ITA No. 43 of 2003 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 43 of 2003 Date of Decision: 12.10.2010 Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus M/s Sangrur Vanaspati Mills Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. Mr. Pankaj Jain, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1. This order shall dispose of ITA Nos. 226 of 2002 and 43 of 2003 as common question of law and facts are involved therein. For brevity, the facts are being extracted from ITA No. 43 of 2003. 2. ITA No. 43 of 2003 has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 2.5.2002 passed by the Income Tax Appellate Tribunal, Chandigarh Bench “A”, Chandigarh (hereinafter referred to as “the Tribunal”) in ITA Nos. 765 to 772/Chandi/91 for the assessment year 1986-87, proposing following substantial question of law:- “Whether, on the facts and in the circumstances of the case, the ITAT was right in law in cancelling order ITA No. 43 of 2003 -2- u/s 263 restoring the interest waived?” 3. Briefly stated, the facts as narrated in the appeal are that the assessee filed its return on 30.6.1986 declaring an income of Rs.51,18,749/- for assessment year 1988-87. A survey was conducted under Section 133A of the Act at the business premises of the assessee on 10.10.1988 and record showing unaccounted transactions was found which was later on impounded under Section 131 of the Act. Thereafter, the assessee offered additional income of Rs.23.50 lacs for the assessment year in question to tax. The assessment was completed under Section 143(3) by the Assessing Officer on 30.12.1988 at the total taxable income of Rs.88,04,474/-. Interest under Section 215 was also charged at Rs.8,55,999/- which was subsequently reduced to Rs.6,30,802/- as a result of order under Section 250(6). The assessee moved an application under Rule 40(5) of the Income Tax Rules, 1962 (hereinafter referred to as “1962 Rules”) for waiver of interest to the Assessing Officer. The interest amounting to Rs.5,44,900/- was waived vide order dated 8.11.1989. The Commissioner of Income Tax (Central), Ludhiana (in short “the CIT”) vide order dated 15.3.1991 cancelled the order of the Assessing Officer for waiver of interest holding the same to be prejudicial to the interest of the revenue. In compliance with the order of CIT, the Assessing Officer vide order dated 19.3.1991 revived the interest liability of Rs.5,44,900/-. Feeling aggrieved, the assessee approached the Tribunal, who vide order dated 2.5.2002 allowed the appeal which gave rise to the revenue to approach this Court by way of instant appeal. 4. We have heard learned counsel for the parties. ITA No. 43 of 2003 -3- 5. From the facts as noticed above, it is discernible that the assessee had made a surrender of Rs.23.50 lacs during the course of survey under Section 133A of the Act on 10.10.1988. The assessment was framed even beyond the amount surrendered by the assessee. The Assessing Officer while passing the assessment order on 30.12.1988 had issued direction for charging of interest under Section 215. However, later on, the Assessing Officer waived the same under Rule 40(5) of the 1962 Rules. The Assessing Officer under the aforesaid Rule had noticed as under:- “Perusal of the record reveals that there was surrender of income amounting to Rs.23.5 lakhs with the express request for non-charging of interest and penalty. If the effect of amount of surrender is excluded from the total income even then the default existed. Further, the records show that the assessee remained co-operative during the assessment proceedings. Keeping in view the entire circumstances, interest chargeable on the surrendered income is fully waived. However, interest chargeable after excluding the surrendered amount is waived beyond the period of one year from the date of filing of return i.e. interest of Rs.85902/- is retained and balance interest of Rs.544900/- is waived.” 6. The CIT under Section 263 held the order of the Assessing Officer waiving the interest under Rule 40(5) to the extent of ITA No. 43 of 2003 -4- Rs.5,44,900/- to be erroneous and prejudicial to the interest of the revenue. It was recorded as under:- “It cannot thus be said that the offer for addition was made merely to purchase peace with the department and for expeditious settlement of the cases. The assessee had itself admitted that at least a good number of entries in the seized ledger were not reflected in the books of account. The assessee fully knew that the concealment of income which is established from the documents seized, had been detected by the department and it was only after this detection that the assessee made the offer for additions in the above three years. At no stage in the proceedings, the assessee could prove that the entries in the seized documents were reflected in its regular books of account. Further, the additions in each year were higher than the amount of offer made by the assessee by Rs.1 lac. The assessee did not file any appeal against even this further addition. It is, therefore, clear that by not showing the entries in the seized documents in its regular books of account, the assessee had concealed the particulars of its income for the above three years.” It was further observed as under:- “As regards the waiver of interest chargeable u/s 215, under rule 40(5) of the Income-tax Rules, 1962 ITA No. 43 of 2003 -5- for the assessment years 1986-87 and 1987-88. It cannot be said that the interest chargeable in respect of the surrendered amounts for both the years was waived in accordance with the provisions of law as contended by the ld. counsel. As per the provisions of section 215, interest will be charged if the advance tax paid is less than a certain percentage of the assessed tax. In the present case, the advance tax paid was certainly less than the percentage specified under section 215. Sub rule 5 of Rule 40 of Income Tax Rules, 1962 gives discretion to the DCIT to waive the interest where he considers that the circumstances are such that the reduction or waiver of interest payable u/s 215 is justified. In the present case, no such circumstances existed. The waiver was done by excluding the amount of surrender and other disallowances from the income assessed. As held by me in respect of penalties u/s 273(2)(aa) above, the assessee all along knew that it had much higher income than what was disclosed in the estimates or in the returns of income later on. Therefore, no such circumstances existed which could justify the waiver of such interest ordered by the DCIT, Spl. Range, Patiala. The orders of waiver under Rule 40(5) of the Income-tax Rules, 1962 dt. 8.11.89 for the assessment years 1986-87 and 1987- ITA No. 43 of 2003 -6- 88 passed by the DCIT, Spl. Range, Patiala are, therefore, erroneous in so far as they are prejudicial to the interests of revenue.” 7. The order of the CIT was, however, upset by the Tribunal on appeal by the assessee. 8. Learned counsel for the revenue submitted that the Tribunal had erred in setting aside the order of the CIT especially when true and full disclosure was not made and further that the conditions enumerated under the provisions of Rule 40 (5) of the 1962 Rules to seek waiver of interest were not fulfilled. 9. On the other hand, learned counsel for the assessee supported the order passed by the Tribunal. 10. The primary issue for adjudication would centre around whether the assessee fulfilled the requirements of Rule 40(5) of 1962 Rules so as to entitle it to benefit of waiver thereof. It would be apposite to reproduce Rule 40 of 1962 Rules, which reads as under:- “40. The Assessing Officer may reduce or waive the interest payable under section 215 or section 217 in the cases and under the circumstances mentioned below, namely:- (1) When the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee. ITA No. 43 of 2003 -7- (2) Where a person is under section 163 treated as an agent of another person and is assessed upon the latter's income. (3) Where the assessee has income from an unregistered firm assessed under the provisions of clause (b) of section 183. (4) Where the previous year is the financial year or any year ending about the close of the financial year and large profits are made after the Ist March or the 15th March in cases where the proviso to section 211 applies, in circumstances which could not be foreseen. (5) Any case in which the Deputy Commissioner considers that the circumstances are such that a reduction or waiver of the interest payable under section 215 or section 217 is justified.” 11. Rule 40 provides the circumstances in which the interest payable under Section 215 or Section 217 could be waived. One of the circumstances mentioned therein is where the Deputy Commissioner of Income Tax considers that the circumstances are such that a reduction or waiver of interest payable under Section 215 or 217 is justified. 12. The assessee is required to fulfil the conditions enumerated under Rule 40 of the 1962 Rules so as to entitle him to the benefit of reduction or waiver thereof. A judicial exercise of discretion is necessary while deciding the extent to which the reduction or waiver of interest is called for. It depends upon facts and circumstances of each ITA No. 43 of 2003 -8- case. The power so conferred under Rule 40(5) to reduce or waive interest is required to be exercised fairly and reasonably. 13. Adverting to the factual matrix in the present case, the assessee had not made surrender to buy peace as was alleged by it. The additional conceaded income of Rs.1 lac was added in the assessment order and above the surrendered amount which clearly established that there was no full and true disclosure made by the assessee. 14. The Tribunal has not given any reason while reversing the order passed under Section 263 of the Act whereby the CIT had set aside the order passed under Rule 40(5) of the 1962 Rules and had held that it did not fulfil the requirement of the aforesaid rule and was, therefore, erroneous and prejudicial to the interest of the revenue. The CIT had rightly exercised the jurisdiction and the Tribunal was in error in setting aside the order of the CIT. 15. In view of the above, the question of law is decided in favour of the revenue and against the assessee. 16. Consequently, the appeals are allowed. (AJAY KUMAR MITTAL) JUDGE October 12, 2010 (ADARSH KUMAR GOEL) gbs JUDGE ITA No. 43 of 2003 -9- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 226 of 2002 Date of Decision: 12.10.2010 Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus M/s Sangrur Vanaspati Mills Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Rajesh Katoch, Advocate for the appellant. Mr. Pankaj Jain, Advocate for the respondent. AJAY KUMAR MITTAL, J. This appeal is allowed. For orders, see ITA No. 43 of 2003 (Commissioner of Income Tax (Central), Ludhiana v. M/s Sangrur VanaspatiMills Ltd). (AJAY KUMAR MITTAL) JUDGE October 12, 2010 (ADARSH KUMAR GOEL) gbs JUDGE