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TMI Blog2008 (5) TMI 183X X X X Extracts X X X X X X X X Extracts X X X X ..... at though benefit of waiver was permitted under Notification F. No. 400/234/95-IT (B), dated May 23, 2006, the said benefit was not made available to the petitioner by subsequent order F. No. 400/29/2002-IT(B) dated June 26, 2006, which the Chief Commissioner wrongly relied on. The petitioner also challenges the legality of levy of interest under section 220(2) of the Act. 2. The facts which give rise to the present writ petition are set out below: 3. The petitioner, in the present case, is the karta of a Hindu undivided family (hereinafter referred to as "the HUF") and was an assessee under the Act during the relevant assessment year 1993-94. There was a search and seizure operation under section 132 of the Act on November 12, 1992, November 13, 1992, and November 14, 1992, in the residence and business premises of the petitioner and other assessees of the group. Subsequent to the search, the petitioner filed its return of income for the assessment year 1993-94 on March 29, 1995, showing a total income of Rs. 3,62,640 without making full payment of tax due on such total income. The Department processed the return under section 143(1)(a) on November 29, 1995, and accepted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant assessment year during search operation in the relevant previous year and post-search period by the Department on the basic of which he had to file its return of income. Due to seizure of cash of Rs. 2.20 lakhs besides valuables during search the petitioner was not left with adequate funds to make payment of advance tax due in the relevant financial year in accordance with the provisions of the Act for which interest under sections 234B and 234C was charged. It was also contended by learned counsel that levy of interest under sections 234B and 234C should be waived in terms of Notification. F. No. 400/234/95-IT(B), dated May 23, 2006 issued by the Central Board of Direct Taxes (hereinafter referred to as "the CBDT"). Interest under section 220(2) of the Act could be waived as per sub-section (2A) of section 220 on the ground of genuine hardship and circumstances beyond the control of the assessee. 5. The learned Chief Commissioner considered the petitioner's prayer for waiver of interest in accordance with the Central Board of Direct Taxes order issued under section 119(2)(a) of the Act dated June 26, 2006, in F. No. 400/29/2002 IT (B) which was in force on the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and a registered stock broker of the stock exchange. Cash of Rs. 2.20 lakhs, gold of Rs. 14.41 lakhs and shares of Rs. 10.71 lakhs were seized in November, 1992, when the share market was at peak due to the Harshad Mehta's scam. The assessee's request to release the shares promptly, or else, it would lose value was not heeded to and they were released only in March, 1994, when the market had crashed and they were not even worth the paper it was printed on. Though the Department cannot pay any compensation, at least it can waive the interest levied r various provisions of the Act. 8. It was further submitted that interest under section 220(2) has been levied for the period from December 29, 1996 (30 days after the intimation under section 143(1)) till January 5, 1998, when the entire dues were cleared up. This interest was levied for the first time in an order passed at the instance of the petitioner under section 154 of the Act on March 31, 2006. Before such levy, no opportunity of being heard was afforded to the petitioner. No notice of demand as provided under section 156 of the Act has also been served on the petitioner pursuant to such order. According to him, normally th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 002-IT(B), directed the Chief Commissioners of Income-tax and Director Generals of Income-tax that they might reduce or waive interest under section 234A or 234B or 234C of the Income-tax Act, 1961, in the classes of income or classes of cases specified in the said order. Since the petitioner filed the petition for waiver of interest on July 24, 2006, it was to be disposed of in terms of the Central Board of Direct Taxes order under section 119(2)(a) of the Act dated June 26, 2006, which was in force at that time and not in terms of earlier order dated May 23, 2006. 11. According to learned counsel, the due date for filing return for the assessment year 1993-94 was October 31, 1993, and the assessee filed the return for the said assessment year on March 29, 1995, and by the time of filing of the return the petitioner was well aware that interest shall be charged under sections 234A, 234B and 234C. Hence, he should have filed the petition for waiver of interest before the Chief Commissioner much earlier than July 24, 2006. 12. He further submitted that the documents seized on November 14, 1992, in the hands of the petitioner do not apparently show any relevance for filing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seizure of cash and the same was not allowed to be utilized for payment of advance tax and disabled the assessee from paying advance tax, the reduction or waiver of interest under sections 234B and 234C can be considered by the Chief Commissioner or the Director General. The Chief Commissioner has not considered the petitioner's case for waiver of interest in terms of notification dated May 23, 2006, but considered the same under a later notification dated June 26, 2006. 16. In this context, it is necessary to know what is contemplated in the notification dated May 23, 2006. The relevant portion of the said notification is quoted below: "2. The class of incomes or class of cases in which the reduction or waiver of interest under section 234A or section 234B or, as the case may be, section 234C can be considered, are as follows............. (b) Where during the course of search and seizure operation under section 132 of the Income-tax Act, cash is seized which is not allowed to be utilized for payment of advance tax instalment or instalments as they fall due after the seizure of cash and the assessee has not paid fully or partly advance tax on the current income and the Chie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated March 27, 1993, which was received by the Department on March 29, 1993, (annexure 21), the petitioner has accepted the action of the Department in treating the cash of Rs. 2.20 lakhs seized during the search against the tax liability of the assessee as an individual in order dated March 11, 1993, passed under section 132(5) of the Act. Apart from the above, it is further noticed that even though the due date for payment of advance tax towards first instalment expired on September 15, 1992, i.e., prior to the date of search operation, the assessee had not paid any advance tax. 18. Thus, in the absence of seizure of any cash belonging to "HUF" during the search operation, the petitioner's case is not covered under the notification dated May 23, 2006, for the purpose of waiver of interest charged under sections 234B and 234C of the Act. Therefore, levy of interest under sections 234B and 234C in the present case is justified. 19. Now, the second question that arises for consideration is whether the learned Chief Commissioner is justified in considering the petitioner's case in terms of later notification dated June 26, 2006, issued under section 119(2) of the Act which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Assessing Officer. Even though section 154(8) of the Act provides that petition filed under the said section for rectification is to be disposed of within six months from the date of application by allowing amendment or refusing to allow, the same was not disposed of by the Department within the statutory period. In the present Case, petition under section 154 of the Act for rectification of the mistake apparent from the appeal effect order dated August 2, 2004 (which was served on the assessee on 'December 7, 2004) was made to the Assessing Officer on January 5, 2005. The Assessing Officer, with utter disregard to the statutory provision contained in section 154(8) disposed of the rectification petition on March 31, 2006, only, i.e., after expiry of more than one year and two months from date of receipt of the application for rectification. To get the aforesaid rectification petition dated January 5, 2005, disposed of, the petitioner had to file first reminder on September 13, 2005, and second reminder on November 24, 2005. When this yielded no result on January 19, 2006, the petitioner filed a grievance petition and complaint before the Commissioner of Income-tax. On Febru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the part of authorities acting on behalf of the Revenue in the matter of collection of tax. In order to gain faith of the assessees and create confidence in the minds of the taxpayers, which is very much essential for smooth administration of tax law, the income-tax authorities must act in a fair and legal manner. 23. The other aspect of the case is that, the Assessing Officer issued intimation dated November 29, 1995, under section 143(1) of the Act. Sub-section (1) of section 220 envisages that any amount otherwise by way of advance tax specified or payable in notice of demand under section 156 shall be paid within 30 days of service of the notice on the assessee. As per sub-section (2) of section 220, if the amount specified in any notice of demand under section 156 is not paid within the period limited under sub-section (1), the assessee shall be liable for interest for the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the date on which the amount is paid. In the present case, interest under section 220(2) of the Act amounting to Rs. 67,950 is levied for the first time in the order dated March 31, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and complaint before the Commissioner of Income-tax to get its rectification petition disposed of, the Assessing Officer while disposing of the rectification petition, vide order dated March 31, 2006, under section 154 of the Act, levied interest amounting to Rs. 67,950 under section 220(2) of the Act. This type of arbitrary and whimsical action of the Assessing Officer is not permissible under the law. 24. Now, another important aspect of the case is whether the Assessing Officer assumes jurisdiction to levy interest under section 220(2) of the Act in a proceeding under section 154 of the Act, that too initiated at the instance of the assessee for its benefit. In the present case, as stated above interest under section 220(2) of the Act has been levied for the first time on March 31, 2006, in an order passed under section 154 of the Act, pursuant to a petition moved by the petitioner on January 5, 2005, for rectification of mistake apparent from the appeal effect order dated August 2, 2004 (which was served on the assessee on December 7, 2004). Such a levy of interest under section 220(2) is wholly illegal. In the case of Birla Cotton Spinning and Weaving Mills Ltd. v. ITO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable." 27. The hon'ble Supreme Court in the case of Mohan Wahi v. CIT reported in [2001] 248 ITR 799 held that section 156 provides for a vital step to be taken by the Assessing Officer without which the assessee cannot be termed a defaulter. The use of the term "shall" in section 156 implies that service of the notice of demand is mandatory before initiating recovery proceedings and constitutes the foundation of subsequent recovery proceedings. This court in the case of ITO v. Manmohanlal reported in [1988] 173 ITR 10 held that no recovery proceeding can be initiated against an assessee unless and until a demand notice is served upon him. Sub-section (6) of section 154 of the Act also casts an obligation on the Assessing Officer to serve on the assessee a notice of demand in the prescribed form specifying the sum payable where any such amendment has the effect of enhancing the assessment or reducing the refund already made and such notice of demand shall be deemed to be issued under section 156 and the provisions of the income-tax shall apply accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment order under section 143(1) till January 5, 1998, which resulted in levy of the interest under section 220(2). The copies of the medical records are enclosed herewith marked as annexure 31." 30. Similarly, the petitioner's assertions in paragraph 59 of the writ petition are that the petitioner had paid all the admitted taxes amounting to Rs. 1,40,116 and had fully co-operated with the Department. The assertions made in paragraphs 44, 58 and 59 of the writ petition have not been specifically controverted by the opposite parties in their counter-affidavit. Section 220 (2A) deals with the provisions, for reduction/waiver of amount of interest payable by the assessee under section 220(2) of the Act. Section 220(2A) is reproduced below "220. (2A) Notwithstanding anything contained in sub-section (2), the Chief Commissioner or Commissioner 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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