Interest Can Be Waived In Situations Beyond Assessee's Control In Timely Filing Of Returns: Punjab And Haryana High Court

The Bench of Justices Sanjeev Prakash Sharma and Sanjay Vashisth observed that “….while exercising the discretion by the Settlement Commission, no reasons have been assigned as to why the interest has been reduced by 50% only, and as to why the complete interest has not been waived off for the assessment year 1989-90.”

Section 234-A of the Income Tax Act, 1961 provides levy of interest on account of default in furnishing return of income at specified rates and for specified time period.

Section 234-B of the Income Tax Act, 1961 addresses the levy of interest for delay in the payment of advance tax. This section targets those taxpayers who miss or pay less than 90% of their income tax in advance, thereby imposing penal consequences in the form of an interest.

Section 234-C of the Income Tax Act, 1961 provides for levy of interest on account of default in payment of instalments of advance tax at specified rates and for specified time period.

Section 245-C of the Income Tax Act, 1961 provides that an assessee can apply to the Settlement Commission at any stage of their case, using a prescribed form and manner, to disclose previously undeclared income, how it was obtained, the additional tax payable, and other required details. The application will then be processed as specified.

As per Section 220(2) of the Income Tax Act, 1961, if a taxpayer fails to pay the entire amount of tax due within the prescribed time limit, he/she shall be liable to pay simple interest at the rate of 1% per month or part of the month for the period of delay in making the payment.

Facts of the case:

The assessee/petitioners submitted applications for the settlement of their income tax and wealth tax under Section 245-C of the Income Tax Act, 1961. After evaluating the matter, Income Tax Settlement Commission reduced the interest chargeable under Section 234-A of the Income Tax Act by 50%. However, it directed that interest under Sections 234-B and 234-C of the Income Tax Act be charged to all five applicants/assessee for the assessment year 1989-90. At the same time, the Commission waived the interest chargeable under Section 220(2) of the Income Tax Act.

The assessee has filed a writ petition before the Punjab and Haryana High Court challenging the order passed by the Income Tax Settlement Commission.

The assessee contended that the Department accepted the assessee's claim and, since the Department agreed with the contention, no reasons were given for reducing the interest by only 50% when the entire interest should have been waived. The assessee also argued that they were unable to file their returns on time because the Department failed to provide copies of the seized documents despite repeated requests.

The department submitted that there is no indiscretion on the part of the Settlement Commission. They have applied their mind fully to the facts of the case and reduced the interest by 50%, in terms of Section 234-A of the Income Tax Act. However, complete interest has been charged under Section 234-B of the Income Tax Act and similarly interest has also been charged under Section 234-C of the Income Tax Act.

Observations of the High Court:

The bench, after reviewing Section 234-A of the Income Tax Act, observed that the provisions of imposing the interest is automatic, and if there is a default, interest is liable to be paid. However, in circumstances which are beyond the control of the assessee in filing of the return in time, the interest can be waived.

While exercising the discretion by the Settlement Commission, no reasons have been assigned as to why the interest has been reduced by 50% only, and as to why the complete interest has not been waived off for the assessment year 1989-90, added the bench.

The bench further disagreed with the assessee in terms of the circular on waiver of interest [press release/CBDT Circular dated 23.05.1996] that the interest under Section 234-B and 234-C of the Income Tax Act should be waived, as depositing of advance tax has nothing to do with the seizure of the books of accounts or during the course of proceedings for search, or seizure of cash.

In view of the above, the bench allowed the writ petition in part, waived the interest under Section 234-A of the Income Tax Act, and rejected the waiver of interest under Sections 234-B and 234-C of the Income Tax Act.

Counsel for Petitioner/ Assessee: Sunil K. Mukhi and Iqbal Roshan

Counsel for Respondent/ Department: Gauri Neo Rampal Opal, Senior Standing Counsel

Case Title: Sant Lal and Ors. v. The Income Tax Settlement Commission and others

Case Number: C.W.P. No.6288 of 2001 (O&M)

Click Here To Read/Download Order