Madras H.C : allowed assessee’s claim in respect of a lease transaction by order dated 27-1-2005 and in order to get consistent finding about lease transaction for assessment year 1995-96, assessee filed revision petition under section 264 in April 2005, cause of action for filing revision against order of assessment for assessment year 1995-96 arose only by virtue of order dated 27-1-2005 and, therefore, delay of few months in filing revision petition ought to have been condoned

High Court Of Madras

Subuthi Finance Ltd. Vs. CIT

Assessment Years 1996-97 To 1998-99

Section : 263

Ms. K.B.K. Vasuki, J.

W.P. Nos. 29083 Of 2007 And 8751 And 8752 Of 2010 And M.P. Nos. 1 And 2 Of 2010

November 18, 2010

JUDGMENT

1. All the three writ petitions are against and arising out of the income-tax assessment orders of the petitioner-company and the attachment of the properties belonging to the petitioner-company for the recovery of the income-tax arrears for the period in question. While W. P. No. 29083 of 2007 is filed against the order of the first respondent/Commissioner of Income-tax, Chennai thereby refusing to condone the delay in filing the revision under section 264 of the Act filed against the assessment order for the assessment year 1995-96, other two writ petitions are filed for lifting the order of attachment of 64,21,765 equity shares held by the petitioner-company in M/s. Indo Wind Energy Limited and for lifting the garnishee order on the income due from TNEB in respect of two windmills owned by the petitioner-company towards the arrears of income-tax due from the petitioner for the assessment years concerned.

2. As the result of W.P. No. 29083 of 2007 is likely to have a bearing on the issue involved in the other two writs, all the three writ petitions are for the purpose of effective and proper adjudication of the issue involved therein, being disposed of by common order.

3. The petitioner is a company involving in the business of leasing and hire-purchase. The petitioner entered into an agreement with Bank of Madura for the purpose of transaction of purchase and lease allowing sublease under the agreement dated September 26, 1994, for a period of five years in respect of 5 furnaces of different types with accessories to the value of Rs. 4 crores stated to be located at M/s. Gujarat Suspension Limited, Baroda. The lease was for Rs. 3,99,50,000. The petitioner has also entered into a sub-lease agreement with M/s. Gujarat Rodrell Engineering Products Limited, Baroda whereby the lessee leased out the same equipment to the latter company for five years. While so, the assessee filed a return of income for the assessment year 1995-96 on November 29, 1995, in which the petitioner has shown the income of Rs. 4,14,77,000 excluding the expenditure of Rs. 20,00,000 and the sub-lease income of Rs. 1,98,00,000 relating to the transaction of lease and sub-lease entered into between M/s. Bank of Madura Limited and M/s. Gujarat Rodrell Engineering Products Private Limited and the same was processed on September 17, 1996. In the meanwhile, the Department carried out investigation into the veracity of the above lease agreement during the assessment of the Bank of Madura Limited and the chairman-cum-managing director of the petitioner-company was also summoned for personal enquiry and he duly attended the same and his statement was recorded on March 16, 1998. Ultimately, the Department treated the lease agreement as mere financial arrangement and consequently, the claim for depreciation of the machinery said to have been leased out was disallowed in the assessment of the Bank of Madura Limited. Consequently, the assessment of the petitioner for the assessment years 1996-97 to 1998-99 were reopened under section 147 on November 10, 2002, and the Assessing Officer has again held the same lease transaction with the Bank of Madura Limited as pure financial arrangement and consequently, disallowed the assessee’s claim for payment of lease entered into with the Bank of Madura Limited as deduction. However, the assessment in respect of the sub-lease rent received by M/s. Gujarat Rodrel Engineering Products Private Limited was not interfered with.

4. The correctness of such assessment for the assessment years 1996-97, 1997-98 and 1998-99 was challenged by the petitioner-company in I.T.A. Nos. 236, 237 and 238 of 2004-05 and the Commissioner (Appeals) has by order January 27, 2005, held that the disallowance of the capital portion of the lease rent paid by the Bank of Madura was confirmed, however, the appellant shall be entitled to deduct the sub-lease rent received against the disallowance of the lease rent paid and the total income was enhanced for all the assessment years by disallowing the interest portion of the lease rent paid. The petitioner-company has filed further appeals before the Appellate Tribunal, however, the petitioner has subsequently withdrawn his appeals filed before the Appellate Tribunal. The petitioner has thereafter come forward with the revision under section 264 in respect of the assessment for the assessment year 1995-96 along with the petition to condone the delay in filing the revision and the petition to condone the delay was dismissed. As against which, the petitioner preferred W.P. No. 29083 of 2007.

5. During the pendency of the proceedings, as referred to above, the petitioner-company has been issued with demand notices for payment of income-tax arrears for the block assessment years from 1993-94 and assessment years 1996-97, 1997-98 and 1998-99 periodically and the last demand notice is dated November 24, 2004, demanding the payment of Rs. 4,60,44,541 under section 226(3) of the Income-tax Act. The third respondent has on the same day, passed a garnishee order in and under which, the third respondent has attached the income from two windmills owned by the petitioner, the maintenance and operation of the same are entrusted with M/s. Indo Wind Energy Ltd. The order of attachment is, according to the petitioner, in addition to the attachment of some of the bank accounts, the details of which are furnished at paragraph 14 of the affidavit filed in support of W.P. No. 8751 of 2010.

6. In pursuance of the attachment order, the income derived from the Tamil Nadu Electricity Board for the supply of energy from the two windmills owned by the petitioner are being adjusted towards arrears of income-tax and while so, the third respondent has also passed another attachment order dated March 31, 2010, thereby attaching 64,21,765 equity shares of the petitioner held in M/s. Indo Wind Energy Ltd. Aggrieved against the same, the petitioner has come forward with W.P. Nos. 8751 and 8752 of 2010.

7. I heard and considered the rival submissions made on both sides and perused the records.

8. In all the three writ petitions the main grievance raised by the petitioner-company is that the petitioner’s endeavour to file a revision petition under section 264 to reopen the assessment for the assessment year 1995-96 is to get consistent finding about the lease transaction with the Bank of Madura and another company at Baroda in consonance with the finding rendered in the assessment for the subsequent years 1996-97 to 1998-99. It is contended by the learned counsel for the petitioner that as the appellate authority has in the appellate orders for the subsequent years relating to 1996-97 to 1998-99, allowed the petitioner’s claim in respect of the lease transaction of the petitioner with the Bank of Madura and another company at Baroda, the assessment order in respect of the assessment year 1995-96 deserves to be interfered with in respect of the same lease transaction and in the event of the same order being passed in respect of assessments for all the assessment years consistently, the same is likely to reduce the taxable income and tax liability of the petitioner to considerable extent and the delay in filing the revision for the assessment year 1995-96 for the said purpose is to be liberally construed and the petitioner ought to be given an opportunity to contest the assessment in respect of the particular year on the merits.

9. It is further contended by the learned counsel for the petitioner that the demand for tax arrears to the tune of Rs. 4 crores is for the block assessment years as well as the assessment years as referred to above and the petitioner has been seriously contesting his tax liability for the block assessment in Income-tax Appeals Nos. 536 of 2005 and 550 of 2008 pending before the High Court Tax Bench and in the event of his claim being accepted in the tax appeals as well as in the revision sought to be filed in respect of the assessment year 1995-96, the same is likely to drastically reduce his tax liability and the amount already paid will be more than what is due from him and the petitioner is likely to get refund of the excess amount paid by the same. The petitioner has also in the writ petitions filed herein and in his various representations addressed to the Tax Recovery Officer and the Commissioner of Income-tax and in the revision petition sought to be filed belatedly explained in detail as to how disallowance made by the Assessing Officer is erroneous and as to how his claim for deduction is legally valid and how he is likely to succeed in his tax appeals and in the revision. Such contention raised on the side of the petitioner will, considering the ground on which the revision is filed for the assessment year 1995-96, deserve merits and acceptance and in order to enable the petitioner to have the benefit, the delay in filing the revision ought to have been, as argued herein, considered more liberally in favour of the petitioner.

10. Regarding the delay on the facts, it is true that the return for the assessment year 1995-96 was made only on November 29, 1995, and the same was processed and the same was communicated to the petitioner on September 17, 1996. According to the petitioner, the cause of action for filing the revision against the order of the Assessing Officer for the assessment year 1995-96 arose only by virtue of the order dated January 27, 2005 made by the Commissioner of Income-tax (Appeals) V in respect of the assessment years 1996-97, 1997-98 and 1998-99. Whereas, according to the revisional authority, the cause of action for filing revision arose on March 31, 1998, the date on which his statement was recorded in the assessment proceedings relating to the Bank of Madura Limited, as such the reason given for the delay, lacks in bona fide and is not supported by sufficient cause and as the petitioner was aware of the fact that the transaction will be held as bogus even on the date of his examination, the revision petition ought to have been filed within one year from March 31, 1998, and not the date on which the appellate authority disposed of the appeal in respect of the assessment years 1996-97 to 1998-99.

11. The discussion held in the impugned order makes it clear that the finding about the lease transaction as financial transactions is reversed by the appellate authority on January 27, 2005, and the revision is filed during April 2005. But the authority did nowhere say that the limitation for filing the revision commences from the date of processing of return relating to the assessment year 1995-96. The point considered in the impugned order is as to whether it is from March 31, 1998, the date on which, the statement of the petitioner was recorded or from January 27, 2005. In my considered view, the date March 31, 1998, cannot at all be taken into account as no knowledge can be attributed to the petitioner-company with regard to the findings likely to be rendered by the authority concerned on the basis of his statement. It is nobody’s case that the assessment order involving the lease transactions and the capital involved in such transaction with M/s. Bank of Madura Limited, is served on the petitioner and the petitioner is only aware of the order much after the same was passed. Equally no knowledge can be attributed to the petitioner with regard to the nature of the order likely to be passed for the subsequent assessment years. The petitioner has categorically stated that he was influenced to file revision only after the final order in respect of the assessment orders for the assessment years 1996-97 to 1998-99 is passed and the definite case of the petitioner is that the cause of action for filing the revision petition arises only on January 27, 2005, the date on which the Commissioner of Income-tax (Appeals) decided finally and the very object and purpose in filing the revision is to avoid inconsistency and to have conformity and regularity with the decision in respect of the same transaction between the same parties.

12. As a matter of fact, the petitioner has also, in order to file revision petition, withdrawn his further appeals preferred by him against the order dated January 27, 2005, before the appellate authority. Such conduct on the part of the petitioner should have been appreciated by the Assessing Officer in a proper perspective and had it been done, the Assessing Officer would have liberally considered the reason for the delay in filing the revision petition. As rightly argued by the learned counsel for the petitioner, the delay ought to have been viewed in the light of the fact that it is filed within few months during April 2005 from the order dated January 27, 2005 and withdrawal of statutory appeal and the delay is to be hence held as not lacking in bona fides. However, the authority concerned has after discussing the merits of the claim, rejected petition on the ground that the reason given for the delay smacks of mala fides. Such course adopted by the authority concerned is totally erroneous and unjustified.

13. The learned counsel for the petitioner has cited the following authorities viz. (i) Shakuntala Devi Jain v. Kuntal Kumari AIR 1969 SC 575, (ii) New India Insurance Co. Ltd. v. Smt. Shanti Misra [1975] 2 SCC 840/[1977] 47 Comp Cas 453 (SC), (iii) N. Balakrishnan v. M. Krishnamurthy [1998] 7 SCC 123 and a Division Bench of our High Court in the judgment reported in Areva T and D India Ltd. v. Joint CIT [2006] 287 ITR 555 (Mad)/[2006] 203 CTR (Mad) 325 in support of his stand as to how the delay petition should be liberally construed.

14. The Hon’ble Supreme Court has in Shakuntala Devi Jain v. Kuntal Kumari AIR 1969 SC 575 held that (page 578) “discretion ought to be exercised upon principles which are well understood ; the words ‘sufficient cause’ receiving a liberal construction so as to advance substantial justice when no negligence nor inaction nor want of bona fides is imputable to the appellant”. Our High Court has also, following the same in its judgment reported in Areva T and D India Ltd. v. Joint CIT [2006] 287 ITR 555, 557 (Mad)/[2006] 203 CTR (Mad) 325 held “the principle of advancing substantial justice is of prime importance”. Our High Court has in other judgment reported in Venkatadri Traders Ltd. v. CIT [2001] 248 ITR 681 /683 (Mad)/[2001] 168 CTR (Mad) 81 expressed the view that “while considering the question of condonation the revisional authority is not to altogether exclude from consideration the merits of the revision petition”.

15. As rightly argued by the learned counsel for the petitioner, had the sufficiency of the reason for the delay been considered in the light of the merits of the petitioner’s claim, the same would have resulted in different finding with regard to delay. As such the impugned order dismissing the delay petition without properly and liberally exercising the discretionary power is liable to be set aside so as to enable the petitioner to get opportunity to contest the revision petition on the merits.

16. It is also note worthy to mention that section 264 of the Income-tax Act, 1961, empowers the Commissioner either on his own motion or on an application made by the assessee to call for the record of any proceedings under the Act and pass such order thereon not being an order prejudicial to the assessee and this power has been conferred upon the Commissioner in order to enable him to give relief to the assessee in cases of over-assessment. The power conferred on him is wider in terms, is the observation of the Division Bench of the Gujarat High Court in the cases reported in Digvijay Cement Co. Ltd. v. CIT [1994] 210 ITR 797 (Guj) and in J.J. Corporation v. CIT [1995] 211 ITR 925 (Guj), wherein it is held that the revisional power is coupled with a duty to exercise it in the interests of justice of the parties and the revisional authority must act according to the rules of reason and justice. The Commissioner though suo motu empowered to exercise his revisional authority, has failed to exercise the same when called upon to do so at the instance of one of the parties, and the failure to condone the delay in my considered view amounts to refusal to exercise the jurisdiction vested upon him.

17. The same Gujarat High Court in the judgment reported in C. Parikh and Co. v. CIT [1980] 122 ITR 610 (Guj.) is of the view that the Commissioner was not right in holding either that it was not open to him to give relief to the assessee on account of the petitioner’s own mistake which it detected after the assessment was completed or that the over assessment did not arise from the order of assessment. Once the petitioner was able to show that there was mistake, the Commissioner was wrong in not giving relief to the petitioner in respect of the over assessment. That being the legal and factual position involved herein, the order of the revisional authority in refusing to condone the delay petition in my opinion, amounts to refusal to give relief to the assessee.

18. As a matter of fact, there was a circular issued by the Board of Direct Taxes No. 14 (XL-35) of 1955, dated April 11, 1955, that officers of the Department must not take advantage of the ignorance of an assessee as to his rights and it is one of their duties to assist the taxpayer in every way particularly in the matter of claiming and securing relief. The circulars are binding on the Department which includes the head of the Department, the Commissioner. The same circular was relied on by the Division Bench of the Kerala High Court in the judgment made in Parekh Brothers v. CIT reported in [1984] 150 ITR 105 wherein, the Kerala High Court after taking into account various aspects, was pleased to direct the Commissioner to restore the revision petition on file and pass appropriate orders after giving to the claimant an opportunity of being heard along with such of those documents which he intends to produce to substantiate his plea. Similar order was passed by the Division Bench of our High Court in the judgments reported in CIT v. K.S.P. Shanmugavel Nadar [1985] 153 ITR 596 (Mad) and Rayala Corporation (P) Ltd. v. CIT [2009] 311 ITR 1 (Mad)/[2009] (23) DTR (Mad) 322.

19. Thus, the Supreme Court and the tax appeal Benches of various High Courts are of the view that the endeavour of the revisional authority shall be to dispose of the case on the merits so as to give relief, if any, to the assessee and not to refuse to extend the relief on the ground of mistake committed by the assessee or on the ground of ignorance of his right. The observations of the hon’ble Supreme Court, Division Bench of our High Court and various High Courts are, in my opinion, applicable to the facts of the present case and the same would compel this court to set aside the order impugned in W.P. No. 29083 of 2007 and to condone the delay with a further direction to the revisional authority to treat the revision petition filed as in time and to dispose of the same on the merits after giving due opportunity to the petitioner-company for being personally heard and to produce any documents to substantiate his claim.

20. Insofar as the prohibitory order dated November 24, 2004, and the garnishee order dated March 31, 2010, are concerned, it is seriously contended by the learned counsel for the petitioner that the order impugned herein rendered the petitioner’ s entire source of income to be closed which in turn rendered himself unable to discharge his statutory liabilities. The petitioner has by way of typed set, produced various records relating to payment so far made and the representation made to stay the recovery proceeding pending disposal of tax appeals and revision for the block assessment years and the assessment year 1995-96, respectively, on the merits. However, the authority concerned has till date not passed any order therein. Such failure on the part of the authority concerned to dispose of the petition to stay recovery of arrears one way or other is also totally erroneous and is contrary to the well laid down legal proposition.

21. Be that as may, as far as the arrears of tax are concerned, tax arrears is according to the Department as on the first attachment order dated November 24, 2004 is Rs. 4,61,44,541 and the same is after giving credit to the payments made by the petitioner reduced to Rs. 2,37,11,000 plus interest payable under section 220(2) of the Income-tax Act and rule 5, as per the latest garnishee order dated March 31, 2010. It is not in dispute that the third respondent has attached the bank accounts and proceeds receivable from TNEB in respect of the two windmills operated by the petitioner-company and the income from TNEB is being adjusted towards tax arrears. The particulars regarding the attachment of bank accounts furnished in paragraph 14 at page 8 of the affidavit filed in support of the petition in W.P. No. 8751 of 2010 are as follows :

22. The learned counsel for the petitioner in the course of argument herein expressed no objection for adjusting the amounts lying in the bank accounts towards tax arrears. The petitioner has also no objection for prohibitory order in respect of income pertaining to the two windmills to be kept in force and to be collected and adjusted by the Department towards the arrears till the finality is reached in the proceedings pending in respect of the block assessment years and the assessment year 1995-96. However, what is appealed by the petitioner before this court is that out of 64,21,765 equity shares which is the subject-matter of the garnishee order dated March 31, 2010 impugned in W.P. No. 8751 of 2010, the number of shares to be sufficient to meet the discharge of tax liabilities may be retained and the garnishee order in respect of the remaining shares may be released to enable the petitioner-company to utilise the same for the purpose of making improvement in the business activities. It is further submitted by the petitioner that as the market value of the shares is approximately Rs. 30 crores, the portion of the same is sufficient enough to discharge the entire disputed liability.

23. Such appeal made by the petitioner is seriously opposed by the respondent by saying that the value of the shares is fluctuating and the same will be only Rs. 20 crores. Whether it is Rs. 30 crores or 20 crores the garnishee order attaching the entire shares owned by the petitioner in the hands of M/s. Indo Wind Energy Ltd. for the recovery of Rs. 2,50,00,000 plus interest as on March 31, 2010 is not justified and reasonable. In my considered view, in order to protect the interest of both parties, the attachment may be kept in force in respect of considerable number not less than 15 lakhs shares in addition to the income from the two windmills and amounts lying in different bank accounts and the same will be more than sufficient to discharge the entire arrears including the disputed quantum and the garnishee order in respect of the remaining shares shall be released and the same will no way prejudice the right of the Department to recover the tax arrears even in the event of the pending proceedings being finally decided against the petitioner.

24. In the result, the impugned order of the first respondent in C. No. 3032/ 1/111/2005-06 dated March 23, 2007 impugned in W.P. No. 29083 of 2007 is set aside and the revision filed by the petitioner under section 264 for the assessment year 1995-96 is directed to be taken up on file and to be disposed of on the merits, after giving due opportunity to the petitioner for being personally heard and for producing records if any to substantiate its claim, within 4 months from the date of receipt of the copy of this order. In so far as the garnishee order dated March 31, 2010 which is impugned in W.P. No. 8751 of 2010 is concerned, the same is confirmed in respect of 15 lakhs shares and is set aside in respect of the remaining shares out of 64,21,765 and in respect of 15 lakhs shares are concerned, the right of alienation by the Department is as per the provisions of law after giving due opportunity and notice to the petitioner-company. In so far as the prohibitory order dated November 24, 2004 which is impugned in W.P. No. 8752 of 2010 is concerned, the same is held to be valid till the finality is reached in the proceedings pending in respect of assessment years pending before the authority concerned.

25. All the three writ petitions are accordingly ordered. No costs. Consequently, connected miscelllaneous petitions are closed.

[Citation : 334 ITR 90]