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Manicka Chettiar and Sons Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1984)7ITD387(Mad.)
AppellantManicka Chettiar and Sons
Respondentincome-tax Officer
Excerpt:
.....as may be prescribed the ito may reduce or waive the interest payable by an assessee. the relevant rule for waiver of interest is rule 40 of the income-tax rules, 1962 ('the rules'). this rule reads as under : the income-tax officer may reduce or waive the interest payable under section 215 or section 217 in the cases and under the circumstances mentioned below, namely- (1) when the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee. (2) where a person is under section 163 treated as an agent of another person and is assessed upon the latter's income. (3) where the assessee has income from an unregistered firm assessed under the provisions of clause (b) of section 183. (4) where the.....
Judgment:
1. This appeal is by the assessee. It is against the order of the AAC confirming the order passed by the ITO levying interest under Section 217(1A) of the Income-tax Act, 1961 ('the Act') of Rs. 8,374 for the assessment; ear 1974-75.

2. According to the assessee rectification of the assessment under Section 154 of the Act was not warranted. As certain facts are not evident from the orders of the authorities below, we ascertained the same with reference to the records since in any event what we have to decide is whether there was any mistake apparent from the record which could be rectified. By a notice served on 9-7-1973, a demand was made calling upon the assessee with reference to the last assessed income, for the assessment year 1972-73 which was a total income of Rs. 1,53,280, to pay advance tax of Rs. 14,068. It is seen from the challans on record that the assessee paid a higher amount of advance tax of Rs. 18,078 in the financial year 1-4-1973 to 31-3-1974. Thus, this is a case where the assessee had filed an estimate showing higher advance tax payable under the provisions of Section 212(3A) of the Act.

The assessee filed return of income showing the total income at Rs. 1,82,165 on 30-7-1974. Thereafter, there is an order sheet entry posting the case under Section 143(2) of the Act to 29-10-1976. The assessee sought an adjournment and the case was reposted to 2-11-1976, when again time was sought to file revised trading accounts, etc. At a next hearing on 29-1-1977 further particulars were called for by the ITO and the case was adjourned to 31-1-1977. The next order sheet entry dated 22-3-1977 shows that a revised return showing an income of Rs. 1,82,340 was filed on 15-3-1977. However, the date stamp on the return is 30-3-1977 and the assessment was completed on 30-3-1978 on a total income of Rs. 1,82,340. The tax demanded was Rs. 35,972 against which credit was given for advance tax paid of Rs. 18,878. In this assessment order, no interest under Section 217(1A) was levied.

Subsequently, the ITO considered that there was a mistake apparent from the record and wanted to levy interest under Section 217(1A) and issued a notice calling upon the assessee to adduce objections, if any. The assessee stated that there was no mistake apparent from the record, but there was a point of debate in a letter dated 11-6-1981 and further stated that interest could not be levied under Section 154 when the same ought to have been considered only at the time of raising the original demand. The ITO did not accept the plea of the assessee and levied interest of Rs. 8,374 taking recourse to Section 154 with reference to the provisions of Section 217(1A) stating that interest was omitted to be charged originally. This order is dated 25-6-1981. In the meanwhile, the assessee filed an appeal to the AAC who did not accept the plea that there was no mistake apparent from the records and held that it could not be inferred that the ITO had considered the levy of interest while making the assessment originally and in the exercise of his discretion had omitted to levy interest. The appeal was, therefore, dismissed by the order dated 17-12-1982. It appears that the assessee had sought waiver of interest by a petition to the IAC dated 22-9-1981 but no orders were passed on that. Several reasons were urged namely that the assessee-firm was entitled to huge refunds in the earlier years and lot of rectifications to be made and that the assessee genuinely believed that the advance tax estimate filed was correct, etc.

3. In the appeal before us, the learned counsel relied upon the judgment of the Supreme Court in the case of S.A.L. Narayan Row v.Ishwarlal Bhagwandas [1965] 57 ITR 149. It was submitted that the ITO should be deemed to have applied his mind at the time of the original assessment and had not levied interest under Section 217(1A) and in any view of the matter, the issue involved was debatable and the provisions of Section 154 could not be invoked.

4 The learned departmental representative, on the other hand, submitted that the present was a case where the ITO clearly omitted to levy interest under Section 217(1A) while framing the original assessment and, therefore, the provisions of Section 154 would apply.

5. We have considered the rival submissions. The provisions of Section 217(1A) read as under : Where, on making the regular assessment, the Income-tax Officer finds, that any person who is required to send an estimate under Sub-section (4) of Section 209A or any such person as is referred to in Sub-section (3A) of Section 212 has not sent the estimate referred to therein, a simple interest at the rate of twelve per cent per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance with the said Sub-section (4) or, as the case may be, Sub-section (3A) up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax paid by paid falls short of the assessed tax as defined in Sub-section (5) of Section 215.

The provisions of Sub-sections (2), (3) and (4) of Section 215 shall apply to interest payable under this section as they apply to interest payable under that section.

The provisions of Section 215(4) of the Act, therefore, become applicable for considering whether interest is leviable or not under the provisions of Section 217(1A) by virtue of the provisions of Section 217(2). Section 215(4) provides that in such cases and in such circumstances as may be prescribed the ITO may reduce or waive the interest payable by an assessee. The relevant rule for waiver of interest is Rule 40 of the Income-tax Rules, 1962 ('the Rules'). This rule reads as under : The Income-tax Officer may reduce or waive the interest payable under Section 215 or Section 217 in the cases and under the circumstances mentioned below, namely- (1) When the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee.

(2) Where a person is under Section 163 treated as an agent of another person and is assessed upon the latter's income.

(3) Where the assessee has income from an unregistered firm assessed under the provisions of Clause (b) of Section 183.

(4) Where the previous year is the financial year or any year ending about the close of the financial year and large profits are made after the 1st March (or the 15th March in cases where the proviso to Section 211 applies), in circumstances which could not be foreseen.

(5) Any case in which the Inspecting Assistant Commissioner considers that the circumstances are such that a reduction or waiver of the interest payable under Section 215 or Section 217 is justified.

It could be seen that under the first four Sub-clauses of Rule 40, reduction or waiver of interest can be made in the circumstances specified in each of the Sub-rules by the ITO himself without reference to any other authority. It is only where the circumstances do not fit into any of the specific Sub-rules of Rule 40, that the matter has to be referred to the IAC under Sub-rule (5) of Rule 40. Thus, there an assessment is completed more than one year after submission of the return and the delay in completing the assessment is not attributable to the assessee, the ITO himself is competent to waive the interest.

The next question that arises for consideration is whether waiver of interest in such a case can be made where an application is not made by the assessee. In other words, the point for decision is whether the existence of an application making a request for waiver is a condition precedent to the ITO exercising his discretion within the terms of Rule 40(1). In the present case, admittedly, there was no application for waiver of interest prior to the computation of the assessment which was on 30-3-1978. An application for waiver was submitted to the ITO dated 22-9-1981. In S.A.L. Narayan Row's case (supra), the Supreme Court having regard to the provisions of Rule 48(1) of the rales, framed under the Indian Income-tax Act, 1922 which had retrospective operation and which relate to the waiver of interest observed as under : The Attorney-General contended that in any event there was nothing to show that the Income-tax Officer had purported to exercise his discretion when he passed the order of assessment and did not impose any liability for payment of interest tinder Section 18A(6). That may be so. But the case of the assessee did fall within the terms of Rule 48(1) and the Income-tax Officer must in law be bound to consider whether he was entitled to rednctionor waiver of interest under the fifth proviso. The amendment and the rules which came into operation later must in view of the retrospective operation be deemed to be then extent and the fact that the Income-tax Officer could not in making the assessment have adjusted his approach to the problem before him in the light of those provisions is irrelevant in considering the legality of his order. The order of the Income-tax Officer which did not take note of the law deemed to be in force must be regarded as defective. The matter was brought before the Commissioner of Income-tax and it is unfortunate that the Commissioner in considering the matter under Section 33A assumed that the Amending Act 25 of 1953 had no retrospective operation and rejected the claim of the assessee on the ground that at the date when the order of assessment was made, Act 25 of 1953 had not come into operation and that the Act became effective as from December 1953, when the rules were framed. In so holding, the Commissioner committed an error of law apparent on the face of the record. The High Court was therefore right in setting aside the order which was passed by the Commissioner without considering the proviso to Section 18A(6) which was clearly applicable to the ease of the assessee and in the light of Rule 48 which was enacted in pursuance of that proviso. (p. 163) The Supreme Court held that the amendment to the rules which came into operation in later years in view of the retrospective operation be deemed to be then extent and the ITO must be bound in law to consider whether the assessee was entitled to reduction or waiver of interest as provided under Rule 48(1) read with fifth proviso to Section 18A(6) of the 1922 Act. Therefore, it is clear that for considering waiver, the existence of an application from the assessee was not a prerequisite.

In the present case, when the ITO made the assessment the provisions of Section 217(2) and the provisions of Section 215(4) were factually in existence and also the provisions of Rule 40(1), which laid down certain conditions under which interest could be waived. Since the existence of an application for waiver is not a prerequisite for the aforesaid provision being attracted, the ITO must in law, therefore, be considered to have examined whether the assessee was entitled to reduction or waiver of interest under the aforesaid provisions. The ITO originally did not levy interest. Under the provisions of Rule 40(a) where the assessment is completed more than one year after the submission of the return, the delay in completing the assessment not being attributable to the assessee, interest can be reduced or waived.

In the present case, the original return was filed on 30-7-1974. An application for waiver is not a prerequisite for waiver of interest.

The assessment was completed on 30-3-1978. No doubt, on two or three occasions which itself was only after about two years of filing the return when the case was posted for hearing, the assessee sought for adjournment, but after the assessee filed the revised return, a year lapsed before the order of the assessment was made. Whether in Rule 40(1) the date on which the return was filed and completion of the assessment more than one year after submission of return refers to date of submission of the original return or whether in the circumstances the revised return filed is to be construed as a return within the meaning of Rule 40(1) is essentially a debatable matter. In the present case, from the narration of facts, it is also equally arguable whether there was any delay which could be attributable to the assessee. Merely because a couple of adjournments had been sought much earlier on hearing dates themselves which were about two years after filing of the original return, it does not follow that any delay in completion of assessment could be attributed to the assessee and here again, therefore, the matter whether there was any delay attributable to the assessee or not becomes one of argument. In view of the ratio of the decision of the Supreme Court in the case referred to, it is clear that when a case falls under Rule 40(1) if interest is omitted to be levied, an inference is permissible that such omission was in the exercise of discretion by the ITO provided the circumstances fell within the scope of the Sub-rule. In the present case, whether the circumstances provided in the Sub-rule themselves are satisfied is entirely a matter of debate. Rule 40(1) unlike Rule 40(5) does not require the concurrence of any other authority apart from the ITO himself for the waiver or reduction of interest. In these circumstances, we come to the conclusion that the ITO was not justified in invoking the provisions of Section 154 and the AAC was not justified in upholding such order. We accordingly cancel the orders of the authorities below and allow the assessee's appeal.


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