Madras H.C : Where, in the course of search and seizure operations, books of account have been taken over by the Department and were not available to the tax-payer to prepare his return of income

High Court Of Madras

The Thanthi Trust vs. Director General Of Income Tax (Exemptions) & Ors.

Section 234B

Asst. Year 1989-90, 1990-91, 1991-92

P.D. Dinakaran & Mrs. Chitra Venkataraman, JJ.

Writ Petn. No. 7457 of 2005

12th March, 2007

Counsel Appeared :

G. Sarangan for R. Janakiraman, for the Petitioner : T. Ravikumar, for the Respondents

ORDER

Mrs. CHITRA VENKATARAMAN, J. :

This writ petitioner seeks the issue of a writ of certiorari to quash the order dt. 18th Feb., 2005 passed by the first respondent herein namely, Director General of IT (Exemptions), IT Department.

The assessee/writ petitioner herein is a trust. For the asst. yrs. 1989-90 to 1991-92, the petitioner claimed exemption under s. 11(4A) of the IT Act, 1961. However, the same was denied and demand was raised on the entire income. The petitioner challenged the orders of assessment before this Court. By order dt. 19th Dec., 1994, this Court allowed the writ petitions and quashed the orders of assessment dt. 20th March, 1992, 22nd Dec., 1992 and 19th April, 1993 relating to the asst. yrs. 1989-90, 1990-91 and 1991-92. Thereupon, the AO passed fresh orders of assessment and declared the assessee as not assessable.

In the meantime, the Revenue preferred appeals against the orders of this Court in Thanthi Trust vs. Asstt. CIT (1995) 213 ITR 626 (Mad) and Thanthi Trust vs. CBDT (1995) 213 ITR 639 (Mad). By order dt. 31st Oct., 2001, the Hon’ble Supreme Court allowed the appeals and set aside the order of this Court. The second respondent, thereafter, passed fresh orders of assessment on 16th April, 2001 and raised fresh demand for these years. The second respondent computed the interest under s. 234D. The petitioner preferred a petition for waiver of interest placing reliance on the strength of the notification issued by the CBDT on 23rd May, 1996. Placing reliance on the decision reported in Ranchi Club Ltd. vs. CIT (1996) 131 CTR (Pat) 368 : (1996) 217 ITR 72 (Pat), the assessee prayed for waiver of interest. The petitioner also pleaded that there was no willful default on the part of the assessee for the non-payment of tax or delay in filing the returns. The petitioner contended that the liability arose only after the decision of the apex Court, reversing the decision of this Court. The petitioner prayed that they had co-operated with the Revenue in all the proceedings and that the interest liability would cause continuing hardship to the petitioner if the same was not waived in full.

By order dt. 18th Feb., 2005, the first respondent herein, rejected the plea for waiver. Aggrieved of the rejection, the petitioner has preferred this writ petition, contending that the first respondent went wrong in stating that after the order of the Supreme Court, the second respondent restored the order of assessment. The assessee contended that after the order passed on 19th Dec., 1994, declaring the assessee as not assessable, the fresh order of assessment passed could not be viewed as restoring the original order. Consequently, the order passed on 31st Dec., 1996 superseded the earlier order of assessment. In the circumstances, with no liability to pay tax till the apex Court reversed the decision of this Court, the benefit of the notification applied in full force to grant the waiver.

The petitioner submitted that the first respondent went wrong in not considering the notification and the facts in the proper perspective and went wrong in denying the benefit on extraneous reasons.

Learned senior counsel appearing for the petitioner submitted that the records would clearly show that acting on the decision of this Court, the respondent had declared the assessee as not assessable and that the liability itself was quantified afresh after the decision of the Supreme Court. He pointed out to the various clauses in the Board’s circular and submitted that the petitioner had satisfied all the conditions to merit a waiver. He also commented on the view of the first respondent that the advance tax for the asst. yrs. 1989-90, 1990-91 and 1991-92 had to be paid during the financial year and there was no judgment of this Court interpreting the provisions of s. 11. In the circumstances, considering the scope of s. 11(4A) w.e.f. 1st April, 1984 the assessee became liable to pay tax in respect of all these assessment years. Hence, considering the fact that this Court allowed the writ petition on 19th Dec., 1994 and the liability itself was set aside, it is clear that the view of the CIT that the assessee’s case did not fall within para 2(d) of the Board’s notification was not correct. So too the finding on the bona fides was unsustainable. Learned senior counsel commenting on the abovesaid view submitted that the assessee acted based on the decision of this Court and that considering the contentious nature of the issue, the first respondent committed an error in his view that bona fides could not be gone into in the matter of granting the relief.

Heard learned counsel for the petitioner and the learned junior standing counsel for the respondent. A perusal of the order impugned shows that this Court granted stay of the operation of the assessment orders challenged in the writ proceedings preferred by the petitioner. Subsequently, by orders dt. 6th Jan., 1989 and 12th June, 1989 and by order dt. 19th Dec., 1994, this Court allowed the writ petition, thereby granted the exemption. Learned senior counsel appearing for the petitioner submitted that after the order of this Court quashing the assessment, as reported in the decision in Thanthi Trust vs. Asstt. CIT (supra) and Thanthi Trust vs. CBDT (supra), the second respondent passed fresh orders on 31st Dec., 1996, thereby declaring the petitioner as “nil assessment”. However, the reversal of the judgment by the Supreme Court under judgment dt. 31st Jan., 2001 resulted in the passing of an assessment order dt. 16th April, 2001 once again fastening the liability, thus raised the demand. A perusal of s. 234B shows that an assessee shall be liable to pay interest for non-payment/short payment of advance tax. The interest payable is held as compensatory in character. The CBDT, in exercise of its powers under s. 119(2)(a), authorised the Chief CIT and Director General of Investigation to reduce or waive penal interest charged under ss. 234A, 234B and 234C in the following circumstances :

“(i) Where, in the course of search and seizure operations, books of account have been taken over by the Department and were not available to the tax-payer to prepare his return of income;

(ii) Where, in the course of search and seizure operations, cash had been seized which was not permitted to be adjusted against arrears of tax or payment of advance tax instalments falling due after the date of the search;

(iii) Any income other than “Capital gains” which was received or accrued after the date of the first or subsequent instalment of advance tax, which was neither anticipated nor contemplated by the taxpayer and on which advance tax was paid by the taxpayer after the receipt of such income;

(iv) Where, as a result of any retrospective amendment of law or the decision of the Supreme Court after the end of the relevant previous year, certain receipts which were hitherto treated as exempt, become taxable. Since no advance tax would normally be paid in respect of such receipts during the relevant financial year, penal interest is levied for the default in payment of advance tax;

(v) Where the return of income is filed voluntarily without detection by the IT Department and due to circumstances beyond the control of the taxpayer such return of income was not filed within the stipulated time- limit or advance tax was not paid at the relevant time.

Learned senior counsel appearing for the petitioner emphasized on cls. 4 and 5 of the Board’s circular and pleaded that the first respondent had not considered the two clauses while considering the prayer for waiver. He further submitted that considering the decision of this Court and the order passed thereupon, the liability could only be said to arise on the decision of the Supreme Court reversing the judgment of this Court. In the circumstances, the view of the first respondent on the question of the petitioner lacking in bona fide is not correct.

It is no doubt true that given the provisions of s. 11(4A), the demand was raised on the assessee. However, the subsequent declaration of law and the cancelling of the orders of assessment merit to be considered on the question of bona fides while considering the plea for waiver. It is not denied that the fresh order of assessment itself came to be passed after the Supreme Court decision. In the light of the above facts and considering the scope of the Board’s notification, the case of the petitioner merits to be reconsidered and a fresh order passed accordingly. In the circumstances, we set aside the order of the first respondent and direct the first respondent to consider the case of the petitioner afresh and pass orders in accordance with law.

In the circumstances, the writ petition is allowed, but with a direction as stated above, remanding the matter back to the first respondent to pass orders in accordance with law and in terms of the Board’s circular cited above. There will, however, be no order as to costs.

[Citation : 295 ITR 92]

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