2010 (4) TMI 1204 - HC - Income Tax

Court waives interest under Income Tax Act due to Assessee's genuine hardship

The court quashed the impugned order and directed the third Respondent to waive the interest levied under section 220(2) of the Income Tax Act for the ... Waiver of interest under Section 220(2) of the Income Tax Act, 1961 - discretion under Section 220(2A) to reduce or waive interest - genuine hardship - circumstances beyond the control of the assessee - co-operation in assessment and recovery proceedings - block assessmentWaiver of interest under Section 220(2) of the Income Tax Act, 1961 - discretion under Section 220(2A) to reduce or waive interest - genuine hardship - circumstances beyond the control of the assessee - co-operation in assessment and recovery proceedings - Whether the third Respondent erred in refusing to waive interest under Section 220(2) for the block assessment years 1987-88 to 1997-98 despite the assessee meeting the conditions in Section 220(2A). - HELD THAT: - The Court found that following a search on 4-7-1996 the assessee submitted block returns and entered into a settlement with the department dated 29-7-1997. In accordance with the settlement the assessee furnished documents and securities, authorised recovery from book debts, and the department recovered and adjusted available amounts towards the tax demand, leaving no funds with the assessee. The third Respondent held that the conditions under Section 220(2A) did not exist and dismissed the waiver application. Examining the materials, the Court concluded that the default in payment arose from circumstances beyond the assessee's control, the assessee had extended full co-operation in the assessment and recovery proceedings, and would suffer genuine hardship if required to pay the interest where amounts were tied up in book debts and already attached or adjusted. On these determinative findings the Court held that the discretion vested in the third Respondent under Section 220(2A) ought to have been exercised in favour of the assessee and that the refusal to waive the interest was unsustainable. [Paras 12, 13, 14, 15]Impugned order under Section 220(2A) is quashed; third Respondent directed to waive the interest levied under Section 220(2) for the block assessment years 1987-88 to 1997-98.Final Conclusion: Writ petition allowed; the Court quashed the refusal to waive interest and directed waiver of interest charged under Section 220(2) for block assessment years 1987-88 to 1997-98; no order as to costs. Issues involved: The issue involves a petition seeking direction to waive the interest levied u/s 220(2) of the Income Tax Act, 1961 for block assessment years 1987-88 to 1997-98 based on a settlement between the Petitioner and the Respondents.Judgment Details:1. The Petitioner requested the third Respondent to waive the interest levied u/s 220(2) of the Income Tax Act, 1961 for block assessment years 1987-88 to 1997-98, as per a settlement dated 29-7-1997. The interest amount sought to be waived was Rs. 80,58,639.2. Following a search at the Petitioner's premises, a demand of Rs. 3,60,00,000 was raised after accepting block returns. Subsequently, interest of Rs. 80,58,639 was charged u/s 220(2) of the Income Tax Act, 1961 by the first Respondent.3. The third Respondent, after evaluating the case, rejected the petition for interest waiver u/s 220(2) stating that the conditions u/s 220(2A) were not met. The Assessee's representation for waiver was dismissed.4. The Petitioner argued that all conditions u/s 220(2A) were satisfied, but the third Respondent still rejected the waiver plea. The Respondents contended that the order was considered and did not require interference.5. A settlement was reached between the department and the Petitioner after the search, leading to completion of block assessment. The Petitioner provided documents and securities to the department for debt collection and the amount was adjusted against tax demand.6. The court found that the default in payment was due to circumstances beyond the Assessee's control. The Assessee cooperated in the assessment and recovery process, facing genuine hardship due to lack of funds, mainly from book debtors.7. The court held that the third Respondent should have exercised discretion in waiving the interest for the block assessment period. The impugned order u/s 220(2A) was quashed, directing the third Respondent to waive the interest for the specified years. The writ petition was allowed without costs.