COROMENDAL INDAG PRODUCTS INDIA LTD. vs COMMISSIONER OF INCOME TAX and Another

N. V. Balasubramanian, J.

This writ petition is filed for the issue of a writ of certiorarified mandamus calling for the records relating to the petitioner on the file of the first

respondent in C. No. 1742/1/89/90/Central II, dated 20-9-1989, and to quash the impugned order passed therein and consequently direct the

first respondent to grant relief of waiver of interest to the petitioner for the assessment year 1985-86.

The petitioner is a deemed public limited company engaged in the manufacture and sale of agro-chemicals. For the assessment year 1985-86

relevant to the accounting year ended on 30-6-1984, the petitioner, who is an assessee on the file of the Assistant Commissioner, Central Circle II

(2), filed return of income on 28-6-1985, returning a sum of Rs. 1,37,12,872. The petitioner, for the year ended 30-6-1984, filed an advance tax

estimate in Form 29 on 15-6-, 15-9 and 15-12-1984 and also paid advance tax accordingly. According to the averments contained in the affidavit

filed in support of the writ petition, the petitioner has stated that later the petitioner filed a revised return disclosing a sum of Rs. 215.58 lakhs on

18-2-1988, after taking into account customs duty element on closing stock of raw materials at factory and revised computation for tax holiday

benefit u/s 80-I of the Income Tax Act, 1961, on the basis of the directions given by the Commissioner (Appeals) in ITA No. 466/86-87, dated

13-4-1987, for the assessment year 1983-84. The case of the petitioner is that the petitioner filed the revised return voluntarily. According to the

petitioner, when the petitioner paid Rs. 97.50 lakhs as advance tax and filed be advance estimate, the petitioner could not have anticipated the

directions given by the Commissioner (Appeals) for the assessment year 1983-84 and hence, the shortfall in the payment of advance tax arose.

The Income Tax Officer determined the total income at Rs. 2,26,80,760 and also levied interest u/s 217(1)(a) of the Income Tax Act of a sum

of Rs. 19.86 lakhs for the period from 1-4-1985 to 29-2-1988, in the order of assessment. The petitioner filed a petition under rule 40 of the

Income Tax Rules, 1962 for the waiver of interest levied u/s 217(1)(a) of the Income Tax Act on the ground that the petitioner filed valid estimate

for advance tax and also paid the advance tax on the basis of the said estimate. It is the case of the petitioner that the additions made and the

revisions submitted by the petitioner during the course of the assessment proceedings were not contemplated at the time of filing estimate for

advance tax and the assessment has also been completed after one year subsequent to submission of the return and the delay in the completion of

the assessment was not attributable to the assessee and the assessee has disputed certain additions made by the Inspecting Assistant

Commissioner and also filed appeals before the Commissioner (Appeals).

The second respondent by his order dated 5-1-1989, waived interest to the extent of Rs. 11,20,226 on the ground that the assessment has

been completed more than one year after the submission of the return and the delay in completing the assessment was not attributable to the

petitioner, In other words, the second respondent has confirmed the levy of interest, to an extent of a sum of Rs. 8,40,168. The petitioner then

approached the Deputy Commissioner raising almost same grounds which were raised before the Assistant Commissioner and the Deputy

Commissioner by his order dated 22-2-1989, dismissed the petition for waiver on the ground that the assessee has not made out any case for

waiver of interest.

The petitioner/assessee then preferred a petition u/s 264 of the Income Tax Act before the first respondent. It was submitted by the petitioner

that the petitioner on the basis of the directions of the Appellate Assistant Commissioner for the earlier assessment year regarding valuation of

closing stock of raw material in respect of imported chemicals and the determination of relief u/s 80-I of the Income Tax Act has revised its income

voluntarily on the basis of the direction and hence, the levy of interest as if the petitioner has not filed correct estimated amount of income for the

purpose of advance tax is not justified. It was also submitted that the levy of interest would seriously affect the financial position of the petitioner-

company and the petitioner has not committed any wilful default and the petitioner has cooperated with the department in the completion of the

assessment.

The Commissioner rejected the petition filed by the petitioner u/s 264 of the Income Tax Act on the ground that the question of levy of interest

arose only when there is variation between the estimated income and the assessed income and the genuineness of the claim is relevant only for the

purpose of levy of penalty and not for the purpose of levy of interest. The other ground pointed out by the Commissioner was that the petitioner

did not file any revised return but filed only the revised statement of income and the petitioner did not pay tax u/s 140A of the Income Tax Act.

Therefore, the Commissioner held that the assessing officer has properly exercised jurisdiction in levying interest. The Commissioner ultimately held

that the petitioner is not entitled to any further waiver of interest. The petitioner is challenging the order of the Commissioner in this writ petition.

Mr. P.P.S. Janarthana Raja, learned counsel appearing for the petitioner, submitted that the Commissioner has not applied his mind to the

relevant considerations for waiver of interest under rule 40 of the Income Tax Rules. According to him, it is a case where the assessee could not

have anticipated the directions from the appellate authority at the time of filing the estimate of advance tax and the necessity to file the revised

statement of income arose because of certain directions given by the Commissioner (Appeals) for the earlier assessment year with regard to

customs duty element on closing stock of raw material at factory and in the matter of relief u/s 80-I of the Income Tax Act and as soon as the

order of the Commissioner (Appeals) became available, the revised statement of income was filed during the course of assessment proceedings for

the year 1985-86 and the petitioner/assessee has revised the income voluntarily. According to him, both the reasons given by the Commissioner

are not germane in considering the question whether the interest should be waived or not under rule 40 of the Income Tax Rules. According to him,

since the Commissioner has not taken into consideration the relevant matters, this court should set aside the order and examine the question

whether the petitioner is entitled to the waiver of interest or not. Learned counsel for the petitioner also submitted that the levy of interest is violative

of the principles of natural justice as the second respondent has not given any prior notice before levying interest u/s 217(1)(a) of the Income Tax

Act and in support of his submissions, he relied upon certain decisions.

Mr. C.V. Rajan, learned senior standing counsel appearing for the department relied upon the decision of this court in Salem Co-operative

Sugar Mills Ltd. Vs. Commissioner of Income Tax, wherein this court held that prior notice is not necessary to levy interest under the Income Tax

Act. Learned senior standing counsel also referred to the order of the Assistant Commissioner wherein it is stated that the assessee could have

anticipated the additions at the time of filing the advance tax estimate and that the assessee had deliberately undervalued the closing stock of raw

materials by ignoring the customs duty paid on such material. Learned senior standing counsel also referred to the order of the Commissioner

wherein he has reiterated that the assessee would have anticipated the additions regarding customs duty and the relief u/s 80-I of the Income Tax

Act. Learned senior standing counsel also referred to the order of the Commissioner and submitted that the Commissioner has found that the

assessing officer has already exercised the power vested with him and reduced the interest to Rs. 8.40 lakhs against the original levy of interest of

Rs. 19.85 lakhs and submitted that the facts of the case make it clear that the levy of interest is justified and there are no grounds to interfere.

Before considering the question whether the Commissioner has properly exercised the power u/s 264 of the Income Tax Act, it is necessary to

mention the decision of this court in Salem Co-operative Sugar Mills Ltds case (supra) wherein this court held that the levy of interest is a part of

the process of assessment and the assessing authority is not compelled to give a show-cause notice before levying interest and no prior notice is

necessary before the levy of interest u/s 215 of the Income Tax Act. In view of the same, I am unable to accept the submission of the learned

counsel for the petitioner that prior notice is necessary.

There is no dispute that the petitioner- company filed return of income for the assessment year 1985-86 on 28-6-1985, wherein the total

income of Rs. 1,37,12,872 was declared. The assessee filed Form 29 on 15-6-1984, wherein income subject to advance tax was shown as Rs.

142.40 lakhs and advance tax payable was shown as Rs. 90 lakhs. On 15-12-1984, the assessee also filed another estimate wherein income

subject to advance tax was shown as Rs. 154.75 lakhs and advance tax payable was shown as Rs. 92,85 lakhs, The petitioner- company filed its

regular return on 28-6-1985. During the course of the assessment proceedings, the petitioner filed a revised statement of total income wherein the

income liable to be taxed was shown as Rs. 2,15,58,192 as the assessee has increased the value of the closing stock of the imported raw materials

at factory after taking into account the customs duty paid on such stock and the assessee has also revised its claim u/s 80-I of the Income Tax Act.

Though interest was levied u/s 217(1)(a) of the Income Tax Act, for the period from 1-4-1985, it is actually the interest u/s 215 of the Income

Tax Act and the Assistant Commissioner has reduced the interest payable by the assessee to Rs. 19,60,394 and a sum of Rs. 11,20,226 levied as

interest was waived. It is no doubt true that both the Assistant Commissioner and the Deputy Commissioner have held that the additions made

could have been anticipated by the assessee and on that basis the assessee should have estimated the advance tax. When the matter reached the

Commissioner, the Commissioner gave two reasons. The first reason given by the Commissioner was that the voluntary act of the petitioner in filing

the statement of revised income cannot be taken into account for the waiver of interest. The second reason was that the assessee did not file

revised return, but the assessee merely filed revised statement of total income and the assessee did not pay any tax u/s 140A of the Income Tax

Act.

In my view, both the reasons given are not relevant at all in considering the question whether the interest levied u/s 215 of the Income Tax Act

should be waived or not under rule 40 of the Income Tax Rules. In my view, the view of the Commissioner that the voluntary act of the assessee

would be relevant for the purpose of waiver of penalty and not for the purpose of waiver of interest is not relevant. I am of the view that if the view

of the Commissioner that the levy of interest is automatic, and the question whether the assessee has filed the estimate voluntarily or not is

accepted, then, there can be (no) waiver of interest at all in any case of levy of interest. Hence, the first reason given by the Commissioner that the

levy of interest in automatic is not relevant for the purpose of considering the application filled under rule 40 of the Income Tax Rules. The second

reason given was that the petitioner has not filed any revised return, but only filed the revised statement of income and hence, the petitioner is not

entitled for waiver of interest. In my view, the second reason given by the Commissioner is also not relevant. Let me assume that the petitioner filed

the revised return of income and in that case, it would be required to pay the tax u/s 140A of the Income Tax Act. On the facts of the case, the

petitioner filed its return of income on 28-6-1985, and the petitioner filed the revised statement of income on 8-2-1988, and the Assistant

Commissioner also found that the assessment was completed more than one year after the submission of the return and the delay was not

attributable to the assessee and hence, the interest charged for the period after one year, i.e., from 28-6-1986, was waived under rule 40(i) of the

Income Tax Rules. Therefore, the filing of the revised statement on 8-2-1988, has no relevance at all as the interest charged for the period

subsequent to 8-2-1988, was waived and the question for consideration is whether the petitioner is eligible for waiver of interest for the period

from 1-7-1985, to 30-6-1986.

I am, therefore, of the view that both the reasons given by the Commissioner are not relevant and the Commissioner has not taken into account

the relevant factors whether the petitioner would have anticipated the order of Commissioner (Appeals) at the time of filing of the advance tax

estimate and other relevant circumstances whether the petitioner has made out any case for waiver of interest. Therefore, the order or the

Commissioner is liable to be set aside, and accordingly, it is set aside. Though Mr. P.P.S. Janarthana Raja, learned counsel, made a fervent plea

that the matter need not be remitted to the Commissioner and this court itself may consider the matter on merits of the case, I am not inclined to

agree with the submission of the learned counsel for the petitioner as the Commissioner is entrusted with the powers u/s 264 of the Income Tax

Act to consider the question of waiver of interest. Since the Commissioner has arrived at his conclusion not on valid grounds, the order of the

Commissioner is set aside. I direct the Commissioner to consider the matter afresh. Accordingly, the matter is remitted to the Commissioner for

fresh consideration.

In the result, the writ petition is allowed and the matter is remitted to the Commissioner. In the circumstances, there will be no order as to

costs. Consequently, WMP No. 19763 of 1989 is closed.