Delhi H.C : AO rejected the application of petitioner and refused to waive interest under r. 40(1) of IT Rules, 1962 and under r. 117A of IT Rules, 1962 and praying for quashing of these orders

High Court Of Delhi

R.C. Gupta vs. Income Tax Officer

Sections 139(8), 217, Rule 40(v), Rule 117A(v)

Asst. Years 1985-86, 1986-87

T.S. Thakur & Shiv Narayan Dhingra, JJ.

Civil Writ Petn. No. 4149 of 2006

2nd June, 2006

Counsel Appeared

K.R. Manjani, for the Appellant : J.R. Goel, for the Respondent

JUDGMENT

Shiv Narayan Dhingra, J. :

This writ petition has been filed by the petitioner challenging the three orders of the AO all dt. 12th Dec., 2005 whereby AO rejected the application of petitioner and refused to waive interest under r. 40(1) of IT Rules, 1962 and under r. 117A of IT Rules, 1962 and praying for quashing of these orders. Writ petition made a prayer that interest charged for asst. yr. 1985-86 and asst. yr. 198687 be ordered to be waived.

2. The brief facts giving rise to the application made by petitioner for waiving interest are as under : (i) The petitioner was working as cost accountant with a private firm. A search had taken place at the premises of the employer of the petitioner and the premises of the petitioner was also searched on 24th Dec., 1985. FDRs worth Rs. 1,05,000 in the name of wife of petitioner apart from jewellery belonging to his wife were found in search. Department seized FDRs and jewellery. Petitioner negotiated with the Department and agreed to surrender an income of Rs. 70,000 out of the FDRs that were in the name of his wife. He wrote a letter to the Department to the following effect : “You have been very kind to me in giving that assurance and the IAC also that if I surrender Rs. 70,000 on account of investment in FDRs purchased by my wife from her Stridhan, as my income for asst. yrs. 1985-86 and 1986-87, the cases will be completed on the basis of the declared income and no penalty, interest, prosecution, matters will follow. It was also assured that you would be kind enough to accept the valuation of jewellery as belongs to my wife.”

3. In response to this letter the Department also wrote letter which reads as under : “This is in response to your letter No. Nil dt. 10th April, 1987 received on the same date, regarding settlement and waiver of penalty proceedings. Your application for the same has been accepted and you are hereby directed to file return showing your income from salary and income from other sources (undisclosed sources hitherto) at the earliest possible, so that necessary action can be taken at the same time.”

4. The petitioner was initially assessed on his income for asst. yr. 1984-85 at Rs. 12,030 and for asst. yr. 1985-86 at Rs. 17,780, for asst. yr. 1986-87 at Rs. 15,500. However, after the search had taken place, petitioner filed return and assessed (sic–offered) his income for asst. yr. 1985-86 at Rs. 17,780 and for asst. yr. 1986-87 at Rs. 85,500 (adding Rs. 70,000 as agreed by him as per above settlement). The Department however, did not abide by the settlement and assessed the income of petitioner for asst. yr. 1985-86 at Rs. 42,780 and for asst. yr. 1986-87 at Rs. 1,32,370. Petitioner preferred appeal before CIT(A) and then before Tribunal. The appeals were decided in favour of the petitioner and it was held that only income of Rs. 70,000 could be added and this would be spread over two financial years. It was directed that income of Rs. 25,000 be added in the year 1985-86 and Rs. 45,000 in the asst. yr. 1986-87.

5. The petitioner contended that no interest was leviable for the asst. yr. 1985-86 or asst. yr. 1986-87 for late filing of return or non-payment of advance tax as the income of Rs. 70,000 was surrendered/added after the search of his premises despite the fact that FDRs were in the name of his wife. He had agreed to surrender the income of Rs. 70,000 only on the assurance given by the Department/respondent that no penalty would be levied and no interest would be charged. He also submitted that he was caught within the clutches of ss. 217 and 139(8) only due to the settlement and in such cases interest was liable to be waived, under r. 40(v) and r. 117A(v) of IT Rules, 1962 since the petitioner would be deemed to have been prevented from filing advance tax. He submitted that on this account only the petitioner was not levied penalty for non-payment of advance tax and while disposing the appeal the learned Tribunal had specifically observed : ‘The ITO was also entitled to waive interest chargeable under various provisions of IT Act in view of specific rr. 40 and 117A of IT Rules. The question relating to initiation and levy of penalty or dropping the same, is also covered within the scope of powers of the AO. Hence, the acceptance of the offer by the AO was fully within the legislative competence. Neither the assessee nor the AO could retract from the said offer duly accepted by the AO by exchange of abovereferred letter dt. 10th April, 1987.’

6. The counsel for the petitioner submitted that the AO was liable to consider the waiver of interest even without making an application by him in view of the observations of Tribunal. However, interest was not waived by AO and the petitioner made an application for waiving of interest on 25th March, 2004. No action was taken on this application. Petitioner sent repeated reminders and the impugned orders dt. 12th Dec., 2005 were passed which are reproduced as under : “ORDER-I IT Department Name of the assessee : Shri R.C. Gupta Asst. year : 1985-86

Order under r. 40 of the IT Rules, 1962 The assessee filed the application under r. 40 of the IT Rules, 1962 on 5th April, 2004. The assessee filed the return on 16th April, 1987 and paid the tax under s. 140A Rs. 23,450 on 20th April, 1987. Assessed tax under s. 143(3)/254 comes to Rs. 17,450, interest under s. 217 amounting to Rs. 2,609 was charged from 1st April, 1986 to 31st March, 1987. Although the assessment was made under s. 143(3) on 31st March, 1989 after one year from the date of filing the return. As the interest under s. 217 was charged less as per r. 40(1) of the IT Rules, 1962 the application filed under r. 40 of the IT Rules, 1962 is hereby rejected. Dated : 12- 12-2005 (H.C. Pant) ITO Ward 47(2), New Delhi copy to the assessee. ORDER-II IT Department Name of the assessee : Shri R.C. Gupta Asst. year : 1986-87 Order under r. 117A of the IT Rules, 1962 The assessee filed application under r. 117A of the IT Rules, 1962 on 5th April, 2004. The assessee does not fulfil the conditions laid down under r. 117A(i) to (iv) of IT Rules, 1962. The application filed by the assessee for waiver of interest levied under s. 139(8) under r. 117A of IT Rules, 1962 is hereby rejected. Dated : 12-12-2005 (H.C. Pant) ITO Ward 47(2), New Delhi copy to the assessee. ORDER-III IT Department Name of the assessee : Shri R.C. Gupta Asst. year : 1985-86 Order under r. 40 of the IT Rules, 1962 The assessee filed application under r. 40 of the IT Rules, 1962 on 5th April, 2004. The original assessment was made under s. 143(3) on 12th Sept., 1986. The assessee filed the return on 21st April, 1986, assessment made on 12th Sept., 1986 before one year from the date of filing the return. As per r. 40(i) the assessment was made before one year from the date of filing the return. Hence, the application filed by the assessee is rejected. Dated : 12-12-2005 (H. C. Pant) ITO Ward 47(2), New Delhi copy to the assessee.

It is argued by the petitioner’s counsel that the petitioner’s application for waiver was rejected without assigning any reason, much less good and sufficient reason. The grounds given by the petitioner in the written arguments were not at all considered and the respondent in a mechanical manner, rejected the application. The respondent was liable to allow the waiver of interest in view of the letter written by the Department to petitioner at the time of petitioner conditionally agreeing to surrender income of Rs. 70,000 out of the FDRs of his wife. The respondent was bound by the promise made to petitioner and principle of promissory estoppel would apply. It is contended by the Department that the orders passed by AO give sufficient reasons. The interest of Rs. 2,609 only was charged from 1st April, 1986 to 31st March, 1987. Although the assessment was made after one year from the date of filing of return. The interest was charged less as per r. 40(1) and the application was therefore rejected. The case of the appellant was not covered under any of the five sub-rules of r. 40 or 117 of IT Rules. It is submitted by the respondent that this Court should not exercise its power under the writ, since the waiver of interest was discretion given to the respondent. Considering the facts of the case, the respondent had exercised his discretion reasonably and justly.

The orders of the AO, on the face of it, show that the AO has not given any reason for rejecting the application. One order states that the interest was charged less without showing what was the interest which were leviable and how the interest was charged less. The AO has not considered the letter written by the Department assuring the petitioner of non-levying of penalty and interest. All the three orders do not give any reason and simply state that assessee does not fulfil the conditions laid down under r. 117A(i) to (iv) of IT Rules, 1962. We find that AO had not passed reasoned order and had not considered the material before it. A reasoned order would have at least discussed the assurance given by the Department while asking the surrender of income of Rs. 70,000 and would have shown why Department backed out from fulfilling promise of not charging interest made by it. In P.M. Manuel vs. ITO (1997) 137 CTR (Ker) 625 : (1997) 226 ITR 616 (Ker) a Division Bench of Kerala High Court observed as under : “The question that arises is whether the authorities have exercised their power in accordance with the above rules. If the discretion given to the authorities is not exercised properly on the facts of the case, this Court is entitled to interfere under Art. 226 of the Constitution”. A similar question arose before the Supreme Court with respect to non-waiver of interest and penalty in exercising the powers under s. 273A of the Act. In Apex Finance & Leasing Ltd. vs. CIT (1994) 207 ITR 781 (SC) the Supreme Court held as follows (headnote) :

‘The question whether the CIT was justified on the facts and in the circumstances of the case, in refusing to exercise his power under s. 273A of the IT Act, 1961 to waive interest and penalty where the assessee has disclosed income voluntarily in a revised return, is a question to be examined on the merits and the High Court, on a writ petition challenging such a refusal, ought not to dismiss the petition on the ground that the order was not liable to interference in exercise of its extraordinary jurisdiction.’”

13. This Court in Dalmia Dairy Industries vs. Union of India (2002) 174 CTR (Del) 296 : (2002) 255 ITR 476 (Del) observed as under : “Although the CIT is a high dignitary but it is trite that he must exercise his discretion judicially. Discretion cannot be exercised in a whimsical or fanciful manner. The CIT while exercising his jurisdiction under s. 264 of the IT Act exercises a judicial function and assignment of reasons is one of the basic ingredients of natural justice.”

14. In Chaitnya Charan Das vs. State of West Bengal AIR 1995 Cal 336 Calcutta High Court held : “50. The submission of learned counsel appearing on behalf of the respondents to the effect that the Central Government has an unfettered discretion in the matter of grant of pension and thus, these writ applications should not be entertained cannot again be accepted. 51. Discretion as is well known must be exercised by the State in a reasonable manner. 52. In Ramji Dayawala & Sons (P) Ltd vs. Invest Import AIR 1981 SC 2085, the Supreme Court while considering the exercise of discretion by a Court observed : ‘Discretion, said Lord Mansfield in R. vs. Wikes (1770) 98 ER 327, “when applied to a Court of justice, means sound discretion guided by law. It must be governed by rule, not by humour, it must not be arbitrary, vague and fanciful, but legal and regular.” (see Craies on Statute Law, 6th Edn., p. 273).’ 53. In Shri Sitaram Sugar Co. Ltd vs. Union of India AIR 1990 SC 1277 the Supreme Court observed : ‘A repository of power acts ultra vires either when he acts in excess of his power in the narrow sense or when he abuses power by acting in bad faith or for an inadmissible purpose or on irrelevant grounds or without regard to relevant considerations or with gross unreasonableness. The true position, therefore, is that any act of the repository of power, whether legislative or administrative or quasi-judicial, is open to challenge if it is in conflict with the Constitution or the governing Act or the general principles of the law of the land or it is so arbitrary or unreasonable that no fair-minded authority could ever have made it.’”

15. In Gupta Builders (P) Ltd. vs. CIT (1991) 92 CTR (Bom) 44 : (1991) 191 ITR 114 (Bom) Bombay High Court observed as under : “Undoubtedly, the ITO has discretion both under r. 40 and r. 117A to reduce or waive interest under s. 139(8) and/or interest under ss. 215 and 217. However, when the circumstances in which he can exercise discretion are enumerated in the rules, the ITO will not have merely a discretion but a duty to waive or reduce interest in a case that squarely falls within the circumstances enumerated. The discretion may, thus, be limited to whether, in a given case, depending upon several other factors such as the gravity of the default, the loss occasioned to the Revenue, etc., he would like to waive the interest altogether or would reduce it and if so to what extent.

Under these sub-rules, the discretion to exercise the power of waiver or reduction is conditional, in case of interest under s. 139(8) upon whether the assessee produces evidence to his satisfaction that he was prevented by sufficient cause from furnishing the return within time and in the case of interest under s. 217, upon whether the circumstances are such that a reduction or waiver of interest is justified. Thus, the exercise of discretion under rr. 40(5) and 117A(v) is conditional upon the satisfaction of the authority concerned as to the existence of appropriate circumstances. The conclusion whether appropriate circumstances exist or do not exist will ordinarily be a finding of fact. But even a finding of fact can be reviewed by this Court in writ jurisdiction in exceptional circumstances such as where the findings is not supported by any evidence or is perverse or based upon a view of facts which could never be reasonably entertained. However, the High Court cannot reappreciate the evidence itself as an appellate Court or correct the error of fact (not going to jurisdiction) even if apparent on the ground that the evidence on which it was based was not satisfactory or sufficient. In other words, the Court in writ jurisdiction is not to interfere with or reverse the conclusion of the Tribunal, if the conclusion is a possible conclusion. It cannot substitute its decision for that of the Tribunal. It can, of course, interfere only if the conclusion arrived at by the Tribunal is unreasonable not in the sense that the Court considers it to be unreasonable but that it is what the Court considers is a conclusion which no reasonable person could have come to.”

We consider that the orders in question do not state any reasons for non-waiver of the interest. The respondent has not exercised its discretion in a judicious manner and has not considered the facts and circumstances of this case. The respondent has also not considered that the income of Rs. 70,000 was agreed to be surrendered by the petitioner in view of the assurance given by the respondent. The revised returns were filed by the petitioner only after respondent had written a letter to the petitioner accepting his offer. We consider that the respondent ought to have considered all facts and circumstances while considering the application for waiver of the interest. In the result, we allow the writ petition, quash the orders dt. 12th Dec., 2005 impugned in the writ and direct that the respondent shall consider and decide the petitioner’s application for waiver afresh in accordance with law keeping the observations made in the body of this order. No costs.

[Citation : 286 ITR 170]

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