IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 18.11.2010 CORAM: THE HONOURABLE MS. JUSTICE K.B.K.VASUKI W.P.Nos.29083 of 2007 and 8751 and 8752 of 2010 and M.P.Nos. 1, 1 and 2 of 2010 M/s.Subuthi Finance Ltd .. Petitioner in all WPs Vs. 1.The Commissioner of Income Tax, Chennai-III 121 Mahatma Gandhi Road, Chennai-34. 2.The Assistant Commissioner of Income Tax company circle VI (4) 121, Mahatma Gandhi Road, Chennai-34. .. Respondents in WP.29083 of 2007 1.The Commissioner of Income Tax, Chennai-III 121 Mahatma Gandhi Road, Chennai-34. 2.The Assistant Commissioner of Income Tax company circle VI (4) Income Tax Department, New Block, 7th Floor, 121, Mahatma Gandhi Road, Chennai-34. (Cause title amended as per order dated 6.8.2010 in MP.2/2010 in WP.8751 and 8752/10) 3.The Tax Recovery Officer IX, Company Range VI, Income Tax Department, New Block, 7th Floor, 121 Mahatma Gandhi Road, Chennai-34. .. Respondents in WP.Nos.8751 and 8752 of 2010 Prayer in WP.29083 of 2007: Writ petition is filed under Article 226 of the Constitution of India praying for issuance of Writ of Certiorarified Mandamus to call for the records of the petitioner in C.No.3032/1/111/2005-06 on the file of the first respondent to quash the impugned order dated 23.3.2007 and to consequently direct the respondents to exclude the income booked from the rejected transaction for the assessment year 1995-96. Prayer in WP.8751 of 2007: Writ petition filed under Article 226 of the Constitution of India praying to issue a Writ of Certiorarified Mandamus, calling for the records of the petitioner https://hcservices.ecourts.gov.in/hcservices/ on the file of the 3rd respondent to quash the impugned notice dated 31.3.2010 in Form No.1 TCP-4 in terms of Rule 26(1) (ii) of second schedule to the Income Tax Act, 1961, in TR No.11 and 75/106/2004-05 in the attachment of the 64,21,765 equity shares of M/s.Indo Wind Energy Ltd held by the petitioner company for the recovery of tax and interest quantified for the assessment years 1996-97, 1997-98 and 1998-99 and 2004-05 as well as the Block Assessment and to consequently direct the respondents not to proceed further in the matter of recovery of the disputed arrears pending disposal of the Tax Case Appeals No.536/2005 and 550/2008 and W.P.No.29083 of 2007. Prayer in WP.8752 of 2007: Writ petition filed under Article 226 of the Constitution of India praying to issue of Writ of Certiorarified Mandamus calling for the records of the petitioner on the file of the 3rd respondent to quash the impugned notice dated 24.11.2004 under section 226 (3) of the Income Tax Act, 1961, in TR No.11 and 75 /106/2004-05 in the attachment of the windmill energy income on the issuance of the said garnishee order on the Tamil Nadu Electricity Board for the Recovery of tax and interest quantified for the assessment years 1996-97, 1997-98 and 1998-99 as well as the Block Assessment in the attachment of the windmill energy income on the issuance of the said garnishee order of the Tamil Nadu Electricity Board for the Recovery of tax and interest quantified for the assessment years 1996-97, 1997-98 and 1998-99 as well as the Block Assessment and consequently direct the respondents not to proceed further in the matter of recovery of the disputed arrears pending disposal of the Tax Case (Appeals) Nos.536/2005 and 550/2008 and W.P.No.29083 of 2007. For Petitioner : Mr.J.Balachander in all WPs. For Respondents : Mr.K.Subramaniam SCGSC(IT) in all WPs. COMMON ORDER All the three writ petitions are against and arising out of Income Tax Assessment orders of the petitioner's company and attachment of the properties belonging to the petitioner's company for the recovery of the income tax arrears for the period in question. While WP.29083 of 2007 is filed against the order of the first respondent/Commissioner of Income Tax, Chennai thereby refusing to condone the delay in filing the revision under Section 264 of the Act filed against the assessment order for the assessment year 1995-96, other two writ petitions are filed for lifting the order of attachment of 64,21,765 equity shares held by the petitioner company in M/s.Indowind Energy Limited and for lifting the garnishee order on the income due from TNEB in respect of two wind mills owned by the petitioner company towards the arrears of income tax due from the petitioner for the assessment years concerned. 2.As the result of WP.No.29083/2007 is likely to have bearing on the issue involved in the other two writs, all the three writ petitions are for the purpose of effective and proper adjudication of the issue involved therein, being disposed of by common order. https://hcservices.ecourts.gov.in/hcservices/ 3.The petitioner is the company involving in the business of leasing and hire purchase. The petitioner entered into an agreement with Bank of Madura for the purpose of transaction of purchase and lease allowing sub lease under agreement dated 26.9.1994 for a period of five years in respect of 5 furnaces of different types with accessories to the value of Rs.4 crores stated to be located at M/s. Gujarat Suspension Limited, Baroda. The lease was for Rs.3,99,50,000/-. The petitioner has also entered into sub lease agreement with M/s. Gujarat Rodrell Engineering Products Limited, Baroda whereby the lessee leased out the same equipment to the latter company for five years. While so, the assessee filed return of income for the assessment year 1995- 96 on 29.11.95 in which the petitioner has shown the income of Rs.4,14,77,000/- excluding the expenditure of Rs.20,00,000/- and sublease income of Rs.1,98,00,000/- relating to the transaction of lease and sub lease entered into between M/s.Bank of Madura Limited and M/s.Gujarat Rodrell Engineering Products Private Limited and the same was processed on 17.9.96. In the mean While, the department carried out investigation into the veracity of the above lease agreement during the assessment of the Bank of Madura Limited and the Chairman cum Managing Director of the petitioner company was also summoned for personal enquiry and he duly attended the same and his statement was recorded on 16.3.1998. Ultimately, the department treated the lease agreement as mere financial arrangement and consequently, the claim for depreciation of the machineries said to have been leased out was disallowed in the assessment of Bank of Madura Limited. Consequently, the assessment of the petitioner for the assessment years 1996 -97 to 1998-99 were reopened under Section 147 on 10.11.2002 and the Assessment Officer has again held the same lease transaction with Bank of Madura Limited as pure financial arrangement and consequently, disallowed the asesseee's claim for payment of lease entered to with the Bank of Madura Limited as deduction. However, the assessment in respect of sub lease rent received by M/s.Gujaraj Rodrel Engineering Products Private Limited was not interfered with. 4.The correctness of such assessment for the assessment years 96-97, 97-98 and 98-99 was challenged by the petitioner company in I.T.A.Nos.236, 237 and 238 of 2004-05 and the Commissioner of Customs has by order 27.1.2005 held that the disallowance of capital portion of lease rent paid by Bank of Madura was confirmed, however, the appellant shall be entitled to deduct the sub lease rent received against the disallowance of lease rent paid and total income was enhanced for all the assessment years by disallowing the interest portion of the lease rent paid. The petitioner company has filed further appeals before the Appellate Tribunal, however, the petitioner has subsequently withdrawn his appeals filed before the appellate Tribunal. The petitioner has thereafter come forward with the revision under Section 264 in respect of the assessment for the assessment year 1995-96 along with the petition to condone the delay in filing the revision and the petition to condone the delay was dismissed. As against which, the petitioner preferred W.P.No.29083 of 2007. 5.During pendency of the proceedings, as referred to above, the petitioner company has been issued with demand notices for https://hcservices.ecourts.gov.in/hcservices/ payment of Income Tax arrears for Block Assessment Years from 1993-94 and assessment years 96-97, 97-98 and 98 to 99 periodically and the last demand notice is dated 24.11.2004 demanding payment of Rs.4,60,44,541/- under section 226(3) of I.T. Act. The third respondent has on the same day, passed Garnishee order in and under which, the third respondent has attached the income from two windmills owned by the petitioner, the maintenance and operation of the same are entrusted with M/s.Indo Wind Energy Ltd. The order of attachment is, according to the petitioner, in addition to attachment of some of the bank accounts, the details of which are furnished at para 14 of the affidavit filed in support of W.P.No.8751 of 2010. 6.In pursuance of the attachment order, the income derived from Tamil Nadu Electricity Board for the supply of energy from the two windmills owned by the petitioner are being adjusted towards arrears of income tax and while so, the third respondent has also passed another attachment order dated 31.3.2010 thereby attaching 64,21,765 equity shares of the petitioner held in M/s.Indo Wind Energy Ltd. Aggrieved against the same, the petitioner has come forward with W.P.Nos.8751 and 8752 of 2010. 7.I heard and considered the rival submissions made on both sides and perused the records. 8.In all the three writ petitions the main grievance raised by the petitioner company is that the petitioner's endeavor to file revision petition under section 264 to reopen the assessment for the assessment year 1995-1996 is to get consistent finding about the lease transaction with Bank of Madura and another company at Baroda in consonance with the finding rendered in the assessment for the subsequent years 1996-1997 to 1998-1999. It is contended by the learned counsel for the petitioner that as the appellate authority has in the assessment orders for the subsequent years relating to 1996-1997 to 1998-1999, allowed the petitioner's claim in respect of the lease transaction of the petitioner with Bank of Madura and another company at Baroda, the assessment order in respect of assessment year 1995-1996 deserves to be interfered with in respect of the same lease transaction and in the event of same order being passed in respect of assessments for all the assessment years consistently, the same is likely to reduce the taxable income and tax liability of the petitioner to considerable extent and the delay in filing the revision for the assessment year 1995-1996 for the said purpose is to be liberally construed and the petitioner ought to be given an opportunity to contest the assessment in respect of the particular year on merits. 9.It is further contended by the learned counsel for the petitioner that the demand for tax arrears to the tune of Rs.4crores is for the block assessment years as well as the assessment years as referred to above and the petitioner has been seriously contesting his tax liability for the block assessment in Income Tax Appeals no.536/2005 and 550/2008 pending before the High court Tax Bench and in the event of his claim being accepted in the Tax Appeals as well as in the revision sought to be filed in respect of assessment year 1995-96, the same is likely to drastically reduce his tax liability and the amount already paid https://hcservices.ecourts.gov.in/hcservices/ will be more than what is due from him and the petitioner is likely to get refund of the excess amount paid by the same. The petitioner has also in the writ petitions filed herein and in his various representations addressed to the Tax Recovery Officer and the Commissioner of Income Tax and in the revision petition sought to be filed belatedly explained in detail as to how disallowance made by the assessment officer is erroneous and as to how his claim for deduction is legally valid and how he is likely to succeed in his tax appeals and in the revision. Such contention raised on the side of the petitioner will considering the ground on which the revision is filed for the assessment year 1995-96, deserve merits and acceptance and in order to enable the petitioner to have the benefit, the delay in filing the revision ought to have been, as argued herein, considered more liberally in favour of the petitioner. 10.Regarding the delay on facts, it is true that the return for the assessment year 1995-96 was made only on 29.11.1995 and the same was processed and the same was communicated to the petitioner on 17.9.96. According to the petitioner, the cause of action for filing the revision against the order of the assessment officer for the assessment year 1995-96 arose only by virtue of the order dated 27.1.2005 made by the Commissioner of Income Tax (Appeals) V in respect of the assessment years 1996-97, 97-98 and 98-99. Whereas, according to the revisional authority, the cause of action for filing revision arose on 31.03.1998 the date on which his statement was recorded in the assessment proceedings relating to Bank of Madura Limited, as such the reason given for the delay, lacks in bonafide and is not supported by sufficient cause and as the petitioner was aware of the fact that the transaction will be held as bogus even on the date of his examination, the revision petition ought to have been filed within one year from 31.3.1998 and not the date on which the appellate authority disposed of the appeal in respect of assessment years 1996-97 to 98-99. 11.The discussion held in the impugned order makes it clear that the finding about the lease transaction as financial transactions is reversed by the appellate authority on 27.01.2005 and the revision is filed during April 2005. But the authority did nowhere say that the limitation for filing the revision commences from the date of processing of return relating to assessment year 1995-1996. The point considered in the impugned order is as to whether it is from 31.3.1998 the date on which, the statement of the petitioner was recorded or from 27.01.2005. In my considered view, the date 31.03.1998 cannot at all be taken into account as no knowledge can be attributed to the petitioner company with regard to the findings likely to be rendered by the authority concerned on the basis of his statement. It is nobody's case that the assessment order involving lease transactions and the capital involved in such transaction with M/s. Bank of Madura Limited, is served on the petitioner and the petitioner is only aware of the order much after the same was passed. Equally no knowledge can be attributed to the petitioner with regard to nature of the order likely to be passed for the subsequent assessment years. The petitioner has categorically stated that he was influenced to file revision only after final order in respect of assessment orders for assessment year 1996-1997 to 1998-1999 is https://hcservices.ecourts.gov.in/hcservices/ passed and the definite case of the petitioner is that the cause of action for filing the revision petition arises only on 27.1.2005, the date on which CIT appeals were decided finally and the very object and purpose in filing the revision is to avoid inconsistency and to have confirmity and regularity with the decision in respect of the same transaction between the same parties. 12.As a matter of fact, the petitioner has also, in order to file revision petition, withdrawn his further appeals preferred by him against the order dated 27.01.2005 before the appellate authority. Such conduct on the part of the petitioner should have been appreciated by the Assessment Officer in proper perspective and had it been done, the Assessment Officer would have liberally considered the reason for the delay in filing the revision petition. As rightly argued by the learned counsel for the petitioner, the delay ought to have been viewed in the light of the fact that it is filed within few months during April 2005 from the order dated 27.1.2005 and withdrawal of statutory appeal and the delay is to be hence held as not lacking in bonafide. However, the authority concerned has after discussing the merits of the claim, rejected petition on the ground that the reason given for the delay smacks of mala fides. Such course adopted by the authority concerned is totally erroneous and unjustified. 13.The learned counsel for the petitioner has cited the following authorities viz. (i) AIR 1969 SC 575 in Shakuntala Devi Jain v. Kuntal Kumari and others and (ii) (1975) 2 SCC 840 in New India Insurance Co. Ltd. v. Smt. Shanti Misra, Adult (ii) (1998) 7 SCC 123 in N.Balakrishnan v. M.Krishnamurthy and Division Bench of our High court in the judgment reported in (2006) 203 CTR (Mad) 325 Areva T and D India Ltd v. Joint Commissioner of Income Tax in support of his stand as to how the delay petition should be liberally construed. 14.The Hon'ble Supreme Court has in AIR 1969 SC 575 held that "discretion ought to be exercised upon principles which are well understood; the words "sufficient cause" receiving a liberal construction so as to advance substantial justice when no negligence nor inaction nor want of bona fides is imputable to the appellant". Our High court has also, following the same in its judgment reported in (2006) 203 CTR (Mad) 325 held "the principle of advancing substantial justice is of prime importance". Our High court has in other judgment reported in (2001) 168 CTR (Mad) 81 in Venkatadri Traders Ltd. v. Commissioner of Income Tax and another, expressed the view that "while considering the question of condonation the revisional authority is not to altogether exclude from consideration the merits of the revision petition". 15.As rightly argued by the learned counsel for the petitioner, had the sufficiency of the reason for the delay been considered in the light of the merits of the petitioner claim, the same would have resulted in different finding with regard to delay, as such the impugned order dismissing the delay petition without properly and liberally exercising the discretionary power is liable to be set aside so as to enable the petitioner to get opportunity to contest the revision petition on merits. https://hcservices.ecourts.gov.in/hcservices/ 16.It is also note worthy to mention that Section 264 of the Income Tax Act 1961 empowers the Commissioner either on his own motion or on an application made by the assessee to call for the record of any proceedings under the Act and pass such order thereon not being an order prejudicial to the assessee and this power has been conferred upon the Commissioner in order to enable him to give relief to the assessee in cases of over-assessment. The power conferred on him is wider in terms, is the observation of the Division Bench of Gujarat High Court in the cases reported in 1994 Vol 210 ITR 797 in Digvijay Cement Company Limited v. Commissioner of Income Tax and another and in Vol. 211 ITR 926 in J.J. Corporation v. Commissioner of Income tax and another, wherein it is held that the revisional power is coupled with a duty to exercise it in the interests of justice of the parties and the revisional authority must act according to the rules of reason and justice. The Commissioner though suo moto empowered to exercise his revisional authority, has failed to exercise the same when called upon to do so at the instance of one of the parties, and the failure to condone the delay in my considered view amounts to refusal to exercise the jurisdiction vested upon him. 17.The same Gujarat High court in the judgment reported in 1980 Vol.122 ITR 610 in C.Parikh and Co. v. Commissioner of Income tax, Baroda, is of the view that the commissioner was not right in holding either that it was not open to him to give relief to the assessee on account of the petitioner's own mistake which it detected after the assessment was completed or that the over assessment did not arise from the order of assessment. Once the petitioner was able to show that there was mistake, the Commissioner was wrong in not giving relief to the petitioner in respect of the over-assessment. That being the legal and factual position involved herein, the order of the revisional authority in refusing to condone delay petition in my opinion, amounts to refusal to give relief to the assessee. 18.As a matter of fact, there was a circular issued by the Board of Direct Taxes No.14 (XL-35) of 1955, dated 11.4.1955 that officers of the Department must not take advantage of the ignorance of an assessee as to his rights and it is one of their duties to assist the taxpayer in every way particularly in the matter of claiming and securing relief. The circulars are binding on the department which includes the head of the Department, the Commissioner. The same circular was relied on by the Division Bench of Kerala High Court in the judgment made in Parekh Brothers v. Commissioner of Income Tax reported in 150 ITR 105 wherein, the Kerala High Court after taking into account various aspects, was pleased to direct the Commissioner to restore the revision petition on file and pass appropriate orders after giving to the claimant an opportunity for being heard along with such of those documents which he intends to produce to substantiate his plea. Similar order was passed by the Division Bench of our High court in the judgments reported in Vol. 153 page 596 in Commissioner of Income Tax v. K.S.P. Shanmugavel Nadar and others and 2009 (23) DTR (Mad) 322 in Rayala Corporation (P) Ltd vs. Commissioner of Income Tax. 19.Thus, the Supreme court and the Tax Appeal Benches of various High Courts are of the view that the endeavour of the https://hcservices.ecourts.gov.in/hcservices/ revisional authority shall be to dispose of the case on merits so as to give relief, if any, to the assessee and not to refuse to extend the relief on the ground of mistake committed by the assessee or on the ground of ignorance of his right. The observations of the Hon'ble supreme Court, Division Bench of our High Court and various High Courts are, in my opinion, applicable to the facts of the present case and the same would compel this court to set aside the order impugned in W.P.No.29083 of 2007 and to condone the delay with further direction to the revisional authority to treat the revision petition filed as intime and to dispose of the same on merits after giving due opportunity to the petitioner company for being personally heard and to produce any documents to substantiate his claim. 20.In so far as the prohibitory order dated 24-11-2004 and garnishee order dated 31.3.2010 are concerned, it is seriously contended by the learned counsel for the petitioner that the order impugned herein rendered the petitioner's entire source of income to be closed which inturn rendered himself unable to discharge his statutory liabilities. The petitioner has by way of typed set, produced various records relating to payment so far made and the representation made to stay the recovery proceeding pending disposal of Tax Appeals and revision for the block assessment years and assessment year 1995-1996 respectively on merits. However, the authority concerned has till date not passed any order therein. Such failure on the part of the authority concerned to dispose of the petition to stay recovery of arrears one way or other is also totally erroneous and is contrary to well laid down legal proposition. 21.Be that as may, as far as the arrears of tax is concerned, tax arrears is according to the department as on first attachment order dated 24.11.2004 is Rs.4,61,44,541/- and the same is after giving credits to the payments made by the petitioner reduced to Rs.2,37,11,000/- plus interest payable under Section 220(2) of Income Tax Act and Rule 5, as per the latest Garnishee order dated 31.3.2010. It is not in dispute that the third respondent has attached the bank accounts and proceeds receivable from TNEB in respect of two windmills operated by the petitioner company and the income from TNEB is being adjusted towards tax arrears. The particulars regarding the attachment of bank accounts furnished in para 14 at page 8 of the affidavit filed in support of the petition in W.P.No.8751 of 2010 are as follows: Account Number Name