Liability of interest under Section 12, 12A and 12B challenged due to circular ambiguity, leading to waiver of penal interest for specified assessment years.

Liability for interest on tax defaults under specified statutory provisions was debated due to inconsistent administrative circulars creating genuine ambiguity; consequent voluntary filing and payment after clarification attracted a plea for waiver. The reasoning applied that ambiguity in CBDT circulars and prior waivers for earlier years established jurisdictional competence to waive penal interest, and that in case of doubt the benefit must accrue to the assessee, leading to modification of the impugned order to relieve the assessee from penal interest for the specified assessment years which had been denied earlier.

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Issues: Whether the petitioner (assessee) is entitled to waiver of interest under Sections 12, 12A and 12B of the Interest Tax Act, 1974 for the Assessment Years 1996-97 and 1997-98 in view of prior CBDT circulars and resultant confusion regarding liability of interest on hire purchase charges.

Analysis: The issue arises from sequential CBDT communications: initial circular clarifying hire charges as interest, a subsequent communication directing assessing officers not to initiate proceedings pending reconsideration, and a later circular finally clarifying the position. These administrative clarifications created bona fide doubt about liability of interest on hire purchase charges. The petitioner voluntarily filed returns and paid tax and penal interest after final clarification without departmental detection. The respondent had earlier waived interest for preceding assessment years, demonstrating jurisdiction to grant waiver. Established principles afford the assessee the benefit of doubt where legal position was unclear and delay resulted from prevailing confusion; administrative circulars and press notes permitting waiver on voluntary filings support relief in such circumstances.

Conclusion: The impugned order is modified by allowing waiver of interest under Sections 12, 12A and 12B of the Interest Tax Act, 1974 for the Assessment Years 1996-97 and 1997-98 in favour of the assessee.

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