Commissioner Of Income Tax (Central), Ludhiana v. M/S Sangrur Vanaspati Mills Ltd

ITA No. 43 of 2003 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 43 of 2003 Date of Decision: 12.10.2010 Commissioner of Income Tax (Central), Ludhiana Versus M/s Sangrur Vanaspati Mills Ltd. ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. Mr. Pankaj Jain, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.This order shall dispose of ITA Nos. 226 of 2002 and 43 of2003 as common question of law and facts are involved therein. Forbrevity, the facts are being extracted from ITA No. 43 of 2003. 2.ITA No. 43 of 2003 has been preferred by the revenueunder Section 260A of the Income Tax Act, 1961 (in short “the Act”)against the order dated 2.5.2002 passed by the Income Tax AppellateTribunal, Chandigarh Bench “A”, Chandigarh (hereinafter referred to as“the Tribunal”) in ITA Nos. 765 to 772/Chandi/91 for the assessmentyear 1986-87, proposing following substantial question of law:- “Whether, on the facts and in the circumstances ofthe case, the ITAT was right in law in cancelling order u/s 263 restoring the interest waived?” 3.Briefly stated, the facts as narrated in the appeal are thatthe assessee filed its return on 30.6.1986 declaring an income ofRs.51,18,749/- for assessment year 1988-87. A survey was conductedunder Section 133A of the Act at the business premises of theassessee on 10.10.1988 and record showing unaccounted transactionswas found which was later on impounded under Section 131 of the Act.Thereafter, the assessee offered additional income of Rs.23.50 lacs forthe assessment year in question to tax. The assessment wascompleted under Section 143(3) by the Assessing Officer on30.12.1988 at the total taxable income of Rs.88,04,474/-. Interest underSection 215 was also charged at Rs.8,55,999/- which was subsequentlyreduced to Rs.6,30,802/- as a result of order under Section 250(6). Theassessee moved an application under Rule 40(5) of the Income TaxRules, 1962 (hereinafter referred to as “1962 Rules”) for waiver ofinterest to the Assessing Officer. The interest amounting toRs.5,44,900/- was waived vide order dated 8.11.1989. TheCommissioner of Income Tax (Central), Ludhiana (in short “the CIT”)vide order dated 15.3.1991 cancelled the order of the Assessing Officerfor waiver of interest holding the same to be prejudicial to the interest ofthe revenue. In compliance with the order of CIT, the Assessing Officervide order dated 19.3.1991 revived the interest liability of Rs.5,44,900/-.Feeling aggrieved, the assessee approached the Tribunal, who videorder dated 2.5.2002 allowed the appeal which gave rise to the revenueto approach this Court by way of instant appeal. 4.We have heard learned counsel for the parties. 5.From the facts as noticed above, it is discernible that theassessee had made a surrender of Rs.23.50 lacs during the course ofsurvey under Section 133A of the Act on 10.10.1988. The assessmentwas framed even beyond the amount surrendered by the assessee.The Assessing Officer while passing the assessment order on30.12.1988 had issued direction for charging of interest under Section215. However, later on, the Assessing Officer waived the same underRule 40(5) of the 1962 Rules. The Assessing Officer under theaforesaid Rule had noticed as under:- 4.We have heard learned counsel for the parties. 5.From the facts as noticed above, it is discernible that theassessee had made a surrender of Rs.23.50 lacs during the course ofsurvey under Section 133A of the Act on 10.10.1988. The assessmentwas framed even beyond the amount surrendered by the assessee.The Assessing Officer while passing the assessment order on30.12.1988 had issued direction for charging of interest under Section215. However, later on, the Assessing Officer waived the same underRule 40(5) of the 1962 Rules. The Assessing Officer under theaforesaid Rule had noticed as under:- “Perusal of the record reveals that there wassurrender of income amounting to Rs.23.5 lakhs withthe express request for non-charging of interest andpenalty. If the effect of amount of surrender isexcluded from the total income even then the defaultexisted. Further, the records show that the assesseeremained co-operative during the assessmentproceedings. Keeping in view the entirecircumstances, interest chargeable on thesurrendered income is fully waived. However,interest chargeable after excluding the surrenderedamount is waived beyond the period of one year fromthe date of filing of return i.e. interest of Rs.85902/- isretained and balance interest of Rs.544900/- iswaived.” 6.The CIT under Section 263 held the order of the AssessingOfficer waiving the interest under Rule 40(5) to the extent of Rs.5,44,900/- to be erroneous and prejudicial to the interest of therevenue. It was recorded as under:- “It cannot thus be said that the offer for addition wasmade merely to purchase peace with the departmentand for expeditious settlement of the cases. Theassessee had itself admitted that at least a goodnumber of entries in the seized ledger were notreflected in the books of account. The assessee fullyknew that the concealment of income which isestablished from the documents seized, had beendetected by the department and it was only after thisdetection that the assessee made the offer foradditions in the above three years. At no stage in theproceedings, the assessee could prove that theentries in the seized documents were reflected in itsregular books of account. Further, the additions ineach year were higher than the amount of offer madeby the assessee by Rs.1 lac. The assessee did notfile any appeal against even this further addition. Itis, therefore, clear that by not showing the entries inthe seized documents in its regular books of account,the assessee had concealed the particulars of itsincome for the above three years.”It was further observed as under:- “As regards the waiver of interest chargeable u/s215, under rule 40(5) of the Income-tax Rules, 1962 “As regards the waiver of interest chargeable u/s215, under rule 40(5) of the Income-tax Rules, 1962 for the assessment years 1986-87 and 1987-88. Itcannot be said that the interest chargeable in respectof the surrendered amounts for both the years waswaived in accordance with the provisions of law ascontended by the ld. counsel. As per the provisionsof section 215, interest will be charged if the advancetax paid is less than a certain percentage of theassessed tax. In the present case, the advance taxpaid was certainly less than the percentage specifiedunder section 215. Sub rule 5 of Rule 40 of IncomeTax Rules, 1962 gives discretion to the DCIT towaive the interest where he considers that thecircumstances are such that the reduction or waiverof interest payable u/s 215 is justified. In the presentcase, no such circumstances existed. The waiverwas done by excluding the amount of surrender andother disallowances from the income assessed. Asheld by me in respect of penalties u/s 273(2)(aa)above, the assessee all along knew that it had muchhigher income than what was disclosed in theestimates or in the returns of income later on.Therefore, no such circumstances existed whichcould justify the waiver of such interest ordered bythe DCIT, Spl. Range, Patiala. The orders of waiverunder Rule 40(5) of the Income-tax Rules, 1962 dt.8.11.89 for the assessment years 1986-87 and 1987- 88 passed by the DCIT, Spl. Range, Patiala are,therefore, erroneous in so far as they are prejudicialto the interests of revenue.” 7.The order of the CIT was, however, upset by the Tribunalon appeal by the assessee. 8.Learned counsel for the revenue submitted that theTribunal had erred in setting aside the order of the CIT especially whentrue and full disclosure was not made and further that the conditionsenumerated under the provisions of Rule 40 (5) of the 1962 Rules toseek waiver of interest were not fulfilled. 9.On the other hand, learned counsel for the assesseesupported the order passed by the Tribunal. 10.The primary issue for adjudication would centre aroundwhether the assessee fulfilled the requirements of Rule 40(5) of 1962Rules so as to entitle it to benefit of waiver thereof. It would be appositeto reproduce Rule 40 of 1962 Rules, which reads as under:- “40. The Assessing Officer may reduce or waive theinterest payable under section 215 or section 217 inthe cases and under the circumstances mentionedbelow, namely:- (1)When the relevant assessment is completedmore than one year after the submission of thereturn, the delay in assessment not beingattributable to the assessee.more than one year after the submission of thereturn, the delay in assessment not beingattributable to the assessee. (2) Where a person is under section 163 treatedas an agent of another person and is assessedupon the latter's income. (3) Where the assessee has income from anunregistered firm assessed under theprovisions of clause (b) of section 183. (4) Where the previous year is the financial year orany year ending about the close of the financial year and large profits are made after the IstMarch or the 15[th] March in cases where theproviso to section 211 applies, incircumstances which could not be foreseen. Any case in which the Deputy Commissionerconsiders that the circumstances are such thata reduction or waiver of the interest payableunder section 215 or section 217 is justified.” (5) 11.Rule 40 provides the circumstances in which the interestpayable under Section 215 or Section 217 could be waived. One of thecircumstances mentioned therein is where the Deputy Commissioner ofIncome Tax considers that the circumstances are such that a reductionor waiver of interest payable under Section 215 or 217 is justified. (4) Where the previous year is the financial year orany year ending about the close of the financial year and large profits are made after the IstMarch or the 15[th] March in cases where theproviso to section 211 applies, incircumstances which could not be foreseen. Any case in which the Deputy Commissionerconsiders that the circumstances are such thata reduction or waiver of the interest payableunder section 215 or section 217 is justified.” (5) 11.Rule 40 provides the circumstances in which the interestpayable under Section 215 or Section 217 could be waived. One of thecircumstances mentioned therein is where the Deputy Commissioner ofIncome Tax considers that the circumstances are such that a reductionor waiver of interest payable under Section 215 or 217 is justified. 12.The assessee is required to fulfil the conditions enumeratedunder Rule 40 of the 1962 Rules so as to entitle him to the benefit ofreduction or waiver thereof. A judicial exercise of discretion isnecessary while deciding the extent to which the reduction or waiver ofinterest is called for. It depends upon facts and circumstances of each case. The power so conferred under Rule 40(5) to reduce or waiveinterest is required to be exercised fairly and reasonably. 13.Adverting to the factual matrix in the present case, theassessee had not made surrender to buy peace as was alleged by it.The additional conceaded income of Rs.1 lac was added in theassessment order and above the surrendered amount which clearlyestablished that there was no full and true disclosure made by theassessee. 14.The Tribunal has not given any reason while reversing theorder passed under Section 263 of the Act whereby the CIT had setaside the order passed under Rule 40(5) of the 1962 Rules and hadheld that it did not fulfil the requirement of the aforesaid rule and was,therefore, erroneous and prejudicial to the interest of the revenue. TheCIT had rightly exercised the jurisdiction and the Tribunal was in error insetting aside the order of the CIT. 15.In view of the above, the question of law is decided infavour of the revenue and against the assessee. 16.Consequently, the appeals are allowed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL)JUDGE ITA No. 43 of 2003 -9- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 226 of 2002 Date of Decision: 12.10.2010 Commissioner of Income Tax (Central), Ludhiana Versus M/s Sangrur Vanaspati Mills Ltd. ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant.Mr. Pankaj Jain, Advocate for the respondent. AJAY KUMAR MITTAL, J. This appeal is allowed. For orders, see ITA No. 43 of 2003 (Commissioner ofIncome Tax (Central), Ludhiana v. M/s Sangrur VanaspatiMills Ltd). (AJAY KUMAR MITTAL) JUDGE October 12, 2010gbs (ADARSH KUMAR GOEL) JUDGE