Whether power to waive interest u/s 215 is judicial discretion vested in tax authorities and cannot be challenged in writ - YES: Delhi HC

THE issues before the Bench are - Whether the power to waive interest u/s 215 is a judicial discretion vested in the tax authorities and cannot be challenged in a writ petition; Whether the duration of lapse of one year given in Rule 40(1) of Income Tax Rules needs to be computed from the date of the filing of the revised return or from the date of filing of the original return; Whether the assessee would enjoy any undue benefit, if the starting point of computation of such period is taken from the date of filing of the original return; Whether when the AO is not diligent enough and does not complete the assessment within the said period of one year, any i
nterest liability for the period beyond that one year cannot be foisted on the assessee, unless the delay in not completing the assessment within the period of one year is clearly attributable to the assessee and Whether the delay as per Rule 40(1) can be attributable to the assessee, when the assessee has filed second revised return and sought adjournments during the assessmnet proceedings. And the assessee's writ is partly allowed.

Facts of the case

The assessee filed return of income on 29.07.1985 for the AY 1985-86 declaring an income of Rs.3,61,87,550 and paid the balance tax (over and above the advance tax already paid earlier) by way of self assessment tax u/s 140A. Thereafter, the assessee filed a revised return of income on 13.01.1986 declaring an income of Rs.3,81,39,990 on which a further payment of Rs. 11,27,534 was made u/s 140A.Thereafter, on 09.06.1987 the AO issued the notice u/s 143(2) for the AY 1985-86. A period of one year had elapsed from the filing of the original return on 28.07.1986 and the revised return on 12.01.1987 respectively. After the issuance of the notice u/s 143(2), the assessee applied on 18.06.1987 for fixing a date of hearing in September 1987. The AO accordingly fixed 03.09.1987 as the next date of hearing in the assessment proceedings. At the request of the assessee, the assessment proceedings were adjourned to 10.12.1987.

Thereafter, while the assessment proceedings were going on, the assessee filed a second revised return on 18.01.1988 on which a further payment of tax was made u/s 140A, which lead to a fresh notice u/s 143(2) issued on 20.01.1988. This was followed by the assessment order u/s 143(3) on 18.02.1988. The total income of the assessee was assessed at Rs. 6,89,44,449 on which interest u/s 215 of the said Act was charged in the amount of Rs. 52,14,136. However, the assessee had taken the matter in appeal and ultimately the income of the assessee was computed at Rs. 4,83,90,480 and the interest u/s 215 had been computed at Rs. 31,85,806 for the entire period from 01.04.1985, up to the date of the regular assessment, i.e., 18.02.1988. It is, thereafter, that the assessee had moved an application for waiver of interest under rule 40 of the said Rules, which was rejected by the Deputy Commissioner of Income-tax (DCIT). Thereafter, the assessee filed the said revision application u/s 264 before the Commissioner of Income Tax (Commissioner), who, gave part relief to the assessee.

The Commissioner noted that difference between the total income assessed and the income shown in the estimates, and came to the conclusion that this was not a case where discretion for waiver of interest could be exercised under Rule 40(5) of the said Rules. Further, the assessee urged before the Commissioner to alteast allow the relief under the Rule 40(1) for the period from 29.07.1986 to 18.02.1988. This argument was advanced on the premise that the original return was filed on 29.07.1985 and the period of one year specified in Rule 40(1) elapsed on 28.07.1986, without the assessment being completed. However, the Commissioner observed that starting point of counting the period of one year would be the date on which the first revised return (i.e., 13.01.1986) was filed and not the date of the filing of the original return (i.e., 29.07.1985). In the opinion of the Commissioner, the period between 12.01.1987 and 09.06.1987, when the AO issued the notice u/s 143(2), was not attributable to the assessee and, therefore, this period had to be excluded for the purposes of computing interest u/s 215. For the period from 09.06.1987 to 18.02.1988, the Commissioner held it to be attributable to the assessee on account of the adjournments and the second revised return filed by the petitioner on 18.01.1988.

Aggrieved, the assessee has filed this writ petition before the High Court.

Having heard the parties, the High Court held that,

Judicial discretion

+ insofar as the arguments under rule 40(5) are concerned, we feel that no interference whatsoever is warranted, for the simple reason that the consideration by the inspecting Assistant Commissioner/ Deputy Commissioner was based upon his discretion which, of course, had to be exercised in a judicial manner. This court in its jurisdiction under Article 226 of the Constitution of India does not sit as a court of appeal and it is not so much concerned about whether the decision of the authority below is right or wrong but whether the decision is legal or illegal. As observed by this court in J.K. Synthetics Ltd. v. Commissioner Of Income Tax , this being a petition under Article 226 of the Constitution of India, we are not sitting as a Court of appeal and we cannot substitute our views in place of those of the Deputy Commissioner/ Commissioner. As long as the discretion vested in the authorities below is exercised in a judicial manner, taking into account the relevant factors in an objective manner, no fault can be found with the conclusions arrived by such authorities;

Starting point of one year

+ we have already pointed out above that the Commissioner of Income-tax, in the impugned order dated 06.11.1990 has taken the starting point as the date of the filin of the revised return and not the date of filing of the original return. In our view, the Commissioner has correctly taken the date of the revised return as the starting point for computing the period of one year referred to in rule 40(1) of the said Rules. It is obvious that the revised return is filed by an assessee only when he discovers any omission or wrong statement made in the initial return. Therefore, the period between the filing of the original return and the filing of the revised return cannot enure to the benefit of the assessee because the filing of the revised return was necessitated on account of his omission or wrong statement made in the original return. Therefore, the starting point for computing the period of one year referred to in rule 40(1) would be the date on which the first revised return was filed, that is, 13.01.1986;

Mistake attributable to the assessee

+ we find that up to 12.01.1987, and, in fact, up to 09.06.1987 the assessing officer did nothing. It is only on 09.06.1987 which is much beyond one year after 13.01.1986 that the assessing officer issued the notice under section 143(2) of the said Act. Therefore, within the period of one year with effect from 13.01.1986, no delay could be attributable to the petitioner. That being the case, the waiver of interest, in our opinion, would be in respect of not just the period from 12.01.1987 to 09.06.1987 but for the period from 12.01.1987 to 18.01.1988. In other words, for the period commencing at the end of one year from the date of filing the first revised return upto the date of filing of the second revised return. We stop at the latter date because we presume that the filing of the second revised return caused a delay in the assessment and that is clearly attributable to the petitioner. To be clear, the period 19.01.1988 to 18.02.1988 is taken as attributable to the petitioner;

+ in the facts of the present case we find that after the issuance of the notice under section 143(2) the assessment has been completed within a little over eight months. Therefore, we are in agreement with the submissions made by the counsel for the petitioner that had the assessing officer been diligent enough and issued the notice under section 143(2) immediately or shortly after 13.01.1986, when the petitioner filed the first revised return, the assessment could have been completed by 12.01.1987 i.e., within one year. It is obvious that under the provisions, the assessing officer is granted a normal period of one year to complete the assessment and, if he does so, there can be no waiver of interest during that period. However, if the assessing officer is not diligent enough and does not complete the assessment within the said period of one year, any interest liability for the period beyond that one year cannot be foisted on the assessee unless the delay in not completing the assessment within the period of one year is clearly attributable to the assessee. In the present case, the period of one year which is available to the assessing officer for completing the assessment ended on 12.01.1987. For the delay beyond that date, there has to be waiver of interest unless part of that delay is attributable to the assessee. Here, the delay from 18.01.1988 to 18.02.1988 is clearly attributable to the assessee as it chose to file the second revised return on 18.01.1988;

+ in view of the foregoing discussion, the writ petition is partly allowed. There shall be waiver of interest under section 215 of the said Act in favour of the petitioner for the period 12.01.1987 to 18.01.1988.