M/S. Kuber Builders A Registered Partnershipfirm Having Ofïce At 1112, Raheja Center,214 Nariman Point, Mumbai – 400 021 v. Union Of India, Through Chief Commissioner Of Income Tax, Aayaker Bhavan,Mumbai – 400 021

Ajay (PA) / Amberkar (PS) IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTIONWRIT PETITION NO.2005 OF 2001 M/s. Kuber Builders a registered partnershipfirm having ofÏce at 1112, Raheja Center,214 Nariman Point, Mumbai – 400 021. )) )...Petitioner Versus Union of India, Through Chief Commissioner of Income Tax, Aayaker Bhavan,Mumbai – 400 021. )) )...Respondent ……. Mr. C.M. Kothari, Advocate for Petitioner.Mr. Suresh Kumar a/w. Ms. Sumandevi Yadav, Advocate forRespondent. ……. CORAM : UJJAL BHUYAN, & MILIND N. JADHAV, JJ. RESERVED ON : 05[th] March 2020. PRONOUNCED ON : 26th JUNE2020. JUDGMENT (PER MILIND N. JADHAV, J.) :- 1.By this petition filed under Article 226 of theConstitution of India, the petitioner has prayed for thefollowing reliefs :- “(a)This Hon’ble Court be pleased to declarethe appropriation of Rs.3,11,206/- made by the T.R.O.towards the Tax demand of the A. Y. 1987-88 out of sum of Rs.6,00,000/- deposited with the Respondentby the Petitioner under the said High Court orderdated 13/8/91 as illegal; (b)This Hon’ble court be pleased to declarethat the Petitioners are entitled for the benefit of theKar Vivad Samadhan Scheme so far as they relate tothe Tax dispute / Tax arrears of A.Y.1987-88. (c)This Hon’ble court be pleased to set asideand or quash the Certificate of Intimation issuedunder Section 90 (1) of the Finance (No.2) Act, 1998under Kar Vivad Samadhan Scheme Rules 1998,dated 26/2/99. (d)This Hon’ble Court be pleased to issue Writof Mandamus or any other writ or order in the natureof Mandamus against the Respondents directingthem to consider the Petitioners’ case for Kar VivadSamadhan Scheme and accord the benefit thereunder as may be applicable to the Petitioners. (e)This Hon’ble court be pleased to direct theRespondents to adjust the illegally appropriated sumof Rs.3,11,206/- towards the tax liability if any fixedunder the Kar Samadhan Scheme for the tax dispute /arrears of the A.Y. 1987-88. (f)Pending the hearing and final disposal ofthe Petition the Respondents, their ofÏcers and theiremployees be restrained from recovering any amountfrom the Petitioners by way of tax, interest or penalty WP-2005-2001.doc under the Income Tax Act, 1961 in respect of A.Y.1987-88 pursuant to the letter dated 19-7-91 atExhibit ‘A’ to the Petition or under any further order. (g)Ad-interim order in terms of prayer (f) maybe granted. (h)Such other and further relief as the natureand circumstances of this case may require may begranted.” 2.This Court after hearing the matter on 17.10.2001 had passed the following interim order :- “1. Heard. In the matter of Writ Petition No.2490 of1991, this court issued the following order : 1.The Petitioners do pay to the Respondentsa sum of Rs.6,00,000/- (Rupees Six Lakhs) inpursuance of the letter dated 19[th] July, 1991 beingExhibit ‘Q’ to the Writ Petition No.2492/91 and Exhibit‘H’ to the Writ Petition No.2493/91 in the mannerfollowing :- a) Rs.50,000/- by a cheque, dt.15.8.1991. b) Rs.5,50,000/- within 8 weeks from today. 2.The Respondents and / or OfÏcers shall nottake any proceedings for the recovery of the amountsmentioned in the letter, dated 19.7.1991 for a periodof eight weeks; WP-2005-2001.doc 3.If the said amount of Rs.6,00,000/- is paidwithin the period stipulated above, the demandnotices in respect of the amounts mentioned in theletter dated 19[th] July, 1991 are stayed till the hearingand final disposal of the quantum Appeal for theassessment year 1985 -86; 4.In default, the Respondents are at liberty toenforce the demand; 5.Petition to stand disposed off accordingly.” a) Rs.50,000/- by a cheque, dt.15.8.1991. b) Rs.5,50,000/- within 8 weeks from today. 2.The Respondents and / or OfÏcers shall nottake any proceedings for the recovery of the amountsmentioned in the letter, dated 19.7.1991 for a periodof eight weeks; WP-2005-2001.doc 3.If the said amount of Rs.6,00,000/- is paidwithin the period stipulated above, the demandnotices in respect of the amounts mentioned in theletter dated 19[th] July, 1991 are stayed till the hearingand final disposal of the quantum Appeal for theassessment year 1985 -86; 4.In default, the Respondents are at liberty toenforce the demand; 5.Petition to stand disposed off accordingly.” 2.Mr. Kothari today submitted that these quantumappeals have been dismissed by the Tribunal on 28[th]February 2001. As per submissions advanced by Mr.Kothari, the Respondents and their ofÏcers arerecovering the said amount of assessment tax fromthe Petitioner and therefore Petitioner is making aprayer for a rule as well as rule nisi. 3.Mr. Chatterjee is also heard on behalf of theRespondents. 4.We issue the rule, returnable on 6[th] November,2001 with the intimation to the litigating parties thaton that date this Writ Petition would be finallydecided. The Respondents are permitted to file theafÏdavit in the meanwhile. 5.Rule issued in terms of prayer clauses (a) and(b). Interim relief in terms of prayer clause (f). 6.All concerned to act on the ordinary copy of thisorder, duly authenticated by the Court Associate.” 3.At the outset, it may be necessary to advert to therelevant facts in the present case to decide the petition. 3.1The petitioner is a registered partnership firm andis an assessee. The petitioner filed its income tax return forthe assessment year 1987 – 1988 showing total loss ofRs.28,890.00. The Assistant Commissioner of Income Tax inassessment under Section 143 (3) of the Income Tax Act,1961 (hereinafter for brevity referred to as "the Act")disallowed the aforesaid loss shown by the petitioner anddetermined income of the petitioner at Rs.7,83,760.00 andfixed the tax liability at Rs.3,11,206.00 for the assessmentyear 1987 – 88. The petitioner filed appeal before theCommissioner of Income Tax (Appeals) ("CIT (Appeals)" inshort and hereinafter referred to as the “first Appellateauthority”) which was partly allowed. Being aggrieved thepetitioner filed further appeal before the Income TaxAppellate Tribunal (hereinafter referred to as the “Tribunal”).This second appeal before the Tribunal came to be dismissed 5 of 19 Ajay (PA) / Amberkar (PS) WP-2005-2001.doc subsequently on 28.02.2001 (as stated in the petition).Hence, the tax liability of the petitioner for the assessmentyear 1987-88 of Rs. 3,11,206.00 became final. 3.2.However during the pendency of the above secondappeal before the Tribunal, the petitioner received a demandnotice dated 19.07.1991 from the Tax Recovery OfÏcer - 29calling upon the petitioner to make payment of composite taxdemand for two years, viz. Rs.3,11,206.00 in respect ofassessment year 1987 – 88 and Rs.9,33,020.00 in respect ofassessment year 1985 – 86. 3.3.The petitioner filed two separate writ petitions viz;writ petition No.2492 of 1991 (against tax demand forassessment year 1987 - 88) and writ petition No.2493 of 1991(against tax demand for assessment year 1985 - 86), interalia, challenging the composite demand notice for therespective assessment years in this Court. 3.4. By common order dated 13.08.1991 this Courtstayed the demand notice dated 19.07.1991 during the WP-2005-2001.doc 3.3.The petitioner filed two separate writ petitions viz;writ petition No.2492 of 1991 (against tax demand forassessment year 1987 - 88) and writ petition No.2493 of 1991(against tax demand for assessment year 1985 - 86), interalia, challenging the composite demand notice for therespective assessment years in this Court. 3.4. By common order dated 13.08.1991 this Courtstayed the demand notice dated 19.07.1991 during the WP-2005-2001.doc pendency of the respective quantum appeals, subject to thepetitioner making a payment of Rs.6,00,000.00 towards theaggregate demand of Rs.12,44,126.00 as stated in thedemand notice as condition precedent for staying therecovery proceedings. The petitioner deposited the amount ofRs.6,00,000.00 with the Income Tax Department pursuant tothe above order on or about October, 1991. The demandnotice dated 19.7.1991 was, therefore, stayed. 3.5.In 1998 the Government of India introduced ascheme known as Kar Vivad Samadhan Scheme, 1998(hereinafter referred to as “the KVSS scheme, 1998”) forsettlement of disputes relating to income tax or any otherdirect tax, which was unpaid or under litigation. The featureof the said scheme was that all arrears of income tax could besettled at current rate and interest and penalty could bewholly / 50% waived. 3.6.The petitioner considered itself eligible and entitledunder the KVSS scheme, 1998 and therefore filed itsdeclaration in form 1A under the Kar Vivad Samadhan Rules, Ajay (PA) / Amberkar (PS) WP-2005-2001.doc 1998 before the designated authority for settlement of itsliability for assessment year 1987 – 88 only. The designatedauthority after considering the petitioner’s application issueda Certificate of Intimation dated 26.02.1999 to the petitioner,inter alia, determining the 50% amount of Rs.6,16,838.00payable under the KVSS scheme, 1998 for assessment year1987 -88. This amount computed under the Certificate ofIntimation was only in respect of penalty and interest payableunder Section 220(2) r/w Sections 271(1)(a), 271(1)(b) and271(1)(c) of the Act for the assessment year 1987-88. 4.Mr. C.M. Kothari learned counsel appearing for thepetitioner submitted that in terms of the order dated13.08.1991 passed by this Court the sum of Rs.6,00,000.00was deposited by the petitioner for stay of recoveryproceedings and not towards any specific demand relating toincome tax. He submitted that the demand notice dated19.07.1991 as received from the Tax Recovery OfÏcer was inrespect of two outstanding demands, namely, Rs.3,11,206.00for assessment year 1987 – 88 and Rs.9,33,020.00 forassessment year 1985 – 86. He submitted that pursuant to 8 of 19 Ajay (PA) / Amberkar (PS) WP-2005-2001.doc the application made by the petitioner under the Kar VivadSamadhan Scheme for assessment year 1987-88, Revenuewas not justified in adjusting the deposit amount ofRs.6,00,000.00 against the outstanding liability of thepetitioner and no appropriation should had taken place. Hesubmitted that it was incorrect on the part of the Revenue toappropriate Rs.3,11,206.00 towards the outstanding taxliability of assessment year 1987 – 88. He submitted that ifat all the Revenue had to adjust any amount, theadjustment / appropriation by the Tax Recovery OfÏcer shouldhave first been towards outstanding liability of assessmentyear 1985 – 86 and only after satisfaction of the said liability,the liability of assessment year 1987 – 88 ought to havebeen satisfied. He submitted that by appropriating andadjusting an amount of Rs.6,00,000.00 towards outstandingamount of the petitioner for the assessment year 1985 – 86and 1987 – 88, the Kar Vivad Samadhan Scheme was notcorrectly complied in respect of the petitioner’s case despitethe petitioner making the appropriate application (for A.Y.1987-88 only) and the Revenue issuing the Certificate ofIntimation dated 26.02.1999. He therefore submitted the 9 of 19 9 of 19 Ajay (PA) / Amberkar (PS) WP-2005-2001.doc petitioner had no option than to file the present petition forseeking multiple reliefs as prayed for. He submitted that thepetitioner was denied the benefit of Kar Vivad SamadhanScheme. 4.1Mr. Kumar, learned standing counsel, Revenuehowever has supported the action taken by the respondents. 5.We have perused the pleadings, the demand noticedated 19.07.1991, the application made by the petitionerdeclarant dated 29.12.1998 under Kar Vivad SamadhanScheme and the Certificate of Intimation dated 26.02.1999issued by the Revenue. We may state that the petitioner hadfiled a declaration in form 1A dated 29.12.1998 under the KarVivad Samadhan Scheme for settlement of the outstandingdemand / tax liability for assessment year 1987 – 88 only. Inthe declaration filed by the petitioner, according to thepetitioner the total tax liability payable by the petitioner wasRs.2,74,316.00. However on consideration of the petitioner’scase, the Revenue issued Certificate of Intimation dated26.02.1999 under the Kar Vivad Samadhan Scheme and 10 of 19 Ajay (PA) / Amberkar (PS) determined the amount of Rs.6,16,838.00 being the 50%liability payable by the petitioner for assessment year 1987 –88 which has been computed and levied against penalty andinterest only. Thus, outstanding liability under the Kar VivadSamadhan Scheme was determined by the Revenue forassessment year 1987 – 88 at Rs.6,16,838.00 towardspenalty and interest only. However, by letter dated24.03.1999 the Commissioner of Income Tax informed thepetitioner that out of the initial deposit amount ofRs.6,00,000.00 made by the petitioner in compliance of orderdated 13.08.1991, a sum of Rs.3,61,201.00 was adjustedagainst the outstanding demand for assessment year 1987 –88 which was pending as per the notice dated 19.07.1991and the balance amount of Rs.2,38,799.00 (6,00,000.00 –3,61,201.00 = 2,38,799.00) was adjusted towards the arrearsof assessment year 1985 – 86 which was due and pending.The petitioner was therefore called upon to make payment ofthe outstanding demand as per the Certificate of Intimationdated 26.02.1999. Ajay (PA) / Amberkar (PS) WP-2005-2001.doc 6.The present petition has been filed to declare that theappropriation of Rs.3,11,206.00 out of the deposit amountwas illegally done by the Revenue. The notice of demanddated 19.07.1991 as it stood issued by the Revenue was inrespect of two assessment years namely 1985 – 86(Rs.9,33.020.00) and for assessment year 1987- 88(Rs.3,11,206.00). So far as assessment year 1987 – 88 isconcerned, the petitioner applied under the Kar VivadSamadhan Scheme and the liability of the petitioner @ 50%of the total liability was determined at Rs.6,16,838.00towards penalty and interest only. The letter dated 24.3.1999has taken into cognizance the declaration dated 29.12.1998filed by the petitioner in form 1A under the Kar VivadSamadhan Rules and the subsequent Certificate of Intimationdated 26.02.1999 issued by the Revenue to the petitioner. 7.We may state that the present writ petition wasprimarily filed as a sequel to earlier two writ petitions bearingwrit petition No.2492 of 1991 and writ petition No.2493 of 1991,in which this Court was pleased to pass a common order on13.08.1991, which reads thus :- WP-2005-2001.doc “1.The Petitioners do pay to the Respondents a sumof Rs.6,00,000/- (Rupees Six Lakhs) in pursuance ofthe letter, dated 19[th] July, 1991 being Exhibit ‘Q’ tothe writ petition No.2492/91 and Exhibit ‘H’ to thewrit petition No.2493/91 in the manner following :- a)Rs.50,000/- by a cheque, dt.15.8.1991.b)Rs.5,50,000/- within 8 weeks from today. 2.The Respondents and / or OfÏcers shall not takeany proceedings for the recovery of the amountmentioned in the letter, dated 19.7.1991 for a periodof eight weeks; 7.We may state that the present writ petition wasprimarily filed as a sequel to earlier two writ petitions bearingwrit petition No.2492 of 1991 and writ petition No.2493 of 1991,in which this Court was pleased to pass a common order on13.08.1991, which reads thus :- WP-2005-2001.doc “1.The Petitioners do pay to the Respondents a sumof Rs.6,00,000/- (Rupees Six Lakhs) in pursuance ofthe letter, dated 19[th] July, 1991 being Exhibit ‘Q’ tothe writ petition No.2492/91 and Exhibit ‘H’ to thewrit petition No.2493/91 in the manner following :- a)Rs.50,000/- by a cheque, dt.15.8.1991.b)Rs.5,50,000/- within 8 weeks from today. 2.The Respondents and / or OfÏcers shall not takeany proceedings for the recovery of the amountmentioned in the letter, dated 19.7.1991 for a periodof eight weeks; 3.If the said amount of Rs.6,00,000/- is paid withinthe period stipulated above, the demand notices inrespect of the amounts mentioned in the letter, dated19[th] July, 1991 are stayed till the hearing and finaldisposal of the quantum appeal for the assessmentyear 1985-86; 4.In default, liberty to respondents to enforce thedemand; 5.Petition to stand disposed off accordingly.” 8.The above two writ petitions were filed challengingthe composite demand notice dated 19.07.1991. The saiddemand notice which was in respect of two assessment yearsviz. 1985-86 and 1987-88 came to be stayed on the petitioner 13 of 19 Ajay (PA) / Amberkar (PS) WP-2005-2001.doc complying with the direction of deposit of Rs. 6,00,000.00contained in paragraph No.3 of the above order. The petitionerdeposited the amount of Rs.6,00,000/- with the Revenue andthus the demand notice was stayed. Paragraph No.3 of theorder also records that the stay would be in effect till thehearing and final disposal of quantum appeal for theassessment year 1985-86. In the present petition, thepetitioner has not furnished the outcome of the pendingquantum appeal for the assessment year 1985-86. 9.The relief claimed in the present petition are two fold. Prayer clauses ‘a’ and ‘e’ pertain to appropriation andadjustment of Rs.3,11,206.00 out of the deposit amount ofRs.6,00,000.00 by the petitioner towards tax liability forassessment year 1987-88. Prayer clauses (b), (c) and (d)pertain to the declaration filed by the petitioner for availingbenefit under the Kar Vivad Samadhan Scheme for theassessment year 1987-88 and challenge to the Certificate ofIntimation issued by the Revenue on accepting the applicationof the petitioner under the said scheme. Ajay (PA) / Amberkar (PS) WP-2005-2001.doc 10.In so far the issue of adjustment of Rs.3,11,206.00 isconcerned, prima-facie, it appears that the said amount was thecrystallized final tax demand that was mentioned in the demandnotice dated 19.07.1991. However, on the petitioner filing andavailing benefit of the Kar Vivad Samadhan Scheme, theRevenue issued the Certificate of Intimation for the sameshowing the total outstanding demand towards interest andpenalty that was liable to be paid by the petitioner @ 50% i.e.Rs.6,16,838.00. Thus, the liability of the petitioner in so farassessment year 1987-88 was concerned was crystalized anddetermined under the Kar Vivad Samadhan Scheme atRs.6,16,838.00. As against this, the Revenue had alreadyadjusted and appropriated the amount of tax demand ofRs.3,11,206.00 out of the deposit of Rs.6,00,000/- made by thepetitioner in October 1991. It is to be noted that, in so far thisdemand of Rs.3,11,206.00 was concerned it was only towardsthe tax demand payable by the petitioner. The amount ofpenalty and interest payable by the petitioner under Section220(2) read with Sections 271(1)(a), 271(1)(b) and 271(1)(c)was computed @ 50% i.e Rs.6,16,838.00 by the Commissionerof Income Tax, City – XIV, Mumbai in 1999 as due and payableby the petitioner under the KVSS. Therefore, since the liability of 15 of 19 WP-2005-2001.doc 15 of 19 WP-2005-2001.doc the petitioner for the assessment year 1987-88 against the taxdemand of Rs.3,11,206.00 being crystallized, the petitioner wascalled upon to pay interest and penalty @ 50% as determined atRs.6,16,838.00 over and above the aforesaid tax liability of Rs.3,11,206.00 for the assessment year 1987-88 (which wasappropriated by the Income Tax Department). However, if thesaid tax demand was appropriated and adjusted (as it wasreceived in October 1991), then the petitioner cannot beburdened with payment of penalty and interest in the year1999, merely because the interim order in WP 2490/1991 didnot give such directions for adjustment and appropriation. Inany event, since October 1991, the Income Tax Department wasin receipt of Rs. 6,00,000.00 from the petitioner. 11.In so far the reliefs in prayer clauses (b), (c) and (d)are concerned, the same relate to the declaration filed by thepetitioner under Kar Vivad Samadhan Scheme for settlement ofits liability for assessment year 1987-88. Once the petitionerhad filed its declaration dated 29.12.1998 under the saidscheme, the same was considered by the Revenue and afterdue consideration the Revenue issued the Certificate ofIntimation under Section 90(i) of the Finance (No.2) Act, 1998 in 16 of 19 Ajay (PA) / Amberkar (PS) WP-2005-2001.doc respect of Kar Vivad Samadhan Scheme, 1998 read with KarVivad Samadhan Scheme, Rules 1998 in form No.2–A thereof,declaring the 50% liability payable towards penalty and interestby the petitioner at Rs.6,16,838.00. Once, this liability of thepetitioner was crystallized on the petitioner’s own application,the petitioner was called upon to pay this amount. However inthe case of the petitioner, since the amount of Rs.3,11,206.00(tax liability) was deposited by the petitioner in the year 1991and the same was adjusted by the Revenue for the outstandingdemand for assessment year 1987-88, the petitioner could nothave been held to be liable to pay any penalty and interestwhich has been computed in the Certificate of Intimation issuedon 26.02.1999. Further the Certificate of Intimation also doesnot give the precise period for which the penalty and interestunder Section 220(2) read with Sections 271(1)(a), 271(1)(b)and 271(1)(c) has been computed / calculated by the Revenue.In view thereof, there is force in the submissions made by thepetitioner that the Certificate of Intimation does not give theprecise period for which the penalty and interest has beencomputed / calculated by the Revenue and merely gives alumpsum computation and further that the petitioner is notliable to pay any interest and penalty as levied. WP-2005-2001.doc 12.We may state that it is also an admitted position thatthe petitioner had already deposited Rs.6,00,000.00 with theRevenue in Ocotber 1991. Since the Revenue had appropriatedthe same towards petitioner’s tax liability for the assessmentyear 1987-88, the computation / calculation of penalty andinterest for the said assessment year in the Certificate ofIntimation dated 26.2.1999 was therefore, not justified. 13.We, therefore, conclude that the petitioner is notliable to pay any interest on the amount of Rs.3,11,206.00 asthe Tax Recovery OfÏcer – 29, Mumbai had adjusted theamount of Rs.3,61,201.00 out of the deposit amount ofRs.6,00,000.00 made by the petitioner in October 1991; 14.In view of the above, the petition is disposed of byissuing the following directions:- (a) The Certificate of Intimation dated 26.02.1999 whichconfers liability on the petitioner towards payment ofpenalty and interest under the Act for theassessment year 1987-88 is set aside;confers liability on the petitioner towards payment ofpenalty and interest under the Act for theassessment year 1987-88 is set aside; Ajay (PA) / Amberkar (PS) WP-2005-2001.doc (b) The respondents / Revenue are directed to compute 14.In view of the above, the petition is disposed of byissuing the following directions:- (a) The Certificate of Intimation dated 26.02.1999 whichconfers liability on the petitioner towards payment ofpenalty and interest under the Act for theassessment year 1987-88 is set aside;confers liability on the petitioner towards payment ofpenalty and interest under the Act for theassessment year 1987-88 is set aside; Ajay (PA) / Amberkar (PS) WP-2005-2001.doc (b) The respondents / Revenue are directed to compute and intimate to the petitioner within a period of 8weeks any outstanding penalty and interest, ifpayable, by the petitioner for the assessment year1987-88 until the date of deposit (i.e. October 1991)by the petitioner of the amount of Rs.6,00,000.00with the Revenue;weeks any outstanding penalty and interest, ifpayable, by the petitioner for the assessment year1987-88 until the date of deposit (i.e. October 1991)by the petitioner of the amount of Rs.6,00,000.00with the Revenue; (c) If the petitioner is liable to pay any penalty andinterest, the same shall be adjusted from the balanceamount of Rs. 6,00,000.00, if any, held by theRevenue;interest, the same shall be adjusted from the balanceamount of Rs. 6,00,000.00, if any, held by theRevenue; (d) If the Revenue holds any further balance amountafter adjusting the above penalty and interest, if any,after adjusting the above penalty and interest, if any, the same shall be adjusted towards the outstandingliability for assessment year 1985-86; liability for assessment year 1985-86; (e) Rule is discharged; (f) Petition is disposed of on the above terms; (g) Parties to bear their own costs. ( MILIND N. JADHAV, J.) ( UJJAL BHUYAN, J.) 19 of 19