Madras H.C : the petitioner filed applications for waiver of interest under r. 5 of the II Schedule to the Act levied by the TRO for the asst. yrs. 1987-88 to 1992-93.

High Court Of Madras

J. Jayalalitha vs. CIT & Ors.

Sections 220(2), 220(2A)

Asst. Year 1987-88, 1988-89, 1989-90, 1990-91, 1991-92, 1992-93

N.V. Balasubramanian, J.

Writ Petn. Nos. 17286 to 17291 of 1997

30th September, 1999

Counsel Appeared

V. Ramachandran for Anitha Sumanth & G. Ashokapathy, for the Petitioner : C.V. Rajan, for the Respondents

ORDER

N.V. BALASUBRAMANIAN, J. :

The above writ petitions have been filed to quash the order in C. No. 1747/1/97-98/C-II, dt. 15th Oct., 1997 passed by the CIT, Central II, Chennai-34, by which the petitions filed by the writ petitioner under s. 220(2A) of the IT Act, 1961 (hereinafter to be referred to as ‘the Act’) for waiver of interest levied under s. 220(2) of the Act as well as under r. 5 of the II Schedule to the Act for the asst. yrs. 1987-88 to 1992-93 were rejected.

2. The facts leading to the filing of the writ petitions are that the petitioner filed applications for waiver of interest under r. 5 of the II Schedule to the Act levied by the TRO for the asst. yrs. 1987-88 to 1992-93. The Asstt. CIT, Central Circle II(2), Chennai, also levied interest by a separate order dt. 20th Feb., 1997 under s. 220(2) of the Act for the said assessment years, and the petitioner also filed separate applications under s. 220(2A) of the Act for various years mentioned earlier and the circumstances leading to the levy of interest for various assessment years are as under : The petitioner is an assessee on the file of the Dy. CIT, Special Range-II, Chennai-34. For the asst. yrs. 1987-88 to 1992-93, the petitioner filed returns of income declaring the income derived by her. The assessments were completed by the Asstt. CIT/Dy. CIT on various dates determining the income and the particulars regarding the years of assessment, dates of completion of assessments and the income assessed are as under : The petitioner preferred appeals against the aforesaid orders of assessment before the CIT(A) and the appeals were rejected by the CIT(A). The petitioner thereafter preferred appeals against the orders of the CIT(A) before the Income-tax Appellate Tribunal (hereinafter to be referred to as “the Tribunal”), and it is stated that the appeals are still pending on the file of the Tribunal.

3. Apart from the tax levied in the orders of assessment made for the above-said assessment years, the Dy. CIT also levied interest under s. 139(8) and s. 217 of the Act in respect of the asst. yrs. 1987-88 and 1988-89, and the details of the tax assessed and the interest levied are as under : In respect of the asst. yrs. 1989-90 to 1992-93, apart from tax assessed, the Dy. CIT, Chennai, has also levied interest under ss. 234A, 234B and 234C of the Act, and the particulars of the tax assessed and interest levied are as under : Asst. yr. Tax assessed Interest under section 234A 234B 234C Rs. Rs. Rs. Rs. 1989-90 16,16,513 12,60,870 22,95,430 119 1990-91 68,69,147 38,46,696 82,42,920 860 1991-92 44,81,141 13,44,330 31,87,460 1992-93 1,21,63,022 7,29,780 87,57,360 8,432

4. According to the petitioner, while the appeals are pending before the CIT(A), she filed applications before the third respondent for stay of collection of the disputed tax. According to her, on the basis of the direction of the third respondent, various amounts were paid in respect of the asst. yrs. 1987-88 to 1991-92 which are as under : 1987-88 28-8-95 2,27,770 2,27,770 2,27,770 1988-89 -do-5,54,200 5,54,200 7,81,970 1989-90 -do-8,08,256 8,08,256 15,90,226 1990-91 20-11-95 5,00,000 8-12-95 5,00,000 18-1-96 5,00,000 25,00,000 40,90,226 25-2-96 5,00,000 19-3-96 5,00,000 1991-92 1-10-94 10,00,000 26-12-94 5,00,000 22,00,000 62,90,276 22-1-95 7,00,000

According to her, after the disposal of the first appeal, she was not in a position to continue to make the payments in accordance with the scheme granted by the third respondent as all her properties well attached and bank accounts were frozen by the IT Department as well as by other Governmental agencies. Then she approached the Director General of Income-tax (Investigation). According to her, until her bank accounts and properties were frozen by the Directorate of Vigilance and Anti-Corruption, Chennai, as well as by the IT Department, she made the payments in accordance with the instalment scheme granted by the third respondent as well as by the Director General of Income-tax (Investigation) and she has paid towards tax and interest when the appeals are pending before the Tribunal totalling as sum of Rs. 5,62,40,124. The case of the petitioner is that she had raised loans and effected a one-time payment of Rs. 3,97,26,573 covering the entire demand including the demands which are under dispute before the Tribunal. The case of the petitioner is that she has made the payments even before due dates for payment in accordance with the scheme for payment sanctioned by the Director-General of Income-tax (Investigation). It is also her case that she is also entitled for the refund of a sum of Rs. 4,14,714 for the asst. yr. 1996-97. The petitioner received a notice levying interest under s. 220(2) of the Act in respect of the asst. yrs. 1987-88 to 1992-93 and she was required to pay the following sums towards interest for the said assessment years : According to her, no notice or opportunity was given before the levy of interest under s. 220(2) of the Act. Against the levy of interest under s. 220(2) of the Act, the petitioner filed petitions for waiver of the same before the CIT, Central II(5), Chennai-34, under s. 220(2A) of the Act. Sec. 220 (2A) reads as under : “(2A) Notwithstanding anything contained in sub-s. (2), the Chief CIT or CIT may reduce or waive the amount of interest paid or payable by an assessee under the said sub-section if he is satisfied that : (i) payment of such amount has caused or would cause genuine hardship to the assessee; (ii) default in the payment of the amount on which interest has been paid or was payable under the said sub-section was due to circumstances beyond the control of the assessee; and (iii) the

assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.”

1.The petitions filed by the petitioner for waiver of interest under s. 220(2A) of the Act were disposed of by the CIT, Central Circle II, Chennai, by his order dt. 15th Oct., 1997, wherein he has rejected the petitions on the ground that all the three conditions required for the exercise of jurisdiction under section 220(2A) of the Act are not satisfied, and it is against this order the present writ petitions have been filed by the writ petitioner.

2. According to the petitioner, insofar as the first condition “payment of such amount would cause genuine hardship to the petitioner” is concerned, she has mobilised funds for the payment of tax by raising loans which she had to pay because of the pressure of the IT Department. According to her, her residential house and all other properties were attached by the IT Department as well as by the Directorate of Vigilance and Anti-Corruption and she was put to considerable pressure and hardship. According to her, the amounts were paid, though appeals were pending and the entire demand was disputed, and as a leader of a political party, she would not have availed of any financial support given by the party, but for the hardship she was subjected to by the respondents, and she was forced to seek financial support from the party and she could not have raised any fund from any other source since wide publicity was given to the fact that her assets had been attached by the IT Department and the Directorate of Vigilance and Anti-Corruption. She, therefore, submitted that since she has already availed of whatever sources she could for mobilising funds for the payment of tax, it was impossible for her to raise any further fund for the payment of interest. She, therefore, stated that payment of interest would not cause genuine hardship and the view of the first respondent that it would not cause genuine hardship is totally unjustified on the facts of the case.

1.She has also pleaded that she has complied with the second condition under s. 220(2A) of the Act as she has stated that the demand raised against her was so huge and all her bank accounts and other properties were attached and since her bank account were frozen, she was not in a position to pay tax. According to her, she has produced all evidence before the first respondent to show that even on the date when the amounts became due, she was not in a position to pay the huge tax liability. According to her, she also filed appeals against the orders of assessment and during the pendency of the appeals, the AO granted stay. She, therefore, stated that it is erroneous on the part of the first respondent to conclude that the non-payment of tax on the dates on which the amounts were demanded would show that the non-payment of tax was not beyond her control. According to her, the alleged default in the payment of tax on the relevant dates was due to circumstances beyond her control. It is stated that she has fulfilled the second condition mentioned in s. 220(2A) of the Act.

2. The petitioner also stated that she has co-operated in the enquiry relating to assessments or other proceedings for the recovery of the amounts. According to the petitioner, the CIT has taken into consideration the irrelevant fact of non-filing of the returns of income and, according to the petitioner, there is a total non-application of mind by the first respondent with reference to fulfilment of the third condition. She submitted that it is not the case of the CIT that she has not co-operated in the enquiry relating to the assessment proceedings and the mere fact that additions were made to the income is not a ground to hold that there was non-co-operation on her part in the matter of assessment. She, therefore, stated that the conclusion that she has not co-operated in the matter of assessment on the ground that she filed returns beyond the time and additions were made to the income is totally unjustifiable and opposed to the facts and law. She has raised several other grounds also challenging the order of the CIT rejecting her petitions for waiver of interest under s. 220(2A).

3.A common counter-affidavit has been filed by the Dy. CIT, Central II(2), Chennai-34. According to the Dy. CIT, the CIT has elaborately considered the various submissions and dealt with each one of them in detail. According to him, the CIT has exercised his discretion properly. The Dy. CIT also placed reliance on the decisions of the Supreme Court in Smt. Harbans Kaur vs. CWT (1997) 138 CTR (SC) 211 : (1997) 224 ITR 418 (SC) : TC 66R.963 and Kishan Lal vs. Union of India (1998) 145 CTR (SC) 450 : (1998) 230 ITR 85 (SC) : TC S52.4123 and stated that the order of the CIT is supported by reasons. Referring to the additions made in the orders of assessment, the Dy. CIT stated that even after the confirmation of the orders of assessment by the CIT(A), the petitioner did not choose to take any effective step to clear the arrears of tax for the aforesaid assessment years and she sought only time to make payment, and even after the instalment facility was provided to her, she has not availed of the same and she has failed to pay tax in accordance with the instalment scheme. The Dy. CIT has stated that all the three conditions mentioned in s. 220 (2A) of the Act were not satisfied.Insofar as the first condition is concerned, it is stated, though her bank accounts were attached, such attachment was made by the Directorate of Vigilance and Anti-Corruption only on 27th Sept., 1996, whereas she has to pay tax in May 1994 for the asst. yr. 1991-92 and between February and April 1995 for the asst. yrs. 1987-88 to 1990-91 and 1992-93. It is, therefore, stated that the claim of the petitioner that payment could not be made in view of the attachment is not correct.

4.It is also stated in the counter-affidavit that the petitioner had considerable money available in her proprietary concern, Dak Exports and the Department on coming to know of the same, attached the amount and realised the same by means of taking garnishee proceedings. It is stated that if the petitioner had really wanted to discharge the liability, she could have utilised the amount for discharging her liabilities, but, for the reasons best known to her, she did not do so and she had used it for her benefit. Insofar as the condition regarding default in payment was due to circumstances beyond the control of the petitioner, is concerned, it is stated that the petitioner has not given any evidence to state as to why she could not make the payment of demands as and when they were made. It is also stated that the petitioner did not effect payment of the amounts due from her on due dates, but sought for time for making the payment which request was granted by permitting her to pay the amount in instalments, but the petitioner did not adhere to the instalment order and, hence, the recovery proceedings were initiated for the recovery of the amount. It is stated that even after the orders of assessment were confirmed on appeal by the CIT (A), the Director General by order dt. 31st July, 1996, permitted the petitioner to pay 50 per cent of the tax before 5th Aug., 1996 and also permitted to pay the balance of tax in six equal monthly instalments and as regards interest, the petitioner was directed to pay the same in twelve monthly instalments from October, 1996. It is stated that the petitioner did not comply with the order and did not approach the Tribunal to obtain any order of stay and only after recovery proceedings were initiated, the payments weremade. It is, therefore, stated that the non-payment of the tax on which interest is payable cannot be stated to be due to circumstances beyond the control of the petitioner. It is also stated that the petitioner could have utilised the amounts received as gifts from various persons for making the payment in discharge of the amounts due to the Department.

1.Insofar as the last condition, viz., the petitioner should co-operate in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from her is concerned, the petitioner was not able to explain the source of the large amounts that were disclosed by her and the petitioner could not produce any satisfactory evidence to substantiate her statement that the amounts were gifts made by her friends and well-wisherss on the occasion of her birthdays and other occasions. It is stated that the petitioner cannot be stated to have co-operated in the enquiry and in the assessment proceedings. It is stated that the petitioner postponed the payment of tax due from her for various assessment years from May, 1994 in respect of the asst. yr. 1991-92 and from February to April 1995 for the other asst. yrs. 1987-88 to 1990-91 and 1992-93 till January, 1997 without any reasonable justification and even after the Department permitted the petitioner to make the payment in instalments. It is stated that it cannot be stated that the petitioner had cooperated with the Department in the proceedings for the recovery initiated against her. It is, therefore, stated that the petitioner has not satisfied anyone of the conditions and the CIT was perfectly justified in rejecting the petitions filed by the petitioner for waiver of interest.

2. The petitioner also filed a reply affidavit. According to the petitioner, the petitioner had taken effective steps to discharge the liability and her conduct in the assessment proceedings clearly shows that she has co-operated with the Department. It is stated that she has paid the entire arrears including the disputed tax notwithstanding the fact that the petitioner has not accepted the assessments and filed appeals which are still pending on the file of the Tribunal. According to her, the assessments are arbitrary and the CIT has not applied his mind and unjustly declined to exercise the power under s. 220(2A) of the Act. It is stated that the petitioner has explained the reasons as to why the demands could not be paid on due dates and it was not possible for her to raise necessary funds at that time. It is stated that the observation of the CIT that since the petitioner did not make the payment of tax as demanded, the interest could not be waived, clearlyshows his non-application of mind. It is stated that it is incorrect to state that gifts were available and it is equally incorrect to state that funds from dak exports were available. According to her, the funds from dak exports were attached and realised by the respondents. She has stated that she has established lack of resources for payment of tax on due dates and paid the tax including the disputed tax out of borrowed funds. The petitioner also stated that the petitioner produced evidence in support of her claim that there were gifts and according to her, she has extended full co-operation in completing the assessment proceedings as well as the proceedings relating to recovery of tax. She has stated that her co-operation was evident from the fact that the entire disputed demands, even though appeals are pending, were paid by borrowing funds. According to her, all conditions under s. 220(2A) of the Act are satisfied and the CIT should have exercised the power of waiver. She has stated that the CIT has arbitrarily rejected her applications without application of mind and, consequently, the order is liable to be quashed.

3. Mr. V. Ramachandran, learned senior counsel appearing for the petitioner, submitted that the petitioner has complied with all three conditions under s. 220(2A) of the Act. The learned senior counsel referred to various orders of assessment for various assessment years, and submitted that the orders of assessment clearly show that the petitioner had extended full co-operation and even on Sundays, the authorised representative of the petitioner attended the hearing and in the absence of any material, the CIT was not justified in holding that the petitioner had not cooperated in the assessment proceedings. He also submitted that the appeals filed by the petitioner were disposed of on 25th March, 1996 and the Director General (Investigation) has permitted the petitioner to pay 50 per cent of the tax and directed her to pay the balance 50 per cent of the tax in six monthly instalments starting from the month of September, 1996. The learned senior counsel submitted that 50 per cent of the tax should have been paid on 5th Aug.,1996, but the Directorate of Vigilance and Anti-Corruption attached the properties of the petitioner and because of the attachment, the petitioner was not able to pay the tax on the due date and she has paid a sum of Rs. 3,97 crores on 9th Jan., 1997 by raising loans from the party, and according to the learned senior counsel, even before the expiry of six months, the petitioner had paid the sum of Rs. 3,97,26,573. He submitted that all funds of the petitioner were locked up and the CIT has taken into consideration irrelevant materials and rejected the application for waiver. The learned senior counsel submitted that circumstances were beyond her control and, hence, the tax due could not be paid on the due dates, and it is nobody’s case that amounts were available with her and in spite of the same, the petitioner did not pay the tax demanded. He also submitted that the petitioner applied for stay and the Department also granted stay and the fact that the Department as well as the Director General of Income-tax granted stay clearly shows that the Department accepted the position that the petitioner did not have sufficient funds and, accordingly, allowed the petitioner to pay the tax and interest in instalments. The learned senior counsel, therefore, submitted that the order of the CIT rejecting the petitions for waiver of interest is unjustified and this Court should set aside the order. It is also submitted that since the first respondent has failed to exercise his discretion properly, this Court should allow the writ petitions.

4. Mr. C.V. Rajan, the learned standing counsel for the Department, submitted that the order of the CIT is a speaking order and it is wrong to state that the petitioner has complied with all the conditions for the waiver of interest. He submitted that there was no genuine hardships and since she mobilised the funds for payment of tax, no genuine hardship would be caused to her in the payment of interest also. He also submitted that the default in the payment of tax amount cannot be said to be due to circumstances beyond the control of the petitioner and on the due dates of payment, there was no freezing of bank accounts and the petitioner has also not extended cooperation in the matter of assessment. He also submitted that the petitioner has paid the amount only after the TRO initiated proceedings and there was no co-operation even in the matter of recovery also. Therefore, he submitted that the petitioner did not satisfy any one of the conditions required for waiver of interest under s. 220(2A) of the Act and as the conditions for waiver of interest are not satisfied, the petitioner has not made out any case for waiver of interest.

5.Before considering the rival submissions, it is relevant to notice the decisions relied upon by the learned counsel for the parties. In Kishan Lal vs. Union of India (supra), the Supreme Court has held that the decision of the authority under s. 220(2A) of the Act is a quasi-judicial decision. The Supreme Court has laid down the following proposition of law as to the mode of exercise of the power under s. 220(2A) of the Act :

“When an application is filed under sub-s. (2A)of s. 220 the authority concerned is called upon to take a quasi-judicial decision. If it is satisfied that the reasons contained in the application would bring the case under cls. (i), (ii) and (iii) of s. 220(2A) then it has the power either to reduce or waive the amount of interest. Even though in the said sub-section it is not stated that any reasons are to be recorded in the order deciding such an application, it appears to us that it is implicit in the said provision that whenever such an application is filed the same should be decided by a speaking order. Principles of natural justice in this regard would be clearly applicable. It will be seen that a decision which is taken by the authority under s. 220(2A) can be subjected to judicial review, as was sought to be done in the present case by filing a petition under Art. 226, this being so and where the decision of the application may have repercussions with regard to the amount of interest which an assessee is required to pay it would be imperative that some reasons are given by the authority while disposing of the application.”

16. Learned standing counsel for the Department relied upon the decision of the Supreme Court in the case of Carborundum Universal Ltd. vs. CBDT (1989) 80 CTR (SC) 85 : (1989) 180 ITR

171 (SC) : TC 43R.730 wherein the Supreme Court has held that the power under s. 220(2A) of the Act is a discretionary power and where the petitioner had an opportunity to represent his case in writing and the Board (then authority) has taken into consideration the report of the CIT, the petitioner was not entitled to the right of being heard by the Board before the petition was disposed of by the Board.

17. In Mahalakshmi Rice Mills vs. CIT (1981) 19 CTR (Kar) 177 : (1980) 129 ITR 53 (Kar) : TC 49R.1063, the Karnataka High Court has held that the word, “co-operation” in s. 273A of the IT Act would mean that the assessee did not report to litigation,obstruction or evasive tactics in concluding the assessment and no more.

18. In N. Subhakaran vs. CIT (1992) 198 ITR 720 (Ker) : TC 43R.312, the Kerala High Court laid down the following propositions : “The CIT exercises discretionary power when passing an order under s. 273A of the IT Act, 1961, on an application for waiver of interest. The order should ex facie disclose the application of mind and should contain reasons in support of the order. When an order is sought to be impugned on the ground that the officer concerned has not exercised his discretion properly in the sense that the reason in support of the order has not been disclosed in the order, the defect cannot be cured by furnishing the reason by an affidavit. If that is allowed, an order which is bad in the beginning may, by the time it comes to the Court when challenged, gets validated by the grounds supplied in the affidavit.”

19. In Smt. Harbans Kaur vs. CWT (supra), the Supreme Court held that if the conditions are satisfied, the CIT has the discretion to reduce the amount of penalty or waive the entire penalty and the Supreme Court held as under : “Even if the legislature has not used the words, “in his discretion” in s. 18B(1), the CIT could have exercised only a discretionary power in view of the employment of the word ‘may’. Now, when Parliament used both expressions ‘may’ and ‘in his discretion’ together, the position is placed beyond the pale of any doubt that the legislature wanted an officer of the rank of the CIT to be reposed with the discretionary power to choose between entire waiver or reduction in any proportion. Of course, when the CIT, instead of giving a complete waiver, chooses to give only a reduction for the penalty amount he must indicate in his order that he has applied his mind in that regard. In this view, there is no warrant for the proposition that the CIT, if satisfied of the compliance of conditions, has only one choice, i.e., to waive the penalty in entirety. Otherwise, it may mean that the CIT can in a case where conditions are not satisfied, reduce the penalty amount. When conditions are not satisfied, the CIT cannot do either. Only when the said conditions are satisfied that the occasion arises for the CIT to exercise his discretion not before.”

1.It is relevant to notice here that the counter-affidavit has been filed by the Dy. CIT, Central II (2), Chennai, having jurisdiction over the files relating to the petitioner. The order that is the subject-matter of challenge is an order passed by the CIT, Central II, Chennai, but the said authority has not chosen to file any counter-affidavit.

2.There is no dispute that the power to be exercised by the CIT under s. 220(2A) of the Act is a quasi-judicial power. It is implicit in the provisions of s. 220(2A) of the Act that the application should be decided by way of a speaking order and it is imperative that reasons must be given by the CIT while disposing of the said application. As observed by the Supreme Court in Smt. Harbans Kaur’s case (supra), the CIT has the discretion to reduce the amount of interest or waive the entire interest, if the conditions are satisfied, which clearly shows that reasons given by the CIT must be relevant and germane and the order must indicate that the CIT has applied his mind to the questions raised in the application for waiver of interest. There is also no doubt that all the conditions specified in s. 220(2A) of the Act must be satisfied before the CIT exercises the power of waiver or reduction of interest. I am unable to accept the submission that before the levy of interest under s. 220(2) of the Act, an opportunity should be given to the assessee as the accrual of interest is automatic under s. 220(2) of the Act, and it is made more specific in s. 220(3) of the Act which provides that the power to grant extension of time for payment of tax in instalments would be without prejudice to the levy of interest under s. 220(2) of the Act.

3.Insofar as the conditions mentioned in section 220(2A) of the Act are concerned, it is imperative that the CIT should record a finding that he has satisfied that the conditions mentioned in s. 220(2A) of the Act are fulfilled before reducing or waiving the interest paid or payable under the Act. On the facts of the case, it is seen that the order of the CIT does not show that he has applied his mind to the various conditions mentioned in s. 220(2A) of the Act while rejecting the applications filed by the petitioner for waiver or reduction of the interest. Insofar as the first condition, viz., payment of tax amount would cause any hardship to the assessee is concerned, the CIT has held that the said condition is not satisfied as the petitioner is a wealth- tax assessee. The fact that the petitioner is a wealth-tax assessee is not a relevant consideration at all. The CIT has not taken into consideration the total value of the assets of the petitioner during the relevant valuation periods relating to the assessment years in question, what were her liabilities during the relevant period relating to the assessment years, and what was the net worth of the assets during the previous years relating to the assessment years in question. The CIT has also not indicated in his order whether the petitioner had assets and whether the assets were movable or immovable properties and whether the assets were in the form of cash or they were realisable assets. The mere statement of the CIT that the petitioner is a wealth-tax assessee is not a relevant circumstances to establish that the payment of interest amount would cause genuine hardships to the petitioner.

4. The second reason given by the CIT that the petitioner had paid a sum of Rs. 93,23,325 and Rs. 3,97,26,573 on 3rd Aug., 1996 and 9th Jan., 1997 and, therefore, the petitioner had the capacity to mobilise funds and things were under her control is also not a relevant consideration at all. The case of the petitioner was that she had borrowed money from her party to discharge the liability and the view of the CIT that she should have borrowed more money and paid the interest also is not a relevant consideration. It is also not clear what the CIT meant by stating “things are under her control”.

5. The third reason given by the CIT regarding existence of genuine hardship is also not a relevant consideration. The CIT has stated that the Asstt. CIT in his report, has stated that nowhere the petitioner has represented in Courts that she was not able to mobilise funds to engage a lawyer because of her bank accounts and other assets being attached by the Directorate of Vigilance and Anti-Corruption and, therefore, according to the CIT, the payment of interest would not cause any genuine hardship to the petitioner. The reasoning of the CIT suffers from two infirmities. The CIT has not furnished a copy of the report of the Asstt. CIT to the petitioner before placing reliance on that report. Secondly, the report also does not establish that the petitioner had funds and with that amount the lawyers were engaged. The CIT has overlooked that the payment of a lawyer would depend upon the terms of engagement between a client and the lawyer and the CIT has also not stated the material for the statement of the Asstt. CIT that the petitioner had not made any representation before any Court that due to want of funds, she could not engage a lawyer. Therefore, all the three reasonings given by the CIT that mobilisation of funds for payment of legitimate tax was not beyond her control, and no genuine hardship would be caused to her, cannot be considered to be relevant reasons. Further, the CIT has not denied that the petitioner had borrowed money and discharged the tax liability. The view of the CIT seems to be that as she has mobilised the funds for the payment of tax by borrowing the same from her party, she could have borrowed more money for the payment of interest, and no genuine hardship would be caused to her, is not at all a relevant consideration for the rejection of the applications for waiver of interest.

25. Insofar as the second condition, viz., default in the payment of tax is due to the circumstances beyond the control of the assessee is concerned, the CIT has not shown any valid reason for the rejection of the applications. The CIT accepted the position that the petitioner’s bank accounts were frozen by the Directorate of Vigilance and Anti-Corruption and her properties were also attached. The CIT was, however, of the view that in spite of the same, she was able to make the payment of Rs. 3.97 crores on 9th Jan, 1997. The CIT failed to notice that she had borrowed the money from her party to make the payment as the recovery proceedings were initiated against her. Therefore, the reason given by the CIT that the petitioner could have taken steps to pay the interest also by borrowing more money from her party is not relevant at all. The CIT was also not correct in his view that the circumstances were under the control of the petitioner. The petitioner in her applications before the CIT has stated that as against the income of Rs.

12,91,008 admitted by her for the asst. yrs. 1987-88 to 1992-93, the income assessed for the said assessment years was Rs. 4,88,17,041 and the difference has mainly arisen because of the different views expressed by the Department treating her birthday gifts as assessable to tax. It is also stated that because of the huge additions to her major source of income, the circumstances went beyond the control of the petitioner and, hence, the tax amounts could not be paid on due dates. It is also stated that in addition to that her bank accounts were frozen and properties were attached by the Directorate of Vigilance and Anti-Corruption as well as by the IT Department. The CIT was of the view that on the due dates of payment, there was no freezing of bank account and, hence, the non-payment could not be termed as “beyond her control and circumstances were under her control.” That apart, in the affidavit filed in support of the writ petition, WP No. 17286 of 1997, the petitioner has made a categorical statement as under : “The first respondent failed to note that the demand made against me were so large that even without the freezing of my bank accounts, I would not be in a position to pay the taxes demanded on the due dates. I had also produced evidence and materials before the first respondent to show that even on the due dates on which the amounts were demanded, I was not in a position to pay taxes.”

26. As already noticed by me, the CIT who has passed the order impugned has not chosen to file the counter-affidavit denying the statement made by the petitioner. As a matter of fact, in the counter-affidavit filed by the Dy. CIT, Central II(2), Chennai, having jurisdiction over the files relating to the petitioner, the statement of the petitioner has not been controverted. The first respondent has also not produced the relevant records to establish that the statement of the petitioner in the affidavit filed in support of the aforementioned writ petition is, in anyway, incorrect. The above statement of the petitioner clearly shows that the petitioner had produced evidence and materials beforethe CIT to establish that even on the due dates of payment, she was not in a position to pay the taxes. The CIT has not even adverted to the materials, nor did he consider the case of the petitioner that due to the additions made in her assessments and due to different views expressed by the Department on the treatment of the gifts received by her on her birthday occasions and other occasions, she was not in a position to pay the taxes on the due dates of payment and it was due to the circumstances beyond her control, the amounts could not be paid by her. The CIT has given two reasons. The first reason is that the petitioner paid Rs. 3,97 crores on 9th Jan., 1997. It was explained by the petitioner that the amount was borrowed from her party and the said statement of the petitioner was not denied by the CIT in his order. The second reason given by the CIT is that there was no freezing of bank accounts on the due dates of payment. But, the case of the petitioner was even on those due dates, she was not in a position to raise requisite money and due to the circumstances beyond her control, she could not pay the amounts due. The order of the CIT clearly shows that he has omitted to take into account the relevant circumstances before holding that the second condition prescribed under s. 220(2A) of the Act is not satisfied.

1.Insofar as the third condition viz., co-operation in the matter of assessment, is concerned, the reason given by the CIT is also faulty. The CIT has stated that the returns were filed beyond the due dates and the petitioner did not pay any advance tax on the admitted income. Sub-s. (3) of s. 220(2A) of the Act postulates the co-operation of the assessee in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him and the CIT has overlooked the fact that the inquiry relating to assessments would commence after the filling of the return and the belated filing of the return is not a relevant circumstance to hold that the assessee has not co-operated in the inquiry relating to the assessment. The CIT has not adverted to the assessment records of the petitioner and examined the question whether the petitioner had cooperated in the inquiry relating to the assessment. He should have seen various orders of assessment made in the petitioner’s case and examined the question with reference to assessment records whether the petitioner has co-operated in the inquiry relating to the assessment. In this connection, various orders of assessment passed by the AO are relevant. In the order of assessment for the asst. yr. 1991-92, the AO has stated that the chartered accountant on behalf of the petitioner attended the hearing in response to the notice issued by the AO and witnesses were examined on the side of the petitioner even on a Sunday. In the order of assessment for the asst. yr. 1987-88, it is also stated that the chartered accountant of the petitioner represented the assessee and furnished various details and clarifications sought for. The above statement is found to be repeated in the other orders of assessment as well. The CIT without noticing the statement made by the AO in various orders of assessment has held that the petitioner filed the returns belatedly and, hence, she was not eligible to get the relief under s. 220(2A) of the Act. The non- payment of advance tax on the admitted income is also not a relevant consideration in considering the question whether the petitioner has co-operated in the inquiry relating to the assessment.

2.Insofar as the matter of recovery is concerned, the CIT was of the view that the petitioner has not paid the amounts within the stipulated time and the petitioner made the payments only after the TRO initiated the proceedings, Here also, the CIT has overlooked the fact that the Department granted time for payment of the amounts in instalments and by order dt. 4th June, 1995, the petitioner was earlier directed to pay 50 per cent of the amount due and the balance was directed to be paid in instalments. Subsequently, the appeals were dismissed by the CIT(A) on 25th March, 1996, and the petitioner was directed to pay the balance by a notice dt. 30th May, 1996. Then, the petitioner sought for time for payment of tax and interest by her letter dt. 10th July, 1996. The Director General of Income-tax by his order dt. 31st July, 1996, has permitted the petitioner to pay 50 per cent of the tax component of Rs. 1,86,46,651 before 5th Aug., 1996 and the balance of tax in six monthly instalments from September 1996 to March 1997. The petitioner was also directed to pay interest component of Rs. 3,04,03,247 in 12 monthly instalments. The petitioner on 3rd Aug., 1996 paid a sum Rs. 93,23,325 being 50 per cent of the tax due and did not effect any other payment. When the recovery proceedings were initiated on 17th Oct., 1996, the petitioner paid the entire amount of Rs. 3,97,26,573 on 9th Jan., 1997. Then, the petitioner filed petitions for waiver of interest levied under r. 5 of the Second Schedule and interest levied under s. 220(2) of the Act. The CIT has not considered the question as to what is the effect of the order directing the petitioner to pay the amounts in instalments and the CIT has also not considered the effect of payment of the entire amount when the TRO initiated the proceedings. He has also not adverted to the question that due to the freezing of bank accounts and attachment of the properties, whether the petitioner could have made the payment. The CIT has not considered the question, despite the attachment of her properties, whether there was co- operation extended by the petitioner in the matter of payment of tax by raising loan and discharging the liability. The order of the CIT shows that the CIT has not taken into consideration relevant circumstances, but has taken into consideration irrelevant circumstances while rejecting the applications filed for the waiver of interest. Since there is a non-application of mind to the relevant circumstances while rejecting the application for waiver or reduction of interest, I hold that the order passed by the CIT is liable to be set aside and accordingly, it is set aside.

1. In the view I have taken, it is not necessary to consider various allegations made by the petitioner in the affidavit and reply-affidavit as well as the statements made by the respondents in the counter-affidavit. However, it must also be mentioned here that certain new facts are stated in the counter-affidavit filed by the Dy. CIT, Central II(2), Chennai, and it is well-settled that the order impugned has to be tested on the reasoning stated in the order and it is not permissible to improve the order by placing new facts in the counter-affidavit. Further, I am unable to accept the submission of the learned counsel for the petitioner that this Court under Art. 226 of the

Constitution should grant the relief as prayed for in the applications filed by the petitioner. In my view, the proper course would be to remit the matter to the CIT to reconsider the matter de novo and consider the applications in accordance with law.

2.The result is all the writ petitions are allowed and the matter is remitted to the CIT for fresh consideration. However, in the circumstances, there will be no order as to costs.

[Citation : 244 ITR 74]

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