2015 (1) TMI 425 - HC - Income Tax

Waiver of interest levied under Section 234A, B and C, and Section 220(2) - Financial difficulty - Held that - The 1st respondent has come to the definite conclusion that the case of the petitioner does not fall within the purview of the Board s Circular and therefore there was no scope for granting any waiver of interest under Sections 234A, B and C in the instant case. - Decided against the assessee. Waiver of interest u/s 220(2) - Held that - The financial condition of the petitioner is stated to be precarious, and, further, it is stated that of the two brothers who formed the partnership in the petitioner firm, one has since expired and the other is presently convalescing in a hospital after undergoing a surgery to treat a brain hemorrhage. It is also pointed out that there are several financial claims raised against the petitioner firm from various quarters, which are also in various stages of adjudication before the authorities concerned. In that view of the matter, I feel that it would be necessary for the 1st respondent to reconsider the matter regarding levy of interest under Section 220(2) of the IT Act in the case of the petitioner, taking into account the peculiar circumstances in this case - Matter remanded back - Decided partly in favour of assesse.

Summary

Issues:
1. Assessment of interest income as business income or income from other sources.
2. Rejection of waiver of interest levied under Section 234A, B, C and Section 220(2) of the IT Act.

Issue 1: Assessment of interest income:
The petitioner, a dealer in hill produce, contested the assessment of interest income from short term deposits as business income instead of income from other sources. The Assessing authority treated the interest income as income from other sources in the assessment orders for various years. The finality of the assessment proceedings in 2003 led to the present writ petition challenging the rejection of waiver of interest under Section 234A, B, C, and Section 220(2) of the IT Act. The petitioner argued that the respondent did not consider relevant facts and failed to exercise discretion judiciously in rejecting the waiver claim.

Issue 2: Rejection of waiver of interest:
In the case of Ext.P8 order, the rejection of waiver under Section 234A, B, C was upheld by the court. The 1st respondent considered the petitioner's claim in line with the Board Circular dated 26.6.2006 and concluded that the petitioner did not meet the conditions for waiver under the circular. The court found the Commissioner's discretion in Ext.P8 to be validly exercised. However, in the case of Ext.P10 order rejecting waiver under Section 220(2) of the IT Act, the court noted that the 1st respondent did not fully consider the petitioner's circumstances, such as the precarious financial condition, the health issues of the partners, and pending financial claims against the firm. The court directed the 1st respondent to reconsider the waiver issue under Section 220(2) in light of the petitioner's situation, emphasizing the need for a judicial exercise of discretion considering genuine hardship faced by the assessee in making interest payments.

This judgment addresses the assessment of interest income and the rejection of waiver of interest levied under Section 234A, B, C, and Section 220(2) of the IT Act. While the court upheld the rejection of waiver under Section 234A, B, C, it directed the reconsideration of the waiver under Section 220(2) due to the petitioner's unique circumstances. The judgment highlights the importance of exercising discretion judiciously, especially in cases involving genuine hardship to the assessee.