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Judgment
N.V. Balasubramanian, J.—The above writ petition has been filed challenging the order of the Commissioner passed u/s 264 of the Income
Tax Act, 1961 (hereinafter referred to as ""the Act"") and for a direction to the Commissioner to grant waiver of interest levied u/s 215 of the Act
for the assessment year 1975-76.
The above writ petition was heard along with other writ petitions, viz., M.P. Nos. 21111 to 21113 of 1994, 10022 and 10024 of 1996.
The petitioner is a private limited company engaged in the business of manufacture and sale of typewriters and manufacture and supply of
defence equipments/components to various defence establishments in the country. There were raids in the premises of the petitioner by the Income
Tax Department during December, 1966 and December, 1976. The petitioner approached the Settlement Commission (IT & WT), Additional
Bench, Chennai (hereinafter referred to as ''the Settlement Commission'') and filed applications u/s 245C of the Act to settle its tax liability under
Chapter XIX-A of the Act for the assessment years 1963-64 to 1982-83 on various dates, and the Settlement Commission also admitted the
applications filed by the petitioner on various dates.
Insofar as the assessment year 1975-76 is concerned, the petitioner filed its return of income on 15-9-1975, showing a total income of Rs.
11,79,522 after claiming set off of carried forward loss of Rs. 4,35,412. There is no dispute that the first hearing of the case was posted by the
assessing officer on 3-6-1977. As already noticed, the petitioner had approached the Settlement Commission for .the assessment years from
1963-64 to 1974-75 on 7-4-1977, and on 25-7-1977. The petitioner approached the Settlement Commission for the assessment year 1975-76
on 21-9-1977 and the petition was admitted on 7-1-1976. The petitioner offered a total income of Rs. 14,92,604 for the assessment year 1975-
76 before the Settlement Commission. The Settlement Commission on 30-12-1992, sent the case back to the assessing officer relating to the
assessment year 1975-76 along with the cases for other assessment years 1975-76 to 1982-83 by invoking the provisions of section 245HA(1) of
the act for the completion of the assessment proceeding in accordance with Act as if no application u/s 245C was filed.
The assessing officer, on the basis of the order of the Settlement Commission, completed the assessment for the assessment years 1975-76 on
15-6-1993, determining the total income of Rs. 20,17,040. The assessing officer also levied interest u/s 215 of the Act of a sum of Rs. 13,41,065.
The petitioner challenged the assessment before the Commissioner (Appeals) who reduced the total income to Rs. 20,10,040. The petitioner
challenged the order of the appellate authority before the Tribunal.
The petitioner challenged the levy of interest before the Deputy Commissioner on the ground that the delay in the completion of assessment from
21-9-1977 when the application u/s 245C of the Act was filed before the Settlement Commission for the assessment year 1975-76 till 30-12-
1992, when the Settlement Commission restored the proceedings to the assessing officer u/s 245HA of the Act was not attributable to the
petitioner and hence, there should be a complete waiver of interest under rule 40(1) of the Income Tax Rules, 1962 (hereinafter referred to as ''the
Rules''). The petitioner also contended that for the assessment years 1963-64 to 1974-75 disposed of by the Settlement Commission, the interest
u/s 215 of the Act was waived for the period beyond one year from the date of filing of the return and the same principle should be applied for
waiver of interest levied u/s 215 of the Act for the assessment year 1976-76 also.
The Deputy Commissioner, however, did not agree with the submission of the petitioner and rejected the application on the ground that the
petitioner did not cooperate with the Settlement Commission from time to time which forced the Settlement Commission to send the case back to
the assessing officer. According to the Deputy Commissioner, the assessment was delayed by the petitioner by not co-operating with the
functionaries of the Settlement Commission for rendering a final decision. The Deputy Commissioner therefore rejected the application. However,
he found that when the return of income of the petitioner was filed on 15-9-1975, the assessing officer posted the case for hearing on 3-6-1977,
after a period of more than one year and there was no material on record to hold that the delay in taking up the assessment proceedings before 3-
6-1977, was attributable to the petitioner, and hence, he directed the waiver of interest for a period one year from the date of filing of the return,
and in other respects, he found no justification to order waiver of interest.
The petitioner thereupon challenged the order of the Deputy Commissioner before the Commissioner. The Commissioner found that the
petitioner has not co-operated with the functionaries of the Settlement Commission in preparing a factual report on the application. The
Commissioner after taking note of the order of the Settlement Commission, found that the petitioner did not cooperate with the functionaries of the
Settlement Commission in finalising the proceedings before the Settlement Commission, and the delay in the finalisation of the proceedings was
clearly attributable to the non-co-operative attitude of the petitioner and the Settlement Commission was left with no other alternative but to send
back the case to the assessing officer because of the non-co-operative attitude of the petitioner. The Commissioner also found that though there
was an admitted income, the petitioner has not paid advance-tax and delayed the finalisation of the assessment proceedings for more than 15
years. The Commissioner was of the view that the petitioner is not entitled to waiver of interest besides what was allowed by the Deputy
Commissioner. It is this order which is subject-matter of this writ petition.
The main case of the petitioner is that under rule 40 of the Rules, where assessment is completed after more than one year from the date of
submission of return and the delay in assessment is not attributable to the assessee, the assessing officer is empowered to reduce or waive interest
payable u/s 215 or 217 of the Act. It is stated that on the facts of the case, the case was posted for first hearing on 3-6-1977, whereas the return
was filed on 15-9-1975, and soon thereafter, an application was filed before the Settlement Commission and after the Settlement Commission
admitted the application, the petitioner had no occasion to take part in the assessment proceedings and only when the matter was sent back to the
assessing officer by the Settlement Commission u/s 245HA of the Act the assessing officer would have jurisdiction to take part in the assessment
proceedings. It is therefore submitted that the petitioner could appear before the assessing officer only after the case was sent back from the
Settlement Commission and the period from the date when the application was filed before the Settlement Commission till the date on which the
matter was sent back from the Settlement Commission should be taken into account for arriving at the period of delay. It is therefore, submitted
that the delay in the assessment was not attributable to the petitioner and hence, the entire interest levied has to be waived. Though in the petition, a
reference has been made to rule 40(v) and 40M of the Rules, learned senior counsel appearing for the petitioner mainly focussed his attention on
rule 40(i) of the Rules. The petitioner has also taken up a plea that the petitioner co-operated with the Settlement Commission and notwithstanding
the co-operation extended by the petitioner, the Settlement Commission was of the view that the assessment proceedings should be reverted back
to the assessing officer and the only option that was available to the Settlement Commission was to invoke the powers u/s 245HA of the Act.
According to the petitioner, the department was also aware that the petitioner has fully co-operated with the Settlement Commission and the
finding regarding non-co-operation was rendered for the limited purpose of sending the case back to the assessing officer u/s 245HA of the Act.
In the counter-affidavit filed by the respondent, the respondent has taken a stand that the petitioner has not co-operated with the Settlement
Commission by not filing necessary documents and records and hence, the matter was remitted by the Settlement Commission. The contention of
the petitioner that the Settlement Commission has decided to send back the case and hence, invoked the power u/s 245HA of the Act was denied.
According to the respondent, the plea of the petitioner was not borne out of the records or from the order of the Settlement Commission. It is
therefore, stated that the Commissioner has taken into account all aspects of the matter and found no justification to reduce the interest.
The petitioner also filed a reply statement.
I heard Mr. V. Ramachandran, learned senior counsel appearing for the petitioner and Mr. S.V. Subramaniam, learned senior counsel for the
Income Tax Department and also Mr. C.V. Rajan, learned senior standing counsel for the department. In my view, the matter should be remitted
back to the Commissioner. The Commissioner has not considered the entire issue in proper perspective. The interest u/s 215 of the Act is levied
on the shortfall of the advance tax paid between the assessed tax and the tax paid by the assessee, if the shortfall is more than 25 per cent in case
of normal assessees and 16-2/3 per cent in the case of assessees who are companies. The petitioner, no doubt, has not paid any advance tax. The
petitioner filed its return of income from the assessment year 1975-76 on 15-9-1975, showing total income of Rs. 11,79,522 after claiming set off
of carried forward loss of Rs. 4,35,412. There is also no dispute that the assessing officer posted the case for the first time on 3-6-1977, after
more than one year from the date of filing of the return and there are no materials to show that the delay was attributable to the assessee.
The main question that arises is whether for the period from the date of filing of the petitioner u/s 245C of the Act before the Settlement
Commission, i.e., 7-1-1976, till the dated 30-12-1992, when the Settlement Commission remitted the matter back to the assessing officer u/s
245HA of the Act has to be included or excluded while levying interest u/s 215 of the Act or the interest levied is liable to be waived under rule 40
of the Rules. The petitioner as well as the department has taken divergent views on this aspect. The case of the petitioner is that though the
petitioner extended full co-operation before the Settlement Commission, the Settlement Commission remitted the matter to the assessing officer for
the assessment years 1975-76 to 1982-83, while for the assessment year 1963-64 to 1974-75 it settled the matter. According to the petitioner,
the Settlement Commission remitted the matter u/s 245HA of the Act so that the assessing officer could do assessment on the basis of its earlier
order for the assessment years 1963-64 to 1974-75. The case of the department, on the other hand, is that the petitioner has not extended its co-
operation for the assessment years 1975-76 to 1982-83 and that is the reason for the Settlement Commission to remit the matter to the assessing
officer.
To decide the controversy, it is necessary to notice the order of the Settlement Commission. In the order it is stated that the hearing for the final
settlement was fixed on 21-10-1992, and it was adjourned from time to time and on 21-12-1992, the Settlement Commission required the
petitioner to file a detailed paper-book covering all the issues that requires settlement in respect of the assessment years 1975-76 to 1982-83. A
letter also seems to have sent on 3-12-1992, requiring the petitioner to file the paper-book, but the petitioner did not file the paper-book by 21-
12-1992. A show-cause notice dated 23-12-1992, was issued to the petitioner requiring the petitioner to explain as to why it should not be taken
that the petitioner did not cooperate with the Settlement Commission and the case should not be remitted back to the assessing officer. The
petitioner sent a reply dated 24-12-1992, expressing its no objection to send the case back to the assessing officer. The Settlement Commission
passed the following order :
We have for acknowledgment your letter dated 23-12-1992, in the above matter.
Considering the assessments to be carried out in respect of the assessment years, in question, virtually original assessments we have no objection if
the cases are sent back to the assessing officer, as proposed by you, in your letter under reply.
Though there is some force in the argument of Mr. V. Ramachandran, learned senior counsel that the Settlement Commission has remitted the
matter in view of the fact that it passed orders settling the cases for the assessment years 1963-64 to 1974-75 and what the assessing officer was
required to do was to follow the guidelines adopted by the Settlement Commission for the earlier assessment years to complete the assessments
for subsequent assessment years and in the absence of any specific provision, the Settlement Commission resorted to section 245HA of the Act,
yet, the order of the Settlement Commission on record does not disclose the Settlement Commission remitted that matter because it was of the
view that the assessing officer should follow its directions given for the earlier assessment years. The order proceeds on the basis that there was
non-co-operation on the part of the petitioner.
It is relevant to notice here that the Deputy Commissioner proceeded on the basis that though the assessment for the relevant assessment years
was completed after more than one year from the date of returns and the delay was not attributable to the petitioner, he levied interest excluding a
period of one year from the date of filing of the return. Rule 40(1) of the Rules contemplates that the authority is required to find out whether the
assessee is the cause for the delay in completing the assessment beyond the period of one year and whether the cause is attributable to the
assessee and when the delay is not attributable to the assessee in the completion of assessment beyond a period of one year, the waiver should be
extended to the assessee from the end of one year from the date of filing return up to the date of completion of the assessment.
The Board''s Circular No. 492, dated 27-7-1997 (1987) 66 CTR (St) 19 postulates that the waiver is provided for in rule 40(1) of the Rules
for the period from the end of the first year till the date of the completion of the assessment. The Deputy Commissioner has found that till the date
of the first notice issued dated 3-6-1977, the delay was not attributable to the petitioner, but he waived interest only for a period of one year. In
my view, the Deputy Commissioner is not correct in his view, that the waiver of interest should be limited to the period of one year from the date of
filing of the return. As already observed by me, the waiver is provided for under rule 40(1) of the Rules from the end of the first year till the date of
completion of assessment. Hence, the order of the Deputy Commissioner applying the provisions of rule 40 of the Rules in a manner not
contemplated in the Rules is erroneous in law.
The Commissioner has also not exercised his revisional power in a proper manner. The Commissioner proceeded on the basis that the delay in
the completion of assessment between 21-9-1977, when the application u/s 245C of the Act was filed till 30-12-1992, when the Settlement
Commission passed orders u/s 245HA of the Act, the petitioner did not co-operate with the Settlement Commission. The Commissioner recorded
the finding that there was non-co-operation on the part of the petitioner before the Settlement Commission on the basis of the order passed by the
Settlement Commission u/s 245HA of the Act. The Commissioner while so holding has not examined the records before the Settlement
Commission as to what happened between 21-9-1977 and 30-12-1992. The Commissioner also has not examined the question whether there
was no co-operation by the petitioner before the Settlement Commission and the period of non-co-operation by the petitioner and whether it was
for the entire period from the date of filing the application till the order was passed by the Settlement Commission or for a part of the period. In
other words, the Commissioner has not determined when the non-co-operation by the petitioner commenced how long it extended and the period
of non-co-operation.
I called for the records from the Settlement Commission and perused the same. The order of the Settlement Commission disclosed that the first
hearing itself was fixed on 21-10-1992. The order of the Settlement Commission also proceeds on the basis that the Settlement for the assessment
year 1977-78 was allowed to be proceeded by order dated 24-4-1981, and for the assessment years 1980-81 and 1981-82 the settlement was
allowed to be proceeded by order dated 25-8-1982, and for the assessment year 1982-83, the settlement was allowed to be proceeded by order
dated 25-7-1983. But, it is clear from the order that it is only on 27-5-1992, the Settlement Commission directed that the petitioner should fully
cooperate with the Deputy Director of Income Tax (Investigation) of the Settlement Commission in supplying all materials required for the purpose
of scrutinising the cases as though routine assessments were being made by the Commission itself. It is not clear as to what happened between the
date of application till 27-5-1992.
The Commissioner was chiefly influenced by the finding of the Settlement Commission that since the petitioner did not corporate with the
Settlement Commission, the Settlement Commission passed an order u/s 245HA of the Act. However, the Commissioner did not examine the
question whether the petitioner was responsible for the delay in completing the settlement proceedings for the entire period from the date of
application before the settlement of commission till 27-5-1992, when the notice was issued by the Settlement Commission. The order of the
Commissioner does not disclose that he has examined the records before the Settlement Commission. The Commissioner while exercising the
power u/s 264 of the Act, has the necessary powers to summon the records and examine the question whether the petitioner has co-operated with
the Settlement Commission between the date of application till 27-5-1992. I am, therefore, of the view that the conclusion arrived at by the
Commissioner that the petitioner has not co-operated with the Settlement Commission from the date of application before the Settlement
Commission till the order was passed on 30-12-1992, is not based on the materials on record. The Commissioner has also not examined the effect
of the provisions of sections 245F(2) of the Act which provided that after application is admitted, the Settlement Commission has the exclusive
jurisdiction to exercise the powers and perform the functions of assessing officer in relation to the case. In other words, the assessing officer has no
jurisdiction during the period from the date of admission of the application filed before the Settlement Commission till the date whom order is
passed u/s 245D of the Act.
The Commissioner has also not considered the affect of rule 40 of the Rules when the case was pending before the Settlement Commission
and the whether it could be held that the assessee had delayed the assessment proceedings when the assessing officer had no jurisdiction to
complete the assessment during that period. I therefore, hold that the Commissioner has not applied the proper tests is rejecting the application for
waiver of interest. I therefore, set aside the order of the Commissioner and remit the matter back to the Commissioner to reconsider the matter in
the light of the observations made above.
The result is the writ petition is allowed. However, in the circumstances, there will be no order as to costs.