Wp/8198/2004 Of M/S.indian Commerce & Indus v. The Income Tax Settlement

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM: THE HONOURABLE MR.JUSTICE R.MAHADEVAN M/s.Indian Commerce and Industries Company P Limited, Chennai-108Petitioner 1.The Income Tax Settlement Commission Additional Bench, Chennai-35 2.The Deputy Commissioner of Income TaxCompany Circle II(3), Chennai-34 Respondents Prayer:- This Writ Petition is filed to issue a Writ ofCertiorarified Mandamus to call for the records of the 1stRespondent in Settlement Application No.21/1/14/88-IT and quashthe impugned order dated 26.9.2003 made in the miscellaneouspetition and to direct the 1st Respondent to waive the interestof Rs.58,49,221/- charged under Section 220(2) of the Income TaxAct, 1961 exercising its Power under Section 220(2A) of theIncome Tax Act,1961. For Petitioner :Mr.T.N.SeetharamanFor Respondent :Mr.T.Pramod Kumar Chopda, Senior Standing CounselORDER In this Writ Petition, the Petitioner seeks to quashthe impugned order dated 26.9.20013 of the 1st Respondent,rejecting the claim of the Petitioner for waiver of interest,levied under Section 220(2) of the Income Tax Act, 1961. 2. The facts, which are necessary for disposal of thisWrit Petition are follows:- a. The Petitioner, a private limited Company, iscarrying on the business of construction of factory buildings bystructural steel and registered under the Indian CompaniesAct and an assessee under the Income Tax Act, 1961. The https://hcservices.ecourts.gov.in/hcservices/ Petitioner made an application on 28.3.1989 under Section 245C(1) of the Act before the 1st Respondent for settlement of itscase for the assessment year 1986-87 and the 1st Respondent, byorder dated 23.5.1990, directed to proceed with the case andpassed a final order dated 20.10.1993, granting immunity frompenalty and prosecution in respect of the matters covered by thesettlement and charging interest under Section 139(8) for thesaid assessment year. In the mean time, the 2nd Respondentpassed an assessment order dated 30.3.1989 under Section 143(3)of the Act, determined the total income and tax leviable on thePetitioner for the assessment year 1986-87. On receipt of theorder dated 20.10.1993, the 2nd Respondent passed an order dated21.12.1993, giving effect to the order of the 1st Respondent,adopting the total income as determined by the 1st Respondent atRs.1,70,87,900/- and the tax payable was computed atRs.94,20,531/- and as directed by the 1[st] Respondent, interestwas added under Section 215 of the Act, to the tune ofRs.10,59,806/- and thus, the total demand was determined atRs.1,04,80,337. The 2nd Respondent passed another order dated21.12.1993 under Section 220(2) of the Act, charging interest ofRs.58,49,221/- for the period from 1.5.1989 to December 1993 andadjusting a refund of Rs.55,649/-, the balance interest payablewas determined at Rs.57,93,572, without considering thepetitioner's objection dated 16.12.1993. However, the 1stRespondent proceeded to charge interest as stated above. Asagainst the order of the 2nd Respondent, levying interest underSection 220(2), the Petitioner preferred a miscellaneouspetition dated 18.1.1994 before the 1st Respondent for waiver ofinterest, which was rejected by order dated 22.2.1995 for wantof jurisdiction. b. Thereafter, the Petitioner filed a petition on16.3.1995 before the Commissioner of Income Tax under Section264, denying liability to pay interest, which was rejected byorders dated 23.6.1995 and 2.10.1995. Then, the 2nd Respondentissued show cause notices dated 21.10.1995 and 15.11.1995,calling upon the Petitioner to pay the interest. As against thesaid orders of the Commissioner of Income Tax, the Petitionerfiled WP.Nos.16575 and 16576 of 1995, wherein the impugnedorders were set aside by order dated 16.6.2003, stating that the1st Respondent had power to consider the application for waiverof interest and directing him to dispose of the matter.Thereafter, the 1st Respondent, by the impugned order dated26.9.2003, rejected the relief of waiver of interest claimed bythe Petitioner on the ground that none of the conditions forwaiver of interest was satisfied. Hence, this Writ Petition hasbeen filed for the relief as stated above. 3. The learned counsel for the Petitioner contendedthat the 2nd Respondent had already recovered the interestwithout awaiting the outcome of the miscellaneous petition filed https://hcservices.ecourts.gov.in/hcservices/ before the 1st Respondent and that the 1st Respondent did nottake into account the relevant circumstances prevailing at thetime of the relevant assessment year, before rejecting the claimof waiver of interest and that the Respondents erred in holdingthat the Petitioner did not satisfy none of the conditions setout in Section 220(2A) of the Act and prayed for quashing ofthe impugned order. 4. The learned Standing Counsel for the Respondents,by filing a counter affidavit, contended that there was nocooperation on the part of the Petitioner in pursuing the matterand taking into account the conduct of the assessee, thecircumstances of the case and the manner in which the paymentwas delayed and that none of the conditions set out in 220(2A)of the Act was fulfilled by the Petitioner, it was rightlyheld that the assessee did not deserve for waiver of interest,as claimed and hence, prayed for dismissal of this WritPetition. 5. This court heard the learned counsel on either sideand considered their submissions and also perused the materialsplaced on record. 6. According to the Petitioner, the conditionsmentioned in Section 220(2A) of the Act for waiver of interestare fully satisfied and hence, the Petitioner is entitled forwaiver of the entire interest charged under the said Section. Onthe other hand, it is the contention of the Respondents thatnone of the conditions set out in Section 220(A) of the Act wasfulfilled by the Petitioner and hence, the Petitioner shall notbe entitled for waiver of interest. 7. Therefore, the question that arises forconsideration is as to whether the Petitioner fulfilled theconditions of Section 220(2A) of the Income Tax Act, 1961 forwaiver of interest. 8. The conditions of Section 220(2A), based on whichthe claim of the Petitioner for waiver of interest was rejectedby the impugned order, are as follows:- 2A. Notwithstanding anything contained in sub-section(2), the Chief Commissioner or Commissioner mayreduce or waive the amount of interest paid orpayable by an assessee under the said sub-section ifhe is satisfied that; (i)Payment of such amount has caused or wouldcause genuine hardship to the applicant.cause genuine hardship to the applicant. (ii)Default in the payment of the amount on whichinterest has been paid or was payable was due tointerest has been paid or was payable was due to https://hcservices.ecourts.gov.in/hcservices/ circumstances beyond the control of theapplicant; and (iii)the Applicant has co-operated in any inquiryrelating to the assessment or any proceedingleading to recovery and payment. 2A. Notwithstanding anything contained in sub-section(2), the Chief Commissioner or Commissioner mayreduce or waive the amount of interest paid orpayable by an assessee under the said sub-section ifhe is satisfied that; (i)Payment of such amount has caused or wouldcause genuine hardship to the applicant.cause genuine hardship to the applicant. (ii)Default in the payment of the amount on whichinterest has been paid or was payable was due tointerest has been paid or was payable was due to https://hcservices.ecourts.gov.in/hcservices/ circumstances beyond the control of theapplicant; and (iii)the Applicant has co-operated in any inquiryrelating to the assessment or any proceedingleading to recovery and payment. 9. In so far as the condition (i) is concerned, theRespondent filed a chart before the 1st Respondent showing theprofit and loss account for five years (1998-1999 to 2002-2003),which clearly indicated that the net profit of the Petitionerhas come down in these years, thereby pointing out that thepayment of interest would cause hardship to the Petitioner atthe relevant point of time when the relief was sought for.Since the demand of tax and interest of Rs.1,67,77,289/- underSection 220(2) constitutes 98.18% of the total income determinedby the 1st Respondent at Rs.1,70,87,900/-, here also thepayment of interest under Section 220(2) would cause genuinehardship to the Petitioner. Therefore, the view of the 1stRespondent that it would not cause genuine hardship is totallyunjustified on the facts of the case. The mere statement of theRespondents that the petitioner is a wealth-tax assessee is nota relevant circumstance to establish that the payment ofinterest amount would cause genuine hardship to the petitioner. 10. In respect of the condition (ii), there wasdelay in determining the correct income and the Petitioner wasrequired to pay the tax only after the quantification of theincome by the 1st Respondent by its final order under Section245(4) and thus, the default in payment of the tax was beyondthe control of the Petitioner. 11. With regard to condition (iii), it is averred bythe Petitioner in the affidavit that in the order made by the1st Respondent under Section 245D(4) of the Act, it was statedthat “considering the cooperation extended by the applicant, wewould grant immunity from penalty and prosecution in respect ofmatters covered by this settlement.” Hence, the question of non-cooperation on the Petitioner does not arise. 12. It is seen from the above that it cannot be saidthat the Petitioner did not satisfy the said conditions, ascontended by the Respondents. On the other hand, the learnedstanding counsel for the Respondents, except merely saying thatnone of the conditions are fulfilled by the Petitioner, neitherduring the course of the arguments nor in the counter affidavit,is not able to justify the finding that the Petitioner did notsatisfy the conditions set out in Section 220(2A) of the Act, bygiving valid reasons and proper evidence. In other words, thePetitioner met with hardship by such imposition of interest, https://hcservices.ecourts.gov.in/hcservices/ default in payment of tax was beyond the control of thePetitioner and that the Petitioner had cooperated in enquiryrelating to the assessment and the proceedings for recovery oftax. https://hcservices.ecourts.gov.in/hcservices/ default in payment of tax was beyond the control of thePetitioner and that the Petitioner had cooperated in enquiryrelating to the assessment and the proceedings for recovery oftax. 13. In the case on hand, it is apparent that the demandof tax and interest constitutes 98.18% of the total incomearrived at by the 1st Respondent, which is on the higher side.Though the interest is leviable under the provisions of the Act,the assessing officer is required to take note of the bona fidesof the assessee also, that too when the Petitioner made analternative plea of partial waiver of interest. Even during thependency of the settlement application, the Petitioner paid theentire tax and the 2nd Respondent had already recovered theinterest without awaiting the outcome of the miscellaneouspetition filed before the 1st Respondent. 14. In Harbans Kaur v. CWT (1997-224 ITR 418:90 Taxman398), the Honourable Supreme Court has held that if theconditions are satisfied, the Commissioner has the discretion toreduce the amount of penalty or waive the entire penalty. 15. In J.Jayalalitha vs Commissioner Of Income Tax(2000 244 ITR 74 Mad:1999 107 TAXMAN 476 Mad), it has been heldas under:-“In the view I have taken, it is not necessary toconsider various allegations made by the petitionerin the affidavit and reply-affidavit as well as thestatements made by the respondents in the counter-affidavit. However, it must also be mentioned herethat certain new facts are stated in the counter-affidavit filed by the Deputy Commissioner, Central R(2), Chennai, and it is well-settled that the orderimpugned has to be tested on the reasoning stated inthe order and it is not permissible to improve theorder by placing new facts in the counter-affidavit.Further, I am unable to accept the submission of thelearned counsel for the petitioner that this Courtunder article 226 of the Constitution should grantthe relief as prayed for in the applications filed bythe petitioner. In my view, the proper course wouldbe to remit the matter to the Commissioner of Income-tax to reconsider the matter de novo and consider theapplications in accordance with law. 16. In view of the above reasons and discussions andin the light of the decisions cited supra, the impugned order isset aside and the matter is remanded back to the Respondents forfresh consideration. The Respondents are directed to pass ordersafresh, after giving opportunity to the Petitioner, on merits https://hcservices.ecourts.gov.in/hcservices/ and in accordance with law, expeditiously. 17. With the above directions, this Writ Petition isdisposed of. No costs. -s/d- Assistant Registrar(CSIII) True Copy Sub-Assistant RegistrarSrcm To:1.The Income Tax Settlement Commission Additional Bench,488-489, Anna Salai Chennai-352.The Deputy Commissioner of Income TaxCompany Circle II(3), Ayakar Bhavan 121, Uthamar Gandhi Salai,Chennai-34+1 cc to Mr.T.N.Seetharaman, Advocate sr.69534+1 cc to Mr.T.Pramodkumar Chopda, Senior StandingCounsel for Income Tax Department sr.68484WP.No.8198 of 2004BVR(CO)aa15/03/2016