Wp/26336/2001 Of M/S. Raasi Cement Limited, A Public Limited Company v. The Director General Of Income Tax(Investigation)

THE HON’BLE SRI JUSTICE BILAL NAZKI AND THE HON’BLE SRI JUSTICE S.ANANDA REDDY WRIT PETITION No.26336 OF 2001 Date: 24-01-2006 Between: M/s. Raasi Cement Limited, A Public Limited Company, Incorporated under the provisions of Companies Act, 1956, having its Registered Office at 5[th] Floor, Minerva House, Seconderabad,Rep.by its authorized representative, Mr. M.S. Trivikrama Rao. … Petitioner. And The Director General of Income Tax (Investigation), Aayakar Bhavan,Hyderabad and another. … Respondents THE HON’BLE SRI JUSTICE BILAL NAZKI AND THE HON’BLE SRI JUSTICE S.ANANDA REDDY WRIT PETITION No.26336 OF 2001 ORDER :(Per Hon’ble Sri Justice S.Ananda Reddy) This writ petition is filed praying for the issue of Writ of Certiorari quashing theorder dated 12-12-2001 in F.No.DGIT(INV)/IX(9)/WAIVER/REDUCTION/01-02,passed by the Director General of Income Tax, first respondent herein, as the sameis illegal and unsustainable and for a consequential direction to the first respondentto waive the interest levied under the provisions of Section 234B and 234C of theIncome Tax Act, 1961 (hereafter referred to as ‘the Act’) for the assessment years The petitioner is a company registered under the provisions of the Companies Act,1956, carrying on the business in the manufacture and sale of cement. For theassessment year in question, the petitioner company filed its return of incomedisclosing ‘nil’ income, though as per the Profit and Loss Account prepared underthe provisions of the Companies Act, the petitioner company earned a profit ofRs.43,06,12,514/- and the same was adjusted against the brought forward loss onaccount of unadjusted depreciation and investment allowance of the earlier years.Subsequently, the petitioner filed a revised return of income on 31-3-1998,disclosing the taxable income of Rs.5,00,88,035/-. Finally, the assessment wasmade on 31-3-1999 under Section 143(3) of the Act, determining the taxable income of the petitioner/assessee at Rs.27,72,76,111/-. Whilecompleting the assessment, the Assessing Officer disallowed certain of the claimsmade by the assessee. The said assessment order was the subject matter of anappeal before the Commissioner of Appeals, who gave partial relief and the saidappellate order was given effect to by the Assessing Officer revising the assessmenton 7-3-2001, determining the taxable income at Rs.17,94,62,820/-. As the assesseefailed to pay the advance tax, as contemplated under the provisions of the Act, theAssessing Officer levied interest both under the provisions of Section 234B and234C of the Act. Aggrieved by the said levy of interest under the above twoprovisions of the Act, the assessee made an application to the first respondent underSection 119 of the Act, seeking waiver/reduction of the said interest levied by theAssessing Officer. The first respondent heard the petitioner and also considering thewritten representation made before him, passed orders rejecting the claim ofwaiver/reduction of interest observing that the case of the petitioner would not comeunder any of the clauses of the Circular order dated 23-5-1996 issued under Section 119 (2)(a) of the Act by the Central Board of Direct Taxes(CBDT). Aggrieved by thesame, the petitioner has come up with the present writ petition. Learned counsel for the petitioner Sri S.Ravi contended that the first respondent hascommitted a grave error in not appreciating the contentions advanced on behalf of the petitioner. According to the learned counsel, the increased taxableincome was as a result of the 119 (2)(a) of the Act by the Central Board of Direct Taxes(CBDT). Aggrieved by thesame, the petitioner has come up with the present writ petition. Learned counsel for the petitioner Sri S.Ravi contended that the first respondent hascommitted a grave error in not appreciating the contentions advanced on behalf of the petitioner. According to the learned counsel, the increased taxableincome was as a result of the dis-allowances made due to change of law in respect of certain of the issues, whichare the subject matter of the earlier assessment years. As a result of the dis-allowances for the earlier years, the claim of the un-observed depreciation as wellas the investment allowance was reduced and consequently the taxable income hadgone up, which the petitioner did not anticipate. The learned counsel alsocontended that admittedly the assessments, for the assessment year 1991 onwards,were pending by the time the return for the assessment year in question was filed.Therefore, there was no occasion for the petitioner/assessee to estimate theprobable income correctly and pay the advance tax, and therefore, the petitioner’scase is squarely covered by the Circular order issued by the CBDT, which wasintended to benefit the assessees like the petitioner. But however, the firstrespondent failed to appreciate the contentions advanced by the petitioner. Thelearned counsel further contended that one of the issues related to the powersubsidy, which was treated as capital receipt till the matter was decided by thejurisdictional High Court, which was later confirmed by the Apex Court, and it is onlythereafter the power subsidy was treated as revenue receipt, which had resulted inincrease in the taxable income of the assessee, which the assessee was unable tocontemplate. Similarly, with reference to certain of the interest paid or payable to thefinancial institutions, which is allowable in terms of Section 43B of the Act and theexpenses of the prior period were also dis-allowed, which had resulted in increasein the total taxable income. Therefore, the first respondent ought to have taken intoaccount all these aspects and if taken into account, there are justifiablecircumstances under which the petitioner was unable to estimate correctly theincome as well as the tax payable, and accordingly, failed to pay the advance tax, therefore, the impugned order is liable to be quashed. The learned counsel furthercontended that though detailed written arguments have been presented before thefirst respondent, the first respondent failed to consider the same, therefore, theimpugned order is liable to be quashed. therefore, the impugned order is liable to be quashed. The learned counsel furthercontended that though detailed written arguments have been presented before thefirst respondent, the first respondent failed to consider the same, therefore, theimpugned order is liable to be quashed. The learned senior standing counsel for the Department, on the other hand,supported the impugned order. It is contended by the learned counsel that theadditions which had resulted in the assessment of the assessee are simple claimsmade by the assessee, which were dis-allowed either for want of material tosubstantiate its claim or the expenses claimed, which are not allowable. TheCircular does not contemplate waiver/reduction of interest in the cases of this nature.The learned counsel also contended that the Circular is intended to benefit thoseassessees, who in fact, were unable to anticipate either as to the receipt of certainincome during the relevant period when the amount of advance tax payable was dueor in the cases of a change of law, which as per the earlier settled position, theassessee was not obligated to pay any advance tax in respect of a particular item ofincome. In the present case, neither of the situations were present and in theabsence of such situations, the Circular issued by the Board, exercising the powerunder Section 119 of the Act, is not intended to benefit any of the assessees. Thefirst respondent, having found that no such circumstances were present in thepetitioner’s case, has rightly rejected the application filed for waiver/reduction of theinterest. The first respondent has considered the claim elaborately in the light of thespecific clauses of the Circular and rejected the same, as the petitioner failed to fulfilany of the requirements to seek waiver/reduction of the interest. Therefore, thelearned counsel sought to dismiss the writ petition. In support of his contention, the learned counsel relied upon a decision of the ApexCourt in Novopan India Ltd. v. Collector of Central Excise and Customs,Hyderabad where the Apex Court, while interpreting the notifications issuedgranting the exemption, held— “Exemption being in the nature of exception to be construed strictly at thestage of determination whether assessee falls within its terms or not and incase of doubt or ambiguity, benefit of it must go to the State – But once theprovision is found applicable to him, full effect must be given to it.” Relying upon the above observations, the learned counsel contended that theCircular being an exception for waiving the liability to pay interest, it should bestrictly construed, and in fact, it was so construed by the first respondent andaccordingly denied the benefit of waiver/reduction, therefore, the same does notwarrant any interference by this Court. Heard both sides and considered the material on record. “Exemption being in the nature of exception to be construed strictly at thestage of determination whether assessee falls within its terms or not and incase of doubt or ambiguity, benefit of it must go to the State – But once theprovision is found applicable to him, full effect must be given to it.” Relying upon the above observations, the learned counsel contended that theCircular being an exception for waiving the liability to pay interest, it should bestrictly construed, and in fact, it was so construed by the first respondent andaccordingly denied the benefit of waiver/reduction, therefore, the same does notwarrant any interference by this Court. Heard both sides and considered the material on record. The issue to be considered in this writ petition is whether the order of the firstrespondent refusing to grant the benefit of waiver/reduction of interest is just andproper. It is not in dispute that the assessee originally filed its returns declaring ‘nil’taxable income. Later, may be after one year, filed its revised returns offering ataxable income of about Rs.5-00 Crores. But however, the assessment resulted inthe final determination of a taxable income of the assessee at Rs.17,94,62,820/-after giving the benefit of the relief granted by the appellate authority. Admittedly, thepetitioner did not pay the tax payable on the said income by way of advance tax,which would result in certain penal consequences as provided under Section 234Band 234C of the Act, and accordingly the interest contemplated under the above twoprovisions of the Act was levied. Therefore, the petitioner filed a petition forwaiver/reduction of the interest claiming the benefit of the Circular issued by theCBDT (at page 106 of the paper book), exercising its powers under Section 119 ofthe Act. A perusal of the above Circular shows that the Chief Commissioners or theDirector Generals are empowered to consider the applications for waiver/reductionof interest under certain specified circumstances provided therein and may considerfor waiver/reduction of interest, if the authorities referred to above are satisfied that itis a fit case for waiver/reduction of the interest. Now the petitioner in the present case claims that it is a fit case for waiver/reductionof interest, but the first respondent failed to exercise its jurisdiction for waiving thesame. In order to appreciate the contention, it is proper to refer to the relevant part ofthe Circular issued. Para-2 of the Circular provides for waiver/reduction of interest under fivespecified circumstances enumerated under clauses (a) to (e). Under clause (a), thespecified circumstance is a case of search and seizure under Section 132 of the Act,where the Books of Account and other incriminating documents have been seizedas a result of which the assessee was unable to furnish the return for the previousyear during which the action under Section 132 of the Act has taken place. Underclause (b) where the assessee failed to pay the instalments as a result of the samesearch and seizure of cash. Similarly, under clause (e), in a case where the return ofincome could not be filed by the assessee due to unavoidable circumstances, butfiled the said return voluntarily either by the assessee or by his legal heirs withoutdetection by the Assessing Officer. Admittedly, the above three situations are not present in the petitioner’s case.Therefore, they are not applicable to the present case. The other two clauses areclause (c) and (d) and it would be appropriate to extract the above two clauses. Admittedly, the above three situations are not present in the petitioner’s case.Therefore, they are not applicable to the present case. The other two clauses areclause (c) and (d) and it would be appropriate to extract the above two clauses. (c) Any income chargeable to income-tax under head of income, other than“Capital gains” is received or accrued after due date of payment of the first orsubsequent instalments of advance tax which has neither anticipated norwas in the contemplation of the assessee and the advance tax on suchincome is paid in the remaining instalment or instalments and the ChiefCommissioner or Director General is satisfied on the facts andcircumstances of the case that this is a fit case for reduction or waiver ofinterest chargeable under section 234C of the Income-tax Act. (d) Whether any income which was not chargeable to income-tax on thebasis of any order passed in the case of an assessee by the High Courtwithin whose jurisdiction he is assessable to income-tax, and as a result, hedid not pay income-tax in relation to such income in any previous year andsubsequently, in consequence of any retrospective amendment of law or asthe case may be, the decision of Supreme Court in his own case, whichevent has taken place after the end of any such previous year, in anyassessment or re-assessment proceedings, the advance tax paid by the assessee during the financial year immediately preceding the relevantassessment year is found to be less than the amount of advance taxpayable to interest under section 234B or section 234C and the ChiefCommissioner or Director General is satisfied that this is a fit case forreduction or waiver of such interest. A perusal of clause (c) shows that this clause applies where any income chargeableto tax under the head of income other than ‘Capital gains’ is received or accruedafter due date of payment of the first or subsequent instalments of advance tax whichhas neither anticipated nor was in the contemplation of the assessee, as a result ofwhich the advance tax on such income was not paid in the instalments due prior tothe date of the receipt of such income, but advance tax on such income is paid in theremaining instalment or instalments. While clause (d) deals with the case where anyincome which is not chargeable to income tax on the basis of an order in theassessee’s own case by the jurisdictional High Court as a result of which he did notpay any income tax in relation to such income in any previous year, but however,subsequently in consequence of any retrospective amendment of law or as the casemay be, the decision of the Supreme Court in his own case which event has takenplace after the end of such previous year, which had resulted in the short-fall of theadvance tax payable and in such cases, the interest payable under Section 234Band 234C can be waived/reduced if the authorities competent are satisfied. If we examine the case of the petitioner, his case is not that the assessee receivedany income which was not anticipated or in the contemplation. When such is thesituation, clause (c) has no application. Similarly, with reference to clause (d),though a faint argument was advanced at the time of hearing that the power subsidyreceived by the assessee was treated as ‘capital receipt’ prior to the decision of thejurisdictional High Court in Sahney Steel & Press Works Ltd. v. C.I.T. which wasupheld by the Apex Court, and subsequently the same was treated as revenuereceipt. But a perusal of the material on record including the affidavit where the dis-allowed items are specified by the assessee itself in para-6, does not contain theitem of power subsidy, which was treated as revenue receipt by way of dis-allowance. In fact, this issue was not at all raised before the first respondent whileconsidering the waiver application. What was raised and considered by the first respondent was that the assessments for the earlier years were not completed, as aresult of the completion of the assessments for the earlier years, the un-observeddepreciation and investment allowances have got reduced which had resulted inincrease in the taxable income for the assessment year in question. The firstrespondent has considered this contention and rejected on the ground that thissituation is not covered by any of the clauses of the Circular issued by the CBDT.Therefore, it is not open to the petitioner to advance an argument, which it did notraise before the first respondent, even assuming such an issue was available. Themajor cause for the increase in the taxable income was dis-allowance ofinadmissible expenses claimed for deduction by the assessee. If such claims weremade, which were dis-allowed, as a result of which the taxable income hadincreased, the assessee is liable for the consequential penal action. In fact, theinterest collected by the Department, as contemplated, is only in the nature ofcompensatory for withholding the amount, which the petitioner was liable to pay tothe Department during the financial year relevant to the assessment year 1996-97. Infact, at the time of hearing, the learned counsel has fairly conceded that the itemswith reference to which the petitioner sought for waiver/reduction is not directlycovered by the Circular, but however, the learned counsel sought to extend orexpand the Circular so as to cover the cases where the taxable income had gone upas a result of dis-allowances of the claims. When the beneficial Circular does notcontemplate that such assessees are entitled to any benefit of waiver/reduction of the interest payable under Section 234B and 234C ofthe Act, there are absolutely no justifiable circumstances either to extend or expandthe scope of the Circular so as to cover such assessees. As observed by the ApexCourt, the beneficial Circulars, which are in the nature of exceptions, conferring thebenefit, have to be construed strictly. If such strict construction is applied to theCircular in question, the case of the petitioner would not at all come within thepurview of the Circular relied upon by the petitioner. Under the above circumstances, we do not find any illegality or irregularity in theorder passed by the first respondent rejecting the claim of waiver/reduction of the The writ petition is devoid of merit and the same is accordingly dismissed. No costs. (BILAL NAZKI, J) Date: 24-01-2006. Msr. __________________ ______________________ (S.ANANDA REDDY, J) THE HON’BLE SRI JUSTICE BILAL NAZKI AND THE HON’BLE SRI JUSTICE S.ANANDA REDDY WRIT PETITION No.26336 OF 2001 (Prepared by Hon’ble Sri Justice S.Ananda Reddy) Dt: 24-01-2006 (Msr)