2014 (7) TMI 49 - HC - Income Tax

Kerala HC overturns interest waiver, stresses fair hearing & compliance with legal principles

The Commissioner of Income Tax, Calicut Versus Additional Commissioner (IT &WT) Settlement

The Kerala HC set aside the Settlement Commission's order granting waiver of interest to the assessee under Section 220(2) of the Income-Tax Act. The ... Waiver of interest u/s 220(2) of the Act – Interest before the date of filing of application before settlement commission u/s 245(1) of the Act - Whether the Settlement Commission was justified in granting waiver of interest levied on the assessee u/s 220(2) of the Act without considering as to whether the assessee fulfilled all the three conditions laid down u/s 220(2A) of the Act and recording reasons as to how the assessee is entitled for such waiver of interest - Held that:- There was total non-application of mind by the Settlement Commission on the crucial issue as to whether the assessee has fulfilled all the three conditions laid down under Clauses (i), (ii) and (iii) of Sub-section (2A) of Section 220 of the Act. No reasons have been recorded in the order on the entitlement of the assessee for such waiver of interest levied u/s 220(2) of the act – section 220(2) of the Act restricts the power of the Settlement Commission to reduce or waive the amount of interest paid or payable by an assessee only if such authority is satisfied that the assessee has fulfilled all the three conditions laid down u/s 220(2A) of the Act - the Settlement Commission has to exercise its discretion judicially and satisfy that the three conditions laid down under Clauses (i), (ii) and (iii) of Sub-section (2A) of Section 220 of the Act have been fulfilled, before passing an order waiving interest - Still further, such an application has to be decided by a speaking order – Relying upon Kishan Lal Versus Union of India And Others (And Other Petitions) [1998 (1) TMI 1 - SUPREME Court] –revenue is directed to consider the application filed by the second respondent u/s 220(2A) of the Act, with regard to waiver of interest levied u/s 220(2) of the Act - thus, the order of the settlement commission is set aside – Decided in favour of Revenue. Issues:1. Granting of waiver of interest levied on the assessee under Sub-section (2) of Section 220 of the Income-Tax Act without considering fulfillment of conditions under Sub-section (2A) by the Settlement Commission.Detailed Analysis:The original petition before the Kerala High Court involved a challenge to an order of the Settlement Commission granting waiver of interest levied on the assessee under Sub-section (2) of Section 220 of the Income-Tax Act. The primary issue was whether the Settlement Commission was justified in granting the waiver without assessing if the assessee fulfilled the conditions laid down under Sub-section (2A) of Section 220. The Sub-section allows for the reduction or waiver of interest if certain conditions are met, including genuine hardship to the assessee, default beyond the assessee's control, and cooperation in relevant inquiries or proceedings.The Court highlighted the provisions of Sub-section (2A) of Section 220, emphasizing that the authority can only reduce or waive interest if satisfied that the three specified conditions are fulfilled. The judicial precedents cited, such as Krishan Lal v. Union of India and CIT v. Anjum M.H. Ghaswala, underscored the quasi-judicial nature of such decisions and the necessity for the authority to provide reasons for granting waiver or reduction of interest. The Apex Court rulings reiterated that the authority must exercise discretion judiciously and ensure that the conditions under Sub-section (2A) are met before waiving interest.The Court found that the Settlement Commission's order did not demonstrate a proper application of mind regarding the fulfillment of the conditions under Sub-section (2A) of Section 220. The lack of reasons provided in the order and the reliance on a decision that had been partially reversed by the Apex Court raised concerns about the validity of the waiver granted. Consequently, the Court set aside the order and directed the Settlement Commission to reconsider the application for waiver of interest, ensuring compliance with the legal principles laid down by the Apex Court.In conclusion, the Court disposed of the original petition by instructing the Settlement Commission to reevaluate the application for waiver of interest, following the guidelines established by the Apex Court, and granting a reasonable opportunity for the assessee to be heard. The Court emphasized the importance of issuing a speaking order and ensuring a judicially sound decision within a specified timeframe to uphold the principles of natural justice and legal validity.