Gupta Builders Pvt. Ltd. vs Commissioner of Income Tax and others

T.D. Sugla, J.—The petitioner company has, by this petition under article 226 of the Constitution of India, challenged the legality and the validity of the two orders both dated July 9, 1987 (exhibits J-1 and J-2), passed by the Commissioner of the Income Tax, Bombay City III, Bombay, the first respondent herein, u/s 264 of the Income Tax Act, 1961, in so far as the Commissioner has refused to waive interest chargeable u/s 217 for the assessment year 1977-78 and under sections 139(8) and 217 for the assessment year 1978-79.

It is pertinent to mention that interest u/s 139(8) is chargeable for not filing the return of income within the item prescribed under the Act whereas interest u/s 217 is chargeable of not filing the estimate of advance tax payable u/s 212(3) of the Income Tax Act, 1961. There is not dispute that the returns for the two years were not filed in time and that the petitioner had also not filed the estimate of advance tax payable by it u/s 212(3). Interest under both sections was, thus, chargeable and was in fact charged. Under rules 40 and 117A of the Income Tax Rules, there is a provision for waiver and/or reduction of interest charged or chargeable u/s 217 and u/s 139(8) in circumstances mentioned in those rules. The petitioner applied to the appropriate authority for waiver and reduction of interest under the aforesaid rules. The applications were rejected. The petitioner, thereafter, filed revision petitions before the Commissioner u/s 264 of the Income Tax Act, 1961, which were also rejected by the Commissioner except with regard to interest charged u/s 139(8) for the assessment year 1977-78.

The petitioner''s case was that it satisfied the conditions laid down in sub-rule (5) of rule 40 and sub-rule (v) of rule 117A and, therefore, the Commissioner was under an obligation to exercise his discretion but failed to do so. The reason for not filing the returns on time was stated to be absence of books of account for the period up to August 9, 1976, which were seized and were in the custody of the Department up to 1985. The reason for not filing the estimate of advance tax payable u/s 212(3) was stated to be the assessee''s bona fide belief that it had not income and, therefore, no obligation to file the estimate.

For the purpose of appreciation of the rival contentions, it is desirable to refer to the provisions of rule 40(5) and rule 117A(v) which read thus :

"40. Waiver of interest. - The Income Tax Officer may reduce or waive the interest payable u/s 215 or section 217 in the cases and under the circumstances mentioned below, namely :- ......

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

"117A. Reduction or waiver of interest payable u/s 139. - The Income Tax Officer may reduce or waive the interest payable u/s 139 in the cases and in the circumstances mentioned below namely :- ....

(v) any case in which the assessee produces evidence to the satisfaction of the Income Tax Officer that he was prevented by sufficient cause from furnishing the return within time :

Provided that....."

Undoubtedly, the Income Tax Officer has discretion both under rule 40 and rule 117A to reduce or waive interest u/s 139(8) and/or interest under sections 215 and 217. However, when the circumstances in which he can exercise discretion are enumerated in the rules, the Income Tax Officer will not have merely a discretion but a duty to waive or reduce interest in a case that squarely falls within the circumstances enumerated. The discretion may, thus, be limited to whether, in a given case, depending upon several other factors such as the gravity of the default, the loss occasioned to the Revenue, etc., he would like to waive the interest altogether or would reduce it and if so to what extent.

Under these sub the discretion to exercise the power of waiver or reduction is conditional, in case of interest u/s 139(8) upon whether the assessee produces evidence to his satisfaction that he was prevented by sufficient cause from furnishing the return within time and in the case of interest u/s 217, upon whether the circumstances are such that a reduction or waiver of interest is justified.

Thus, the exercise of discretion under rules 40(5) and 117A(v) is conditional upon the satisfaction of the authority concerned as to the existence of appropriate circumstances. The conclusion whether appropriate circumstances exist or do not exist will ordinarily be a finding of fact. But even a finding of a fact can be reviewed by this court in writ jurisdiction in exceptional circumstances such as where the finding is not supported by any evidence or is perverse or based upon a view of facts which could never be reasonably entertained. However, the High court cannot reappreciate the evidence itself as an appellate court or correct the error of fact (not going to jurisdiction) even if apparent on the ground that the evidence on which it was based was not satisfactory or sufficient. In other words, the court in writ jurisdiction is not to interfere with or reverse the conclusion of the Tribunal, if the conclusion is a possible conclusion. It cannot substitute its decision for that of the Tribunal. It can, of course, interfere only if the conclusion arrived at by the Tribunal is unreasonable not in the sense that the court considers it to be unreasonable but that it is what the court considers is a conclusion which no reasonable person could have come to.

As far as the petitioner''s case for reduction waiver of interest under rule 40(5) is concerned, it is seen that the petitioner''s case has been that, for the assessement year 1973-74, 1974-75, 1975-76 and 1976-77, it had suffered losses amounting to about Rs. 5,00,000. The estimates of advance tax payable for the two years were to be filed on or before March 15, 1977 and March 15, 1978. Though it had earned considerable income during these years. It had not obligation to file estimates of advance tax payable as :-

(i) Losses suffered during the assessment years 1973-74, 1974-75, 1975-76, 1976-77, if allowed to be carried forward, would have wiped out the entire income for the assessment year 1977-78 and substantially reduced the income for the assessment year 1978-79; and

(ii) There was no reason for the petitioner to expect that it would earn income in those years having regard to the fact that, in the earlier four years, it had suffered heavy losses.

The obligation to file the estimate of advance tax payable in the case of the petitioner was at the relevant time u/s 212(3) of the Income Tax Act, 1961. The provision reads as under :

"212. (3) Any person who has not previously been assessed by way of regular assessment under this Act or under the Indian Income Tax Act, 1922(11) of 1922), shall be each financial year, before the date on which the last installment of advance tax is due in his case under sub-section (1) of section 211, if his current income is likely to exceed the amount specified in sub-section (2) of section 208, send to the Income Tax Officer an estimate of -

(i) the current income, and

(ii) the advance tax payable by him on the current income calculated in the manner laid down in section 209, and shall pay such amount of advance tax as accords with his estimate on such of the dates applicable in his case u/s 211 as have not expired, by installments which may be revised according to sub-section (2)".

In order to bring its case within rule 40(5), the argument advanced was that, in the circumstances mentioned earlier, the petitioner bona fide believed that it had not obligation to file the estimate u/s 212(3) and that would be a circumstance justifying reduction or waiver of interest charged or chargeable u/s 217. The Commissioner has not accepted the petitioner''s claim. It is neither possible nor desirable for this court to interfere with this conclusion of the Commissioner in writ jurisdiction. It is pertinent to mention that loss suffered by an assessee in a particular year or years is not automatically carried forward to be set off against the profits in the following years. Section 80 categorically provides that :

"Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed u/s 139, shall be carried forward and set off under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) of section 74 or sub-section (3) of section 74A."

In the circumstances, the petitioner''s belief that losses suffered by it for the assessment years 1973-74 to 1976-77 can be set off against its profits for the assessment years 1977-78 and 1978-79, particularly when it had not even filed the returns before the last date on which it could have filed the estimate of income u/s 212(3) could not be and was rightly not given any credence by the Commissioner. The arguments that, AEX having regard to the losses suffered in four earlier assessment years, the petitioner could not be expected to earn profits is too good to be accepted. The fact is that the petitioner did not earn profits exceeding Rs. 1,00,000 for the assessment year 1977-78 and exceeding Rs. 5,00,000 for the assessment year 1978-79. The estimates were to be filed on March 15, 1977, and March 15, 1978, when 11 1/2 months of the previous year were already over. Therefore, the question of expectation could not possibly arise. The conclusion of the Commissioner in this behalf as to the absence of circumstances justifying reduction or waiver of interest u/s 217 is, thus, justified. In any event, it is a conclusion of fact based on cogent material. Therefore, This court will not like to review it in its writ jurisdiction.

The same cannot, however, be said of interest charged u/s 139(8). It is pertinent to mention that interest u/s 139(8) was charged for both the assessment years 1977-78 and 1978-79, returns of income for which were filed on March 6, 1985, and March 29, 1985, respectively in response to notices issued u/s 148. Primarily, on the ground that the books of account and documents of the petitioner were seized by the Department on August 9, 1976, and were returned in the year 1985 only, the Commissioner accepted the petitioner''s claim for the assessment year 1977-78 that it was presented by sufficient cause from furnishing the return within time and deleted interest for that year. Observing, however, that the books for the financial year 1977-78 relevant for the assessment year 1978-79 were all through with the petitioner, the Commissioner rejected the petitioner''s contention that in the absence of finalisation of accounts for the earlier financial year. It was not possible for it to finalise its accounts for the subsequent previous year. It is pertinent to mention that the petitioner filed its return for the assessment year 1978-79 within 23 days of the filing of the return for the assessment year 1977-78. In the case of a limited company, it is necessary to have its accounts audited. The accounts for the assessment year 1978-79 could not have been finalised and audited until the accounts for the earlier previous year were finalised and audited. There was, thus, nothing wrong in the petitioner''s taking the view that it should file its return of income only after the accounts are audited. In the circumstances, the conclusion of the Commissioner that the petitioner was not prevented by sufficient cause from filing its return in time for the assessment year 1978-79 in contradistinction to what he held for the assessment year 1977-78 is unwarranted. Accordingly, his order rejecting the application of the petitioner for reduction and/or waiver of interest u/s 139(8) cannot be sustained and is hereby set aside.

It may be mentioned that counsel for the petitioner had relied upon our court''s judgment in the case of Patel Aluminium Pvt. Ltd. Vs. Miss K.M. Tawadia, Income Tax Officer and another, , the Gujarat High Court decision in the case of Patel Engineering Co. Ltd. Vs. C.B. Rathi and Another, and the Rajasthan High Court decision in the case of Commissioner of Income Tax Vs. Golcha Properties (P.) Ltd. (In liquidation), . It is, however, found that, in the case before our High Court, the petitioners were assessed to nil income for the earlier previous year. Computation u/s 209(1)(a), therefore, did not make the Petitioner liable to payment of advance tax and they were, accordingly, not obliged to send the statement referred to in section 209A(1)(a). In the circumstances, The result was stated to be inevitable that the petitioners were not liable to interest u/s 217 or penalty u/s 273(1)(b). In the Gujarat case, the Commissioner refused to exercise discretion under rule 40 observing that even if the petitioner honestly believed its estimate to be correct, waiver or reduction could not be allowed because the payment of tax due to the Government was anyhow withheld. This approach was manifestly contrary to the object of rule 40. The order refusing to exercise discretion to waive interest was, accordingly, set aside. In the Rajasthan case, the dispute had come up before the court by way of a reference. The Tribunal had found that the assessee-company was under liquidation. Its income under liquidation was not income for the purposes of Income Tax and as such there was no obligation to file an estimate of advance tax payable in terms of section 212(3A). On these facts, it was held that there was no liability to interest u/s 217(1A). All the there decisions are, thus, distinguishable and not applicable in the facts of the case.

Having regard to the fact that the interest charged u/s 139(8) has been fully waived by the Commissioner for the assessment year 1977-78 and the facts for 1978-79 are held to be identical by this court, interest charged for the assessment year 1978-79 u/s 139(8) is directed to be waived in full. As regards interest charged u/s 217 for the two years, the impugned order of the Commissioner is not interfered with.

Rule is made, accordingly, partly absolute in terms of the order above with no order as to costs.