Wp(C)/25146/2010 Of Deliza Residency v. Chief Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR FRIDAY, THE 19TH DAY OF DECEMBER 2014/28TH AGRAHAYANA, 1936 WP(C).No. 25146 of 2010 (P) ---------------------------- PETITIONER(S):--------------- M/S.DELIZA RESIDENCY, HOTEL NEW CASTLE, OTTUPARA WADAKKANCHERRY-REP. BY ITS MANAGING PARTNER SHRI.P.D.ANTO. BY ADVS.SRI.T.M.SREEDHARAN SMT.C.K.SHERIN SRI.V.P.NARAYANAN RESPONDENT(S): -------------- 1. THE CHIEF COMMISSIONER OF INCOME TAX, C.R.BUILDING, I.S.PRESS ROAD, KOCHI-18. 2. THE INCOME TAX OFFICER, WARD 2 (1), THRISSUR. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON19-12-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C).No. 25146 of 2010 (P) APPENDIX PETITIONER'S EXHIBITS: EXT.P1: TRUE COPY OF THE ASSESSMENT ORDER DATED 07.12.2007 PASSED BYTHE ASSESSING OFFICER EXT.P2: TRUE COPY OF THE REVISED ORDER DATED 14.05.2009 PASSED BY THEASSESSING OFFICER EXT.P3: TRUE COPY OF THE APPLICATION DATED 24.11.2009 FOR WAIVER OFINTEREST SUBMITTED BEFORE THE 1ST RESPONDENT EXT.P4: TRUE COPY OF THE JUDGMENT DATED 10.2.2010 IN W.P.(C).NO.4312/2010 PASSED BY THIS HON'BLE COURT EXT.P5: TRUE COPY OF THE ORDER DATED 17.5.2010 U/S 119(2)(a) OF THEACT PASSED BY THE FIRST RESPONDENT RESPONDENTS' EXHIBITS:NIL //TRUE COPY// P A TO JUDGE A.K.JAYASANKARAN NAMBIAR, J. .............................................................W.P.(C).No.25146 of 2010.............................................................Dated this the 19[th] day of December, 2014 J U D G M E N T The petitioner is a partnership firm doing business in runninga bar attached hotel at Wadakkancherry, Thrissur district. Duringthe previous year relevant to the assessment year 2005-2006, thepetitioner had completed the construction of a hotel building. Inthe returns filed for the assessment year 2005-2006, however, thepetitioner declared that he had no taxable income. Pursuant to theintimation that was given to him under the Income Tax Act therespondent authorities issued a notice under Section 148 of theIncome Tax Act and re-opened the assessment. In the re-assessment proceedings, the Income Tax Officer made an additionof Rs.96,12,500/- towards income from other sources andcompleted the assessment accordingly. The additions made by theIncome Tax Officer represented the difference between thedeclared cost of construction of the hotel building as per thepetitioners books of accounts and the cost of constructionestimated by the Departmental Valuation Officer. Ext.P1 is theassessment order that was passed against the petitioner. The petitioner carried the matter in appeals under the Income Tax Actand the said appellate proceedings culminated in the dismissal ofthe appeal filed by the petitioner before this Court vide ITA.No.11of 2010. In the appeal preferred by the petitioner, the additionsmade by the Income Tax Officer were considerably reduced and, asagainst the amount of Rs.96,12,500/- added by the Income TaxOfficer, the additions sustained on the petitioner pursuant to theappeal was only in an amount of Rs.39,72,961/-. On the reducedamount, interest under Section 234A, 234B and 220(2) of theIncome Tax Act were also levied. The petitioner thereafterpreferred applications before the 1[st] respondent for waiver of theinterest under the aforementioned provisions. The 1[st] respondentby Ext.P5 order dismissed the petitions preferred by the petitioner.In the writ petition, Ext.P5 order of the 1[st] respondent is impugned,inter alia, on the ground that it does not consider the genuinehardship that was faced by the petitioner in estimating the cost ofinvestment for the purposes of declaration of his income in thereturns filed by him, and for payment of advance tax. 2. A statement has been filed on behalf of the respondentswherein Ext.P5 order is sought to be justified on the findingstherein. It is, in particular, pointed out that as against theadditions made by the Income Tax Officer in re-assessment proceedings, the additions ultimately sustained against thepetitioner, pursuant to the appeal preferred by him against theassessment order, was substantially lower than what was originallyestimated. It is pointed out that the petitioner therefore, obtainedsubstantial advantage through the reduction of the amounts soestimated. As regards the contentions of the petitioner with regardto waiver of the interest, it is pointed out that the interest beingstatutory in nature, and intended to compensate the revenue forthe withholding of tax that was due to it, could not be waived at themere request of the petitioner. 3. I have heard Sri.V.P.Narayanan, the learned counsel forthe petitioner and Sri.Jose Joseph learned Standing counsel for theIncome Tax Department. 4. On a consideration of the facts and circumstances of thecase as also the submissions made across the Bar, I find that inExt.P5 order, the 1[st] respondent, while considering the case of thepetitioner for waiver, finds as follows with regard to the interestlevied under section 234 A & B : “4. A survey u/s.133A was carried out in thiscase on 07-12-2005. It was found by theAssessing Officer that a hotel building was constructed and the business of the hotelcommenced during the previous year relevant tothe A.Y.2005-06. The investment in hotel buildingdisclosed in the books of accounts was foundprima facie far below the actual cost ofconstruction and that no income tax return wasfiled for the assessment year. Having formed abelief that income has escaped assessment withinthe meaning of section 147 of the Act, noticeu/s.148 was issued by the Assessing Officer on10-04-2006. The assessee filed a return inresponse to notice u/s.148 on 22-09-2006declaring nil total income. The hotel building wasreferred for valuation and the assessment wasmade on 07-12-2007 determining the totalincome at Rs.96,12,560/- which was modified inappellate proceedings to Rs.39,72,960/- and thesame has become final. As such it is undisputedthat the assessee had derived total income ofRs.39,72,960/- for the A.Y. 2005-06 and tax on thetotal income was not paid as advance tax before31-03-2005 and that no return was filedvoluntarily before the due date for filing thereturn i.e. 31-07-2005. It is also an undisputedfact that no income was declared even in thereturn filed in response to notice u/s.148 on 22-09--2006 even though the total income ofRs.39,72,960/- was determined by the Tribunalwhich is the highest fact finding authority. Hencethe assessee is liable to pay the tax on totalincome earned for the year in advance before 31-3-2005 and to file the return declaring such totalincome on or before 31-7-2005. Levy of interestu/s.234B is held to be compensatory in nature bythe judgment of Apex Court in CIT Vs. Pranoy Roy(2009) 309 ITR 231. Same view was expressedby various High Courts including the Hon'bleBombay High Court in CIT Vs. Kotak MahindraFinance Ltd 265 ITR 119, which held as follows(page 124) : “It is well settled that interest u/s.234B iscompensatory in character. It is not penal innature.............It is for this reason that section234B does not envisage grant of hearing in so far as levy of interest is concerned. The levy isautomatic on it being proved that the assesseehas committed a default as governed by section234B.” In this case interest charged u/s.234B is only byway of compensation to the Exchequer for beingdeprived of the payment of advance tax, to whichit was legitimately entitled. There are noenabling provisions to reduce the interest leviedon the basis of tax on total income determined inregular assessment. “It is well settled that interest u/s.234B iscompensatory in character. It is not penal innature.............It is for this reason that section234B does not envisage grant of hearing in so far as levy of interest is concerned. The levy isautomatic on it being proved that the assesseehas committed a default as governed by section234B.” In this case interest charged u/s.234B is only byway of compensation to the Exchequer for beingdeprived of the payment of advance tax, to whichit was legitimately entitled. There are noenabling provisions to reduce the interest leviedon the basis of tax on total income determined inregular assessment. 5. As regards waiver of interest sought for underBoard's order u/s.119(2)(a) in F.No.400/29/2002-IT(B) dated 26-06-2006, it is to be pointed outthat waiver of interest u/s.234A and u/s.234B canonly be considered by the Chief CIT in respect ofcertain classes of cases or classes of incomespecified in the second paragraph of the saidorder. It is claimed by the assessee that its casecomes under clause (d) of paragraph (2) of theBoard's order. The classes of case specified inthe aforesaid clause are the cases where a returnof income could not be filed due to unavoidablecircumstances and such return of income wasfiled voluntarily by the assessee or his legal heirswithout detection by the assessing officer. In thiscase the assessing officer has found during thecourse of survey on 07-12-2005 that incomechargeable to tax for the A.Y.2005-06 hadescaped assessment for the reason of non-filingthe return and disclosing the income and, assuch, notice u/s.148 was issued on 10-04-2006.Return of income filed on 22-09-2006 was inresponse to notice u/s.148. No income wasdeclared in the said return and no tax was paid.The assessee has not explained successfully theunavoidable circumstances for non-filing thereturn voluntarily despite the fact that totalincome of Rs.39,72,960/- was finally determinedby the ITAT for the year. Since none of theconditions laid down in clause(d) of para 2 of theorder is fulfilled in this case, the petition forwaiver of interest u/s.234A fails. 6. In regard to reduction of interest u/s.234B,it is already held that there is no provision forsuch reduction as the levy is compensatory.Waiver of interest u/s.234B is governed by clause(b) and (c) of paragraph (2) of above said Board'sorder u/s.119(2)(a) of the I.T. Act. The incomeassessed in the assessee's case does not comeunder any of the class or classes of incomespecified in the aforesaid clauses. It is also a factthat there was no claim in the petition that theclauses (b) and (c) of paragraph 2 are applicableto the assessee for waiver of interest u/s.234B.The one and only contention is that the case iscovered by clause (d). It is noticed in this contextthat by virtue of paragraph (3) of the above saidBoard's order, waiver of interest u/s.234B cannotbe considered under circumstances mentioned inclause (d) of paragraph (2). Hence, the petitionfor waiver of interest u/s.234B fails.”para 4,5,6 It is seen therefore, that while considering the case of thepetitioner for waiver of the interest, the 1[st] respondent took note ofthe fact that the petitioner had not fully declared the taxableincome while furnishing its returns, initially as well as pursuant tothe notice issued under Section 148 of the Income Tax Act. Nodoubt, the petitioner would contend that, at the time of payment ofadvance tax, it had relied only on its books of accounts to arrive atthe cost of construction of the hotel building and that it had paidadvance tax by taking into account the cost of the said investmentas reflected in its books of accounts. I am, however, not impressedwith the said contention of the petitioner. When the additions, to It is seen therefore, that while considering the case of thepetitioner for waiver of the interest, the 1[st] respondent took note ofthe fact that the petitioner had not fully declared the taxableincome while furnishing its returns, initially as well as pursuant tothe notice issued under Section 148 of the Income Tax Act. Nodoubt, the petitioner would contend that, at the time of payment ofadvance tax, it had relied only on its books of accounts to arrive atthe cost of construction of the hotel building and that it had paidadvance tax by taking into account the cost of the said investmentas reflected in its books of accounts. I am, however, not impressedwith the said contention of the petitioner. When the additions, to the income disclosed by the petitioners in its returns, have beensustained to a particular extent by the appellate forum under theAct, then the finality of the assessment indicates that the amountsustained against the petitioner is the income on which he ought tohave been paid tax at the very outset. The levy of interest iscompensatory in nature and it is meant to compensate thedepartment for the delay in getting the tax that was due to it. Theconduct of the petitioner in the instant case does not call for anylenient view in the matter of levy of interest. I am convinced thatthe 1[st] respondent, while passing Ext.P5 order, has taken intoaccount the relevant criteria prescribed in the Board orders issuedon the subject, and has correctly applied the yardstick fordetermining whether the petitioner was entitled for a waiver of theinterest. In that view of the matter, I am not inclined to interferewith Ext.P5 order passed by the 1[st] respondent. The writ petitionfails and is accordingly dismissed. A.K.JAYASANKARAN NAMBIAR JUDGE mns