THE issue before the Bench is - Whether when the Revenue fails to take action on demand of tax with interest for 27 years and also fails to apply mind to interest waiver application, it is a fit case to reduce or waive interest amount u/s 220(2A). YES is the answer.
Facts of the case
The assessee, an individual, was assessed to tax on the file of the ITO for the AYs 1977-78 and
1978-79. The demand, including interest, u/s 220 (2) was certified by the Tax Recovery Officer and after collecting the entire arrears, the Tax Officer raised demand of Rs.65,472/- representing the interest under Rule 5 of the Income Tax Rules, 1962. Against the said demand, assessee preferred an application before CIT u/s 220 (2) for waiver of the interest demanded. In the said petition, assessee had stated that more than 25 years, he was an assessee on the file of ITO, Trichy, and then he was a student and his income tax affairs were looked after by his father, Mr.K.S.Rajan, who was no more and the taxes were also paid and there was no outstanding demand. It was further stated that the assessee had settled down in Madras and his old assessment records were not traceable. Further, the assessee was served with the Wealth Tax assessment order u/s 30 of the Wealth Tax Act, for the AYs 1977-78 and 1978-79 and as per the order and also the notice, the tax payable was 'nil'. It was stated that after the lapse of 27 years, the Tax Recovery Officer issued summons u/s 131 and the assessee was asked to appear before him and to pay arrears of Rs.58,000/- together with interest levied under Rule 5 of the Rules. The assessee made a request to the Tax Recovery Officer to furnish details and was informed that interest u/s 220 (2) and Rule 5 of the Rules, up to January 1990 was Rs.33,165/- and the income tax payable for the AYs 1977-78 and 1978-79 was Rs.24,835/-.
On receipt of the letter, assessee requested the Tax Recovery Officer and the then AO to furnish copies of the assessment orders and also the evidence for service of notices of demand. Such a request was made by the assessee because of the fact that the AYs were 1977-78 and 1978-79 and summons were issued for the payment only in 2004, i.e., after a lapse of 27 years. Though the assessee did not received any information on his request made, he paid the amount of Rs.58,000/- with a view to purchase peace and settle the matter and avoid further litigation. After making payment of Rs.58,000/-, which includes the tax and interest, the Tax Recovery Officer again raised a demand of Rs.65,472/- claiming interest under Rule 5 for the period from January 1990 till October 2005 and the demand showed arrears only as Rs.24,835/- and interest (including the sum of Rs.65,472/-) was Rs.98,637/-. Therefore, assessee stated that the entire interest charged may be waived, as the assessee had paid the tax and interest earlier demanded, though it caused hardship to him in arranging the necessary funds, and then, the non-payment of tax was because of reasons beyond his control and he cooperated with the Department in all proceedings in the payment of tax. Thereafter, the Revenue was repeatedly issuing demands calling upon the assessee to pay a sum of Rs.65,472/-. The authority had stated that the assessee failed to satisfy the three conditions cumulatively and the assessee had not brought anything on record to show that the demand on Rule 5 interest would cause or have caused hardship to him and even if hardship appears to had been really severe or grave, it was not genuine. The authority then proceeded to discuss on the assessee's financial position as on the date when the impugned orders were passed and stated that there was no genuine hardship.
Held that,
++ the SC in the case of B.M.Malani v. CIT, 2008-TIOL-185-SC-IT considered the term 'genuine' and held that the genuine hardship inter-alia means a genuine difficulty, that per se would not lead to the conclusion that a person having large assets would never be in difficulty as he can sell those assets and pay the amount of interest levied. Further, the Division Bench of HC, in the case of N.Haridas and Company v. CCIT and another, reported in (2008) 296 ITR 246 (Mad) has held that the Commissioner should have taken note of the unavoidable circumstances, namely, the sudden demise of the Managing Partner, at the time when the tax under the Voluntary Disclosure of Income Scheme was demanded. Further, the petitioner therein filed revised return on receipt of notice under Section 148 and paid tax accepting the reassessment. It was further pointed out in the said decision, that the Chief Commissioner was not correct in rejecting the claim of the petitioner for waiver, without properly appreciating the facts and circumstances of the case and considering the fact that 12 years have passed, the earliest assessment year being 1994-95 and the assessee had already paid tax, as per the reassessment, the Commissioner was directed to waive the interest. In the light of the above referred to decisions, if the case on hand is examined, it is seen that when the Department, for the first time issued the demand on the petitioner in the year 2005, the petitioner did not contest the demand, though he submitted representations requesting for furnishing of details. Nevertheless, the petitioner paid the tax amount together with the interest, which was calculated and demanded by the Department. At that point of time, prior to the petitioner remitting the amount, the Department did not issue the revised reassessment / demand, till that date, but the demand was only for interest calculated up to January 1990. Be that as it may. The tax and interest up to that date (January 1990) was paid in the year 2005. Thereafter, the Department now seeks to demand interest from January 1990 till October 2005 and the learned Standing Counsel for the respondents would submit that the interest is also leviable during the pendency of this writ petition also;
++ in my view, the respondents have not placed any material to show that as to why no action was initiated for 27 years. While considering the waiver application also, the Authority did not consider this question. Further, in the facts of the case, which are peculiar, the relevant date for considering the genuine hardship was also not taken into consideration. Therefore, the question of demanding interest for the period up to 2005 does not arise. However, the petitioner has admitted that in the year 2004, he was served with a demand notice. Despite such statement, the petitioner paid the tax and interest only in October 2005. Therefore, to that extent, the petitioner has to be blamed for not immediately making the payment of tax and interest. Therefore, by taking note of the fact that sub-section (2A) of Section 220, empowers the authorities to reduce or waive the interest amount, this Court is of the view that it is a fit case where there should be a direction to the respondents to reduce the amount of interest, which has been demanded, which according to this Court, shall be Rs.25,000/-. In the result, these writ petitions are partly allowed and the matters are remanded to the respondents, with a direction to the respondents to collect a sum of Rs.25,000/-, as being interest, which shall be the full and final settlement of all claims against the petitioner. It is further made clear that, since the writ petitions were admitted and pending for all these years, no interest shall be demanded from October 2005 to till date. However, if the petitioner fails to remit the amount, as fixed by this Court, then it is open to the respondents to proceed against the petitioner in accordance with law. Consequently the connected MPs are closed.
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