TaxTMI 
TaxTMI 
2008 (5) TMI 183
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....e facts which give rise to the present writ petition are set out below: 3. The petitioner, in the present case, is the karta of a Hindu undivided family (hereinafter referred to as "the HUF") and was an assessee under the Act during the relevant assessment year 1993-94. There was a search and seizure operation under section 132 of the Act on November 12, 1992, November 13, 1992, and November 14, 1992, in the residence and business premises of the petitioner and other assessees of the group. Subsequent to the search, the petitioner filed its return of income for the assessment year 1993-94 on March 29, 1995, showing a total income of Rs. 3,62,640 without making full payment of tax due on such total income. The Department processed the return under section 143(1)(a) on November 29, 1995, and accepted the income returned by the petitioner. While processing the return, the Assessing Officer computed the aggregate of tax and surcharge at Rs. 1,45,516. The aggregate of interest charged under sections 234A, 234B and 234C was Rs. 1,54,302. The tax, surcharge and interest together came to Rs. 2,99,818. After giving credit to the tax of Rs. 81,880 paid before furnishing the return of income....
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....e provisions of the Act for which interest under sections 234B and 234C was charged. It was also contended by learned counsel that levy of interest under sections 234B and 234C should be waived in terms of Notification. F. No. 400/234/95-IT(B), dated May 23, 2006 issued by the Central Board of Direct Taxes (hereinafter referred to as "the CBDT"). Interest under section 220(2) of the Act could be waived as per sub-section (2A) of section 220 on the ground of genuine hardship and circumstances beyond the control of the assessee. 5. The learned Chief Commissioner considered the petitioner's prayer for waiver of interest in accordance with the Central Board of Direct Taxes order issued under section 119(2)(a) of the Act dated June 26, 2006, in F. No. 400/29/2002 IT (B) which was in force on the date of filing of waiver petition and not in terms of earlier Notification No. 400/234/95-IT(B), dated May 23, 2006. The learned Chief Commissioner, vide his order dated December 13, 2006, directed levy of interest under section 234A for the period from April 1, 1994, to March 31, 1995, only and rejected the petitioner's prayer for waiver of interest charged under sections 234B, 234C and 220(2)....
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....shed and they were not even worth the paper it was printed on. Though the Department cannot pay any compensation, at least it can waive the interest levied r various provisions of the Act. 8. It was further submitted that interest under section 220(2) has been levied for the period from December 29, 1996 (30 days after the intimation under section 143(1)) till January 5, 1998, when the entire dues were cleared up. This interest was levied for the first time in an order passed at the instance of the petitioner under section 154 of the Act on March 31, 2006. Before such levy, no opportunity of being heard was afforded to the petitioner. No notice of demand as provided under section 156 of the Act has also been served on the petitioner pursuant to such order. According to him, normally the Assessing Officer exercising his discretion does not levy interest under this section. In the case of the petitioner by exercising such discretion he has not levied interest under section 220(2) of the Act in three different orders passed earlier. Those orders were order dated December 19, 1997, passed under section 154 of the Act, reassessment order dated February 25, 2002, passed under section 14....
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.... of Direct Taxes order under section 119(2)(a) of the Act dated June 26, 2006, which was in force at that time and not in terms of earlier order dated May 23, 2006. 11. According to learned counsel, the due date for filing return for the assessment year 1993-94 was October 31, 1993, and the assessee filed the return for the said assessment year on March 29, 1995, and by the time of filing of the return the petitioner was well aware that interest shall be charged under sections 234A, 234B and 234C. Hence, he should have filed the petition for waiver of interest before the Chief Commissioner much earlier than July 24, 2006. 12. He further submitted that the documents seized on November 14, 1992, in the hands of the petitioner do not apparently show any relevance for filing of the return for the assessment year 1993-94. He also submitted that as per panchanama dated November 14, 1992, there were no seizure of any valuables but as per panchanama dated November 13, 1992, there was seizure of 2001.710 grams of jewellery and seizure of cash of Rs. 2,20,000 and some share certificates. The assessee received back share certificates on April 25, 1994. The entire assets seized were retained....
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....e under a later notification dated June 26, 2006. 16. In this context, it is necessary to know what is contemplated in the notification dated May 23, 2006. The relevant portion of the said notification is quoted below: "2. The class of incomes or class of cases in which the reduction or waiver of interest under section 234A or section 234B or, as the case may be, section 234C can be considered, are as follows............. (b) Where during the course of search and seizure operation under section 132 of the Income-tax Act, cash is seized which is not allowed to be utilized for payment of advance tax instalment or instalments as they fall due after the seizure of cash and the assessee has not paid fully or partly advance tax on the current income and the Chief Commissioner or the Director-General is satisfied that the assessee is unable to pay the advance tax..................... 3. The Chief Commissioner of Income-tax/Director General of Income-tax may order the waiver or reduction of interest under sections 234A, 234B and 234C under this order with reference to the assessment year 1989-90 or any subsequent assessment year but shall not so reduce or waive penal interest in those ....
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....vance tax towards first instalment expired on September 15, 1992, i.e., prior to the date of search operation, the assessee had not paid any advance tax. 18. Thus, in the absence of seizure of any cash belonging to "HUF" during the search operation, the petitioner's case is not covered under the notification dated May 23, 2006, for the purpose of waiver of interest charged under sections 234B and 234C of the Act. Therefore, levy of interest under sections 234B and 234C in the present case is justified. 19. Now, the second question that arises for consideration is whether the learned Chief Commissioner is justified in considering the petitioner's case in terms of later notification dated June 26, 2006, issued under section 119(2) of the Act which took away or abrogated the benefit available to the petitioner in earlier notification dated May 23, 2006, for waiver of interest under sections 234B and 234C and in refusing to waive interest levied under the said sections. 20. In view of the answer to the first question that the petitioner's case is not covered under the notification dated May 23, 2006, issued by the Central Board of Direct Taxes for the purpose of waiver of interest c....
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....r dated August 2, 2004 (which was served on the assessee on 'December 7, 2004) was made to the Assessing Officer on January 5, 2005. The Assessing Officer, with utter disregard to the statutory provision contained in section 154(8) disposed of the rectification petition on March 31, 2006, only, i.e., after expiry of more than one year and two months from date of receipt of the application for rectification. To get the aforesaid rectification petition dated January 5, 2005, disposed of, the petitioner had to file first reminder on September 13, 2005, and second reminder on November 24, 2005. When this yielded no result on January 19, 2006, the petitioner filed a grievance petition and complaint before the Commissioner of Income-tax. On February 16, 2006, appeal effect order 'for the assessment year 1992-93 dated December 8, 2004, was served on the petitioner stating that refund of Rs. 29,123 has been adjust against demand of Rs. 27,506 for the assessment year 1993-94. This also needed rectification to the appeal effect order to give credit to the tax adjusted. On February 21, 2006, another rectification petition under section 154 was filed to rectify the appeal effect order pursuant....
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....the Act. Sub-section (1) of section 220 envisages that any amount otherwise by way of advance tax specified or payable in notice of demand under section 156 shall be paid within 30 days of service of the notice on the assessee. As per sub-section (2) of section 220, if the amount specified in any notice of demand under section 156 is not paid within the period limited under sub-section (1), the assessee shall be liable for interest for the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the date on which the amount is paid. In the present case, interest under section 220(2) of the Act amounting to Rs. 67,950 is levied for the first time in the order dated March 31, 2006, passed under section 154 of the Act at the instance of the petitioner. The said order dated March 31, 2006, has been annexed to the writ petition as annexure 12. Surprisingly in the said order, the Assessing Officer has not assigned any reason why all of a sudden he is charging interest to the tune of Rs. 67,950 under section 220(2) of the Act which he did not impose during last eight years. No computation has also been given to show how such a....
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.... is whether the Assessing Officer assumes jurisdiction to levy interest under section 220(2) of the Act in a proceeding under section 154 of the Act, that too initiated at the instance of the assessee for its benefit. In the present case, as stated above interest under section 220(2) of the Act has been levied for the first time on March 31, 2006, in an order passed under section 154 of the Act, pursuant to a petition moved by the petitioner on January 5, 2005, for rectification of mistake apparent from the appeal effect order dated August 2, 2004 (which was served on the assessee on December 7, 2004). Such a levy of interest under section 220(2) is wholly illegal. In the case of Birla Cotton Spinning and Weaving Mills Ltd. v. ITO [1995] 211 ITR 610 the Calcutta High Court held that a levy of interest under section 220(2) of the Act in rectification proceeding under section 154 of the Act is in excess of jurisdiction and is liable to be declared invalid. In order that section 154 of the Act may be invoked there must exist a mistake apparent from the record which can be rectified. A mistake apparent on the record must be an obvious and patent mistake. In the present case, interest u....
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....ore initiating recovery proceedings and constitutes the foundation of subsequent recovery proceedings. This court in the case of ITO v. Manmohanlal reported in [1988] 173 ITR 10 held that no recovery proceeding can be initiated against an assessee unless and until a demand notice is served upon him. Sub-section (6) of section 154 of the Act also casts an obligation on the Assessing Officer to serve on the assessee a notice of demand in the prescribed form specifying the sum payable where any such amendment has the effect of enhancing the assessment or reducing the refund already made and such notice of demand shall be deemed to be issued under section 156 and the provisions of the income-tax shall apply accordingly. In the present case, even though interest to the tune of Rs. 67,950 has been levied under section 220(2) of the Act for the first time in an order passed under section 154 of the Act on March 31, 2006, the said order does not indicate that the provision of section 154(6) of the Act has been complied with. 28. Moreover, since interest under section 220(2) of the Act has been levied for the first time in an order passed under Section 154 affecting adversely the interest ....