2003 (5) TMI 34 - HC - Income Tax

Income-tax Officer's Arbitrary Rejection of Interest Waiver Explanation Violates Equality Clause

The High Court found that the Income-tax Officer's rejection of the petitioner's explanation for interest waiver, despite accepting it for penalty, was ... ITO rejected the explanation for delay in filing the return for the purpose of waiver of interest when the same had been accepted for the purpose of dropping the penalty - petitioner, has submitted that the period of delay in filing the return is the same for the purposes of interest as well as penalty. The Income-tax Officer had the power under rule 117A(5) to waive the interest payable under section 139. The explanation of the petitioner having been accepted for the purposes of imposition of penalty under section 271(1)(a) could not have been disregarded while deciding the question of waiver of interest with regard to late filing of the return - The respondent could not have rejected the explanation for delay in filing the return for the purpose of waiver of interest when the same had been accepted for the purpose of dropping the penalty proceedings Issues involved:1. Validity of order dated March 6, 1981, and February 25, 1986, regarding penalty and interest under Income-tax Act, 1961.2. Power of Income-tax Officer to waive interest under section 139.3. Acceptance of explanation for penalty but rejection for interest waiver.4. Equality clause under article 14 of the Constitution of India.Analysis:1. The petitioner, a registered firm, filed a writ petition challenging the orders dated March 6, 1981, and February 25, 1986, related to penalty and interest imposed under the Income-tax Act, 1961. The dispute arose from the delay in filing the return for the assessment year 1974-75, with the assessing authority imposing a penalty and interest amounting to Rs. 29,915. The petitioner sought waiver of interest under section 139(8) of the Act, which was denied by the Income-tax Officer, leading to subsequent dismissal of a revision petition.2. The key contention revolved around the power of the Income-tax Officer to waive interest under section 139. Rule 117 A(3) of the Income-tax Rules, 1962, empowers the Officer to reduce or waive interest if the assessee provides evidence to establish sufficient cause for the delay in filing the return. The petitioner's explanation for the delay was accepted for dropping penalty proceedings, indicating the Officer's quasi-judicial function. However, the same reasoning was not considered for granting interest waiver, raising questions of arbitrariness.3. The petitioner's counsel argued that the period of delay for interest and penalty should be treated equally. It was contended that the Officer's acceptance of the explanation for penalty should have been consistent with the decision on interest waiver. Conversely, the respondents' counsel maintained that the impugned orders were well-reasoned and that the petitioner failed to substantiate the delay adequately despite opportunities provided.4. The High Court, after considering the submissions and relevant provisions, found that the Officer's rejection of the explanation for interest waiver, despite accepting it for penalty, lacked valid reasons and exhibited arbitrariness. This approach was deemed contrary to the principles of equality enshrined in article 14 of the Constitution of India. Consequently, the Court allowed the writ petition, quashing the impugned orders dated March 6, 1981, and February 25, 1986, without imposing any costs.