B or Section 234C of the Act in the classes of cases or classes ofincome specified in paragraph 2 of the said notification. As noticedearlier, this power is conferred under a Circular issued invoking thepowers of a beneficial provision and the eligibility to be consideredunder the Circular is to be strictly construed on the conditionsspecified in the notification. The power to waive or reduce suchinterest conferred by the said notification is a matter of satisfaction ofthe officer on whom such power is conferred. This is evident by the words“to the extent the Chief Commissioner ofIncome-tax/Director-General of Income-tax deem fit”. There canbe no dispute that it is the discretion of the officer exercising suchpowers and the same has to be decided on the anvil ofreasonableness and has to be done on a judicious consideration ofthe facts and circumstances. Any opinion so arrived at exercisingone's discretion if found to be reasonable and judicious, it cannot beoverturned by another officer under Section 154. There can be nodispute to the said proposition as discernible from the specific wordsin the provision for rectification as also various precedents, recentlyfortified in the decision in Deva Metal Powders case (supra). 6. The question for consideration before us is not thereasonableness of the order passed for waiver of interest; that issought to be rectified under Section 154. As noticed earlier, thenotification specifies the classes of cases or classes of income inwhich the reduction or waiver of interest can be considered and thataccording to us would be the threshold test to be satisfied for beingentitled to be considered for waiver. However much the hardship is,unless an assessee falls within the four corners of the classes ofincome or classes of cases specified in the notification, there can beno question of consideration of waiver or reduction of interest. As acorollary, in the classes of cases or classes of income which doesnot fall under those specified in paragraph 2 of the notification, theChief Commissioner of Income Tax has no authority to considerreduction or waiver of interest. Admittedly, the assessee would claimentitlement to be considered under the notification on the premisethat the assessee falls under paragraph 2(e) of the notification, whichis extracted herein below: “(e). Where a return of income could not be filed bythe assessee due to unavoidable circumstances and suchreturn of income is filed voluntarily by the assessee or hislegal heirs without detection by the Assessing Officer”. “(e). Where a return of income could not be filed bythe assessee due to unavoidable circumstances and suchreturn of income is filed voluntarily by the assessee or hislegal heirs without detection by the Assessing Officer”. There can be no dispute that in the instant case the assessee cannotbe said to have failed to file a return due to unavoidablecircumstances, nor can it be said that such return of income is filedvoluntarily by the assessee without detection by the assessingofficer. The assessee definitely had been filing returns, but withoutdeclaring the actual income which was sought to be taxed pursuantto a search and seizure effected at the premises of the assesseeunder the provisions of the Act. The return of undisclosed incomesought to be assessed at the hands of the assessee filed pursuant toa notice under Section 148 of the Act cannot be said to have beenfiled voluntarily. It cannot also be disputed that the non-disclosure ofincome was not due to unavoidable circumstances and the returnpursuant to notice under Section 148 was filed only after detectionmade by the Income Tax authorities under the provisions of the Act.This, to our mind, disentitles the assessee from being consideredunder the notification passed under Section 119(2)(a) of the Act. Theassessee's entitlement to be considered for waiver of interest and theactual consideration of the waiver as such or the reduction thereon,are distinct and different. While discretion is conferred on thecompetent authority to decide on the waiver or the extent to which itcan be granted, we are afraid, there is no such discretion granted in so far as entitlement to make such claim. It is this entitlement whichis the bone of contention in the instant case. The assessee if fallingunder any of the classes of income or classes of cases enumeratedunder paragraph 2 of the notification, necessarily gets an entitlementto be considered for waiver or reduction of interest. Once entitlementis proved, then waiver or reduction does not automatically follow; it isa matter of discretion of the competent authority. However, if theassessee does not fall under the classes in paragraph 2, there canbe no consideration of the claim. The entitlement of the assesseedoes not fall for any adjudication, nor is it in the realm of discretionand cannot change with opinions and persons. The fact that theorder passed under Section 154 runs to several pages has nobearing on the issue, since the Chief Commissioner, under Section154, was concerned only with the entitlement of the assessee forconsideration of waiver or reduction of interest as per the notification.It is also pertinent that the Chief Commissioner wrote an elaborateorder under Section 154 since the assessee specifically raised theissue of the scope of the provision for rectification. The earlier orderpassed by the Commissioner granting waiver of interest under thenotification was without noticing that the assessee as per the specificterms of the notification is not entitled to make such a claim, nor the Chief Commissioner conferred with powers to consider that claim. This is not an error which is to be “established by a long drawnprocess of reasoning on points where there may conceivably be two opinions” (sic) [Satyanarayan Laxminarayan Hegde v.Mallikarjun Bhavanappa Thirumale, AIR 1960 SC 137]. The SupremeCourt in Deva Metal Powders case (supra) also while considering thepowers under rectification held thus:- “The power to rectify the mistake, however, does not covercases where a revision or review of the order is intended.“Mistake” means to take or understand wrongly orinaccurately; to make an error in interpreting; it is an error, afault, a misunderstanding, a misconception. “Apparent” meansvisible; capable of being seen, obvious; plain. It means “opento view, visible, evident, appears, appearing as real and true,conspicuous, manifest, obvious, seeming”. two opinions” (sic) [Satyanarayan Laxminarayan Hegde v.Mallikarjun Bhavanappa Thirumale, AIR 1960 SC 137]. The SupremeCourt in Deva Metal Powders case (supra) also while considering thepowers under rectification held thus:- “The power to rectify the mistake, however, does not covercases where a revision or review of the order is intended.“Mistake” means to take or understand wrongly orinaccurately; to make an error in interpreting; it is an error, afault, a misunderstanding, a misconception. “Apparent” meansvisible; capable of being seen, obvious; plain. It means “opento view, visible, evident, appears, appearing as real and true,conspicuous, manifest, obvious, seeming”. The earlier order of the Chief Commissioner granting waiver wasdefinitely a misconception or an error in interpreting the notification,which could be rectified under Section 154. As stated earlier, thedetailed order passed under Section 154 was due to the assessee'scontention regarding the scope of rectification under Section 154 andthe only perceivable consequence of the order passed under Section154 is rectification of an error in interpreting the terms of the - 10 - notification and reversing the process for the only reason of theassessee being disentitled from applying for waiver or reduction ofinterest under the notification under Section 119(2)(a). According tous, the fundamental error committed in the order dated 26.11.1999was rectified. In the circumstances, we are of the opinion that thejudgment of the learned Single Judge is not liable to be interferedwith and we dismiss the Writ Appeals. No costs. Sd/- C.N.Ramachandran Nair, Judge Judge vku/- Sd/- K.Vinod Chandran, Judge.