K.E. Rehmath vs Commissioner of Income Tax and Another

V.V. Kamat, J.—In this petition under Art. 226 of the Constitution of India the question is of waiver of interest under s. 139(8) of the IT Act, 1961. By the impugned order (Ext. P6) passed by the CIT, Cochin on 30th October, 1992, in revision waiver of interest to the extent of 50 per cent is already granted leaving the petitioner to this Court to consider whether there is a case for total waiver of interest.

The assessment year is 1986-87. In other words for the assessment year in question the return ought to have been filed on or before 31st March, 1986 and it has been filed on 10th March, 1989, within little less than three years thereafter. Originally the return was filed admitting an income of Rs. 85,850. On discussion with the assessees representatives it was rounded off to Rs. 7,06,970. The ITO - the assessing authority - levied interest under s. 139(8) of the Act from 1st August, 1986 upto 28th February, 1989 at Rs. 1,28,921. The other aspects are of no relevance in this petition.

The aspect was considered by the appellate authority - Asstt. CIT. Investigation Circle, Cannanore - and the order was passed by the CIT(A) Calicut. Total income of Rs. 7,06,966, rounded off as above got reduced in appeal to Rs. 4,34,930. Correspondingly the amount of interest under s. 139(8) of the Act was also reduced to Rs. 76,221.

It was in regard to this aspect that the petitioner approached the Asstt. CIT, Investigation Circle, Cannanore by an application dt. 8th July, 1989 (Ext. P3) for waiver of interest. In the said application the reason for late filing of the return is shown as finalising the accounts of the business, M/s. Mahe Auto Fuel Enterprises, the income from which constitutes major source of income of the assessee, it is urged. It is also stated that there was some delay in ascertaining the share of the petitioners income from other firms. It is stated that the return, as above was filed on the total income of Rs. 85,850 under s. 140A of the Act.

It also appears in the petition that there was a search under s. 132 of the IT Act of the business premises of the petitioner on 17th March, 1987. The delay was for finalising the accounts and was not intentional or wilful commission or as a result of any lapse on the part of the petitioner.

It is also submitted that the accounts had to be audited under s. 44AB of the IT Act, 1961 and the return came to be filed as soon as the accounts were finalised and the audit report was made available. It is also stated that disallowance of the amount of sales-tax payment amounting to Rs. 4,64,875 under s. 43B of the Act was also a factor which was ultimately considered by the first appellate authority. The petitioner submitted for waiver of interest, resorting to r. 117A(iv) & (v) of the IT Rules, 1962.

This petition came to be rejected by the order dt. 12th July, 1989 (Ext. P4) passed by the Asstt. CIT, Cannanore stating that the reasons do not cover the aspects under r. 117A(supra). If the provisions of r. 117A of the IT Rules, 1962 are seen it will have to be observed that the only provision that becomes of some relevance in the context of the factual matrix would be r. 117A(v) thereof. The situation speaks of factors preventing the assessee from furnishing the return within time by sufficient cause. In other words the order (Ext. P4) would have to be understood to state that the petitioner could not be seen to be prevented from sufficient cause for furnishing the return within time. The learned counsel for the petitioner has no dispute, it is only this clause and none of the other clauses of r. 117A would be of any relevance to the factual matrix of this petition. The orders are not necessarily to be understood as speaking orders. Reading the application (Ext. P3) and the text of the order (Ext. P4) stating that the provisions of r. 117A are not attracted and the position that it is only r. 117A(v) would be relevant the situation will have to be understood as the authority not being satisfied with regard to the material on record that the petitioner was prevented by sufficient cause from furnishing the return within time and that too in the context of the contents of the petition referred to above. Be that as it may, the petitioner approached the second revisional authority - CIT, Cochin (Ernakulam) - by the revision petition (Ext. P5). This was a petition under s. 264 of the IT Act, 1961. Perusal of the said petition would show, in substance, that there was a valid cause for the delay in filing the return of income for 1986-87 and in regard thereto the Asstt. CIT ought to have found that the delay was not due to any wilful or intentional omission.

By the impugned order passed by the CIT, Cochin under s. 264 of the IT Act, 1961 it would be seen that it was urged that disallowance of Rs. 2,67,582 under s. 43B of the Act resulted into a huge liability towards interest. It was also urged that there was a search under s. 132 of the Act on the premises of the assessee on 17th March, 1987 which could also be understood as contributing to the delay in filing the return. It was finally submitted that in the special circumstances of the case waiver ought to have been allowed in exercise of the powers under r. 117A of the Rules.

The revisional authority has observed that the proper date for filing the return was 31st July, 1986 and it was on 17th March, 1987 the search was conducted which could have contributed to the delay in filing the return. The revisional authority also considered that disallowance under s. 43B also resulted in the huge demand by way of interest under s. 139(8) of the Act. It is in this situation, referring to these two aspects the revisional authority allowed waiver of interest to the extent of 50 per cent by the impugned order.

Learned counsel for the petitioner in support of his contentions contended, in addition to the submissions that weighed with the lower authorities that an audit report under s. 44AB was also a factor delaying the submissions of the return. Learned counsel referred to the statutory provisions of the above s. 44B. Learned counsel contended that no sooner the audit report was received than the return came to be filed on the basis thereof. In fact it was the strenuous contention of the learned counsel relying on the statutory provisions of Ss. 44B and 139 of the Act that the return has to be accompanied by the audit report obtained under s. 44AB. Learned counsel referred to Expln. to s. 139(9) of the Act to point out that a return of income unaccompanied by the auditors report (Explanation - bb) would have to be considered as defective filing of the return in regard to which the ITO has to proceed as if it is a defective filing of the return. It is obvious that it is not that the return must be accompanied by a report of the auditor as required under s. 44AB. In any case it is not that filing of the return is excusable on account of the receipt of the report of the auditor. It will be seen that the audit is compulsory for every person whose business is over Rs. 40 lakhs in any previous year. Reading the provision it need not detain the filing of accounts, at any rate when the return was filed on 31st July, 1986 till the premises were searched on 17th March, 1987, for a period of 7 to 8 months there could not be an explanation much less considered by the two authorities. Be that as it may, the second revisional authority has exercised jurisdiction allowing waiver of interest to the extent of 50 per cent on factual peculiarities. Therefore, taking into consideration all the facts and circumstances of the case there is no need to exercise exceptional and extraordinary powers in a matter of discretion as regards the waiver especially when the second revisional authority has exercised it in favour of the petitioner substantially. No case for exercise of exceptional or extraordinary powers is made out and it is also not in the interest of justice to take resort to the said powers. Original Petition stands dismissed.