2006 (6) TMI 82 - HC - Income Tax

Waiver of interest under rule 40(1) of the Income-tax Rules 1962 and under rule 117A of the Income-tax Rules 1962 - the orders in question do not state any reasons for non-waiver of the interest. The respondent has not exercised his 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 the respondent had written a letter to the petitioner accepting his offer. We consider that the respondent ought to have considered all the facts and circumstances while considering the application for waiver of the interest. - respondent shall consider and decide the petitioner s application for waiver afresh in accordance with law

Issues Involved:
1. Waiver of interest under Rule 40(1) of the Income-tax Rules, 1962.
2. Waiver of interest under Rule 117A of the Income-tax Rules, 1962.
3. Application of the principle of promissory estoppel.
4. Judicial discretion and exercise of power by the Assessing Officer.
5. Adequacy of reasons provided in the orders of the Assessing Officer.

Issue-wise Detailed Analysis:

1. Waiver of Interest under Rule 40(1) of the Income-tax Rules, 1962:
The petitioner challenged the rejection of his application for waiver of interest under Rule 40(1) by the Assessing Officer. The petitioner argued that the interest charged for the assessment years 1985-86 and 1986-87 should be waived as the additional income of Rs. 70,000 was surrendered based on an assurance from the Department that no penalty or interest would be levied. The Assessing Officer rejected the application stating that the interest charged was less as per Rule 40(1), without providing a detailed explanation or considering the assurance given by the Department.

2. Waiver of Interest under Rule 117A of the Income-tax Rules, 1962:
The petitioner also sought waiver of interest under Rule 117A for the assessment year 1986-87. The Assessing Officer rejected this application on the grounds that the petitioner did not fulfill the conditions laid down under Rule 117A(i) to (iv). The petitioner contended that the interest was not leviable due to the settlement and the assurance provided by the Department, which should have been considered by the Assessing Officer.

3. Application of the Principle of Promissory Estoppel:
The petitioner argued that the Department was bound by the promise made to him during the settlement negotiations, invoking the principle of promissory estoppel. The petitioner had agreed to surrender the income of Rs. 70,000 based on the assurance that no penalty or interest would be charged. The court noted that the Assessing Officer failed to consider this assurance while rejecting the waiver applications, which was a crucial aspect of the case.

4. Judicial Discretion and Exercise of Power by the Assessing Officer:
The court emphasized that the discretion to waive interest under Rules 40 and 117A must be exercised judicially and reasonably. The orders passed by the Assessing Officer lacked detailed reasoning and did not consider the specific facts and circumstances of the case. The court cited various precedents, including P.M. Manuel v. ITO, Apex Finance and Leasing Ltd. v. CIT, and Dalmia Dairy Industries v. Union of India, to highlight that discretion must be exercised in a judicious manner, and the reasons for decisions must be clearly stated.

5. Adequacy of Reasons Provided in the Orders of the Assessing Officer:
The court found that the orders of the Assessing Officer did not provide sufficient reasons for rejecting the waiver applications. The orders merely stated that the petitioner did not fulfill the conditions under the relevant rules without explaining how the interest was charged less or why the assurance given by the Department was not considered. The court held that a reasoned order should discuss the assurance given during the settlement and provide a clear explanation for the decision.

Conclusion:
The court concluded that the Assessing Officer had not passed reasoned orders and had failed to consider the material facts and circumstances of the case. The orders were quashed, and the respondent was directed to reconsider the petitioner's application for waiver of interest afresh, keeping in view the observations made in the judgment. The writ petition was allowed, and the case was remanded for a fresh decision in accordance with the law. No costs were awarded.

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