Roxy Industrial Corporation v. Commissioner Of Income Tax (Central), Ludhiana

CWP No. 7757 of 2011 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH 1.CWP No. 7757 of 2011 Roxy Industrial Corporation ..... Petitioner Versus Commissioner of Income Tax (Central), Ludhiana ..... Respondent 2.CWP No. 19911 of 2011 Pawan Kumar Mittal ..... Petitioner Versus Commissioner of Income Tax (Central), Ludhiana and another ..... Respondents Date of decision: 14.3.2013 CORAM:HON'BLE MR. JUSTICE SURYA KANTHON'BLE MR.JUSTICE R.P. NAGRATH PRESENT: Mr. Rajesh Garg, Advocate for the petitioner (in CWP No. 7757 of 2011) andfor respondent No. 2 (in CWP No. 19911 of 2011). Mr. Sandeep Goyal, Advocate for the petitioner (in CWP No. 19911 of 2011). Mr. Rajesh Katoch, Advocate for the respondent. SURYA KANT, J. (ORAL) This order shall dispose of CWP Nos. 7757 and 19911 of 2011 as both the writ petitions are directed against the order dated11.3.2011 passed by the Commissioner of Income Tax (Central),Ludhiana, under Section 132B of the Income Tax Act, 1961 (for short'the Act'). For brevity the facts are being taken from CWP No. 7757 of2011, which has been preferred by Roxy Industrial Corporation(hereinafter referred to as 'the Assessee'). 2.A search and seizure operation under Section 132 of the Actwas conducted at the business premises of the Assessee and theresidential premises of its partners. The books of accounts, valuables,cash, locker keys etc. were seized by the Department, including silverarticles weighing 16 kg and gold jewellery weighing 3276 gms whichwere recovered from the bank lockers of one of the partners of theAssessee. To cut the matter short, it was after a prolonged litigation thatthe Assessee approached the Settlement Commission for settlement of thedispute and pursuant thereto the Settlement Commission passed orderdated 31.10.1996, raising a demand of ` 77,74,531/- inclusive of interestagainst the Assessee. The order passed by the Settlement Commission isunder challenge at the instance of the Assessee in CWP No. 19267 of1996, though it is stated that out of the assessed amount, a sum of` 52,94,770/- has since been deposited. 3.While the seized articles including the jewellery were inpossession of the Department, an unfortunate dispute cropped up betweenthe two partner-brothers of the Assessee, as to whether the jewellerybelonged to the Assessee or one of its partners. It was in relation to that controversy that this Court in CWP No. 5400 of 2009, filed at theinstance of the Assessee passed order dated 10.12.2010 (Annexure P-3)whereby the order dated 16.3.2009, of the Commissioner of Income Tax(Central), Ludhiana, entrusting the jewellery to one partner was set asideand the matter was remanded for re-determination. The operative part ofthe order dated 10.12.2010 reads as follows:- “5.A perusal of impugned order dated 16.3.2009passed by the Commissioner of Income tax underSection 132-B of the Act shows that while directingrelease of jewellery and silver articles to respondentP.K. Mittal against bank guarantee, he has neithertaken into account discharge of tax liability nor theeffect of memorandum of understanding. The orderproceeds only on the assumption that under Section132-B(3), only the person from whose custody assetswere seized could get the same. In our view,interpretation of Section 132-B(3) taken by theCommissioner in not correct. The above provisiondoes not exclude consideration of discharge of liabilityof the department nor arrangement if any between aperson from whom assets may have been seized andany other person. 7.In view of the above, we set aside the impugnedorder and direct respondent No. 1 to pass a fresh orderorder and direct respondent No. 1 to pass a fresh order 7.In view of the above, we set aside the impugnedorder and direct respondent No. 1 to pass a fresh orderorder and direct respondent No. 1 to pass a fresh order taking into account the aspect of discharge of existingliability of the department in view of statement thatvalue of the goods is much more than the dues of thedepartment. The alleged understanding reached byrespondent No. 2 with the petitioner after the seizureof the articles may also be looked into. It may bemade clear that release of goods will be subject toadjustment of rights of the parties in the pending suit.The order may be passed within two months from thedate of receipt of copy of this order.” 4.It was in compliance to the above reproduced directions that the Commissioner of Income Tax (Central), Ludhiana, has passed theimpugned order dated 11.3.2011 (Annexure P-4) holding that the “entirejewellery belongs to Sh. S.C. Mittal”. The Commissioner has also heldthat the Assessee is liable to levy of interest under Section 220 (2) of theAct and in the absence of any discretion to reduce or waive off thatinterest, the Assessee is liable to pay interest to the tune of ` 82,78,452/-. 5.While the Assessee is aggrieved by the impugned order tothe extent of imposition of interest liability, one of the partners of theAssessee in the connected writ petition impugns the afore-stated order inits entirety. 6.We have heard learned counsel for the parties at some lengthand gone through the record. 7.With our intervention and persuasion, learned counsel for the petitioners in both the writ petitions have fairly agreed that the seizedjewellery which is still lying with the Department may be disposed of bythe Department in association with them and the sale proceeds may bekept in a fixed deposit in a nationalized Bank to fetch the maximum rateof interest and the amount so deposited in the fixed deposit then can bereleased in favour of either of the parties on the basis of the decision inthe Civil Suit pending between the parties in Civil Courts at Ludhiana, inwhich the issue of ownership of the firm is also statedly involved. Bothof them, however, assail the order passed by the Commissioner of IncomeTax (Central), Ludhiana in so far as it imposes the interest liability on theassessee. 8.We find from the impugned order that the Commissioner ofIncome Tax (Central), Ludhiana, has proceeded on the premise thatprovisions of Section 220(2) are mandatory in nature and that there is nopower either with the ITO or the Commissioner to waive off or reduce theamount of interest which becomes due in view of the provisions of sub-Section (2) of S. 220 of the Act. 9.In our considered view, the above given reasoning by theCommissioner of Income Tax (Central), Ludhiana, has apparentlyoverlooked sub-section 2A of Section 220 of the Act which reads asfollows:- “(2A) Notwithstanding anything contained in sub-section (2), the Chief Commissioner orCommissioner may reduce or waive the amount of interest paid or payable by an Assessee underthe said sub-section if he is satisfied that- (i)payment of such amount has caused orwould cause genuine hardship to theAssessee;would cause genuine hardship to theAssessee; (ii)default in the payment of the amount onwhich interest has been paid or waspayable under the said sub-section wasdue to circumstances beyond the controlof the Assessee; andwhich interest has been paid or waspayable under the said sub-section wasdue to circumstances beyond the controlof the Assessee; and (iii)the Assessee has co-operated in anyinquiry relating to the assessment or anyproceeding for the recovery of anyamount due from him.”inquiry relating to the assessment or anyproceeding for the recovery of anyamount due from him.” of interest paid or payable by an Assessee underthe said sub-section if he is satisfied that- (i)payment of such amount has caused orwould cause genuine hardship to theAssessee;would cause genuine hardship to theAssessee; (ii)default in the payment of the amount onwhich interest has been paid or waspayable under the said sub-section wasdue to circumstances beyond the controlof the Assessee; andwhich interest has been paid or waspayable under the said sub-section wasdue to circumstances beyond the controlof the Assessee; and (iii)the Assessee has co-operated in anyinquiry relating to the assessment or anyproceeding for the recovery of anyamount due from him.”inquiry relating to the assessment or anyproceeding for the recovery of anyamount due from him.” 10.It may be seen that sub-section (2A) of Section 220 of theAct opens up with a non obstante clause to say that even if Section 220(2) of the Act is mandatory in nature, yet the Chief Commissioner orCommissioner have the power to reduce or waive the amount of interestpaid or payable by an assessee if there exist the circumstancesenumerated in the provision. 11.Since the existence of circumstances which may justifyreduction or waiving off the interest liability is a question of fact and thisaspect has not been discussed in the impugned order by theCommissioner of Income Tax (Central), Ludhaina, we are of the considered view that the findings to the extent that there is no power withthe ITO or the Commissioner to waive or reduce the interest liability iscontrary to the Statute as sub-section (2A) of Section 220 of the Actwhich came into force w.e.f. 1.10.1984 expressly vests such power withthe Chief Commissioner or Commissioner of Income Tax, though it is adifferent issue that the facts and circumstances of a case may or may notjustify the exercise of such power. 12.Consequently and for the reasons afore-stated, we set asidethe order dated 11.3.2011 (Annexure P-4) passed by the Commissioner ofIncome Tax (Central), Ludhiana and remit the case to the said Authorityfor re-determination within the meaning of Section 220(2) read with sub-section (2A) of the Act. The Commissioner of Income Tax, needless tosay, shall bear the parties and assign reasons within the statutorycontours of sub-section (2A), reproduced above. 13.So far as the disposal of the jewellery as per the agreed termsis concerned, we direct (i) the Commissioner of Income Tax (Central),Ludhiana, shall dispose of the jewellery by way of public auction and/orby following the procedure as may be expressly prescribed under theAct/circulars of the Department; (ii) he shall send an advance notice tothe Assessee and its partners Shri S.C. Mittal and Pawan Kumar Mittal,intimating the date of public auction or any other mode of disposal of thejewellery, in accordance with law; (iii) the partners shall be at liberty tobring a customer, who is willing to pay the higher price than the offerreceived by the Commissioner in the public auction provided that the bidder brought by the partners is willing to deposit the sale price as perthe terms and conditions imposed by the Commissioner of Income Taxuniformly; and (iv) offer of the highest bidder shall be accepted and afterdeducting the undisputed liability to the tune of ` 24,82,663/-, thebalance sale price shall be deposited in the shape of FDR in the name ofCommissioner of Income Tax (Central) Ludhiana, in a nationalized Bankto fetch the maximum interest. bidder brought by the partners is willing to deposit the sale price as perthe terms and conditions imposed by the Commissioner of Income Taxuniformly; and (iv) offer of the highest bidder shall be accepted and afterdeducting the undisputed liability to the tune of ` 24,82,663/-, thebalance sale price shall be deposited in the shape of FDR in the name ofCommissioner of Income Tax (Central) Ludhiana, in a nationalized Bankto fetch the maximum interest. 14.The Commissioner of Income Tax (Central), Ludhiana,meanwhile shall re-determine the interest liability of the Assessee as perdirections issued hereinabove without prejudice to the right of theAssessee or its partners to impugn the interest component liability, if any,levied by the Commissioner/Competent Authority after afreshdetermination. The Commissioner/Competent Authority shall be free toencash the FDR to the extent of such re-assessed liability. However, ifthe Assessee or its partners succeed and the levy of interest is set aside orreduced by a Statutory Forum, the amount shall be released along withinterest to the party, who shall be finally entitled to receive the jewelleryor its value as per the decision of the Civil Court at Ludhiana. TheAssessee or its partners shall also be at liberty to impress upon theCommissioner/Competent Authority that in the facts and circumstancesof the case in hand, no interest is leviable and the said issue too shall bedecided in accordance with law. 15.Since the controversy shall come to an end only after theCivil Court's decides the suit, we also direct the learned trial Court before whom the Civil Suit is pending between the parties to expedite itsdisposal by granting limited opportunities to both the parties to lead theirevidence and make an endeavour to decide the same, as early as possibleand preferrably within one year. 16.Disposed of. Dasti. ( SURYA KANT ) JUDGE March 14, 2013rishu ( R.P. NAGRATH )JUDGE