IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.VINOD CHANDRAN FRIDAY, THE 23RD DECEMBER 2011 / 2ND POUSHA 1933 W.A.No.1972 of 2010 ---------------------- AGAINST THE JUDGEMENT IN W.P.(C).No.12653/2004 DATED 31/08/2010 .................... APPELLANT/ PETITIONER:- ---------------------- M/S.LINK LINE ENTERPRISES, P.O.ROAD, THRISSUR, REPRESENTED BY ROSILY OUSEPH, PARTNER. BY ADV. SRI.HARISANKAR V. MENON SMT.MEERA V.MENON SRI.MAHESH V.MENON RESPONDENTS/ RESPONDENTS:- ---------------------------- 1. ASST. COMMISSIONER OF INCOME TAX, INVESTIGATION CIRCLE-I, DIVISION-I, THRISSUR. 2. CHIEF COMMISSIONER OF INCOME TAX, CENTRAL REVENUE BUILDING, I.S.PRESS ROAD, ERNAKULAM, KOCHI-18. BY STANDING COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.JOSE JOSEPH. THIS WRIT APPEAL HAVING COME UP FOR ADMISSION ON ON 08/12/2011, ALONG WITH W.A.NOS. 2008 OF 2010 & 2007 OF 2010, THE COURT ON 23/12/2011 DELIVERED THE FOLLOWING:- C.N.Ramachandran Nair & K.Vinod Chandran, JJ. ----------------------------------------------------------------------- W.A.Nos.1972 of 2010, 2007 of 2010 & 2008 of 2010 ----------------------------------------------------------------------- Dated this, the 23rd day of December, 2011 JDGMENT K.Vinod Chandran,J. The short question canvassed in the above Writ Appeals is the scope of the power under Section 154 of the Income Tax Act (for short “the Act”) to rectify any mistake apparent from the record. 2. The appellants are respectively two firms and one of the partners of the said firms. The facts relevant to the subject of challenge made in the writ petition have been detailed by the learned Single Judge. For the purpose of the disposal of these appeals, suffice it to say that the premises of the assessees were searched under Section 132 of the Act and pursuant to a notice under Section 148 of the Act, the assessments against the assessees were completed for the years 1988-89 to 1995-96 and interest was also levied under Section 234A, 234B and 234C. The assessee filed an application under Section 119(2)(a) for waiver of interest imposed under Sections 234A, 234B and 234C for the assessment years 1989-90 to 1995-96. The application was filed invoking the powers of the Chief Commissioner of Income Tax, conferred under notification dated W.A.No.1972/2010 & connected cases. - 2 - 23.5.1996 issued under Section 119(2)(a) of the Act. It is to be noticed that interest under Section 234A, 234B and 234C is mandatory and that there is no statutory provision to waive the same. However, to reduce the rigour, in deserving cases, beneficial provision has been provided under Section 119(2)(a) and the Central Board of Direct Taxes has, invoking the powers under such beneficial provision, issued Circular conferring powers on the Chief Commissioner/Director General to waive such interest, but only on the conditions specified in the Circular. The Chief Commissioner of Income Tax by orders dated 26.11.1999, 22.10.1999 and 26.11.1999 produced respectively as Exhibit P8, P7 and P4 in the writ petitions waived the interest in full. The Chief Commissioner in the said order found that the hardship pleaded by the assessee as also the filing of returns and payment of taxes would entitle the assessee to waiver of interest as claimed by him. 3. However, later notice under Section 154 was issued on 26.12.2003 proposing rectification of the order granting waiver on the ground that the assessee was not entitled to be considered for such waiver on account of non-satisfaction of the conditions in the notification. The proposal made was confirmed by the Chief Commissioner after hearing the assessee on the ground that the W.A.No.1972/2010 & connected cases. - 3 - assessee did not fall within the terms of the notification for the short reason that the assessee had filed return only after search and seizure and after issuance of notice pursuant to such search and seizure. The notification, according to the Commissioner, entitled an assessee to claim waiver only where it was satisfactorily proved that a return of income could not be filed by the assessee due to unavoidable circumstances and that such return of income is filed voluntarily by the assessee or his legal heirs without detection by the assessing officer. Since the assessee filed return only after search and detection of concealed income, the waiver of interest initially granted was found to be against law and hence the Chief Commissioner cancelled the first order granting waiver and restored the interest levied. The writ petition filed challenging the rectified order issued under Section 154 was dismissed by the learned Single Judge, against which this appeal is filed. 4. The learned counsel for the assessee in all these Writ Appeals, Sri.Harisankar V.Menon, would contend before us that the said rectification made in the case of all the assessees by separate orders dated 25.2.2004 is incompetent for the reason of the same being beyond the scope of the powers conferred under Section 154 of the Act. The learned counsel would urge before us that a reading W.A.No.1972/2010 & connected cases. - 4 - of the respective orders, which runs to 8 to 9 pages, would itself show that what is sought to be rectified is not an apparent mistake on the face of the record, but would definitely constitute an adjudication of an issue and can only be deemed to be a mere change of opinion which is beyond the scope of rectification under Section 154. The learned counsel would also take us through the decision of the Hon'ble Supreme Court in Deva Metal Powders Pvt. Ltd. v. Commissioner, Trade Tax, U.P., [2007] 10 VST 751, to buttress his arguments. 5. We have given anxious consideration to the facts of the case, the law on the subject as also the impugned judgment of the learned Single Judge. Obviously there can be no dispute that the earlier orders of the Chief Commissioner, which were rectified by orders dated 26.11.1999, 22.10.1999 and 26.11.1999 respectively, were incompetent in as much as the Chief Commissioner passed the first order without even referring to the conditions in the notification, the proof of satisfaction of which, only, entitles the assessee for a waiver. Obviously assessee's case was not covered by the terms of the notification entitling him to be considered for waiver of interest under the notification issued under Section 119(2)(a) of the Act. The notification so issued ([1997] 225 ITR (Statutes) 101) inter alia W.A.No.1972/2010 & connected cases. - 5 - confers power on the Chief Commissioner and Director-General of Income Tax to reduce or waive interest under Section 234A, Section 234B or Section 234C of the Act in the classes of cases or classes of income specified in paragraph 2 of the said notification. As noticed earlier, this power is conferred under a Circular issued invoking the powers of a beneficial provision and the eligibility to be considered under the Circular is to be strictly construed on the conditions specified in the notification. The power to waive or reduce such interest conferred by the said notification is a matter of satisfaction of the officer on whom such power is conferred. This is evident by the words “to the extent the Chief Commissioner of Income-tax/Director-General of Income-tax deem fit”. There can be no dispute that it is the discretion of the officer exercising such powers and the same has to be decided on the anvil of reasonableness and has to be done on a judicious consideration of the facts and circumstances. Any opinion so arrived at exercising one's discretion if found to be reasonable and judicious, it cannot be overturned by another officer under Section 154. There can be no dispute to the said proposition as discernible from the specific words in the provision for rectification as also various precedents, recently fortified in the decision in Deva Metal Powders case (supra). W.A.No.1972/2010 & connected cases. - 6 - 6. The question for consideration before us is not the reasonableness of the order passed for waiver of interest; that is sought to be rectified under Section 154. As noticed earlier, the notification specifies the classes of cases or classes of income in which the reduction or waiver of interest can be considered and that according to us would be the threshold test to be satisfied for being entitled to be considered for waiver. However much the hardship is, unless an assessee falls within the four corners of the classes of income or classes of cases specified in the notification, there can be no question of consideration of waiver or reduction of interest. As a corollary, in the classes of cases or classes of income which does not fall under those specified in paragraph 2 of the notification, the Chief Commissioner of Income Tax has no authority to consider reduction or waiver of interest. Admittedly, the assessee would claim entitlement to be considered under the notification on the premise that the assessee falls under paragraph 2(e) of the notification, which is extracted herein below: “(e). Where a return of income could not be filed by the assessee due to unavoidable circumstances and such return of income is filed voluntarily by the assessee or his legal heirs without detection by the Assessing Officer”. W.A.No.1972/2010 & connected cases. - 7 - There can be no dispute that in the instant case the assessee cannot be said to have failed to file a return due to unavoidable circumstances, nor can it be said that such return of income is filed voluntarily by the assessee without detection by the assessing officer. The assessee definitely had been filing returns, but without declaring the actual income which was sought to be taxed pursuant to a search and seizure effected at the premises of the assessee under the provisions of the Act. The return of undisclosed income sought to be assessed at the hands of the assessee filed pursuant to a notice under Section 148 of the Act cannot be said to have been filed voluntarily. It cannot also be disputed that the non-disclosure of income was not due to unavoidable circumstances and the return pursuant to notice under Section 148 was filed only after detection made by the Income Tax authorities under the provisions of the Act. This, to our mind, disentitles the assessee from being considered under the notification passed under Section 119(2)(a) of the Act. The assessee's entitlement to be considered for waiver of interest and the actual consideration of the waiver as such or the reduction thereon, are distinct and different. While discretion is conferred on the competent authority to decide on the waiver or the extent to which it can be granted, we are afraid, there is no such discretion granted in W.A.No.1972/2010 & connected cases. - 8 - so far as entitlement to make such claim. It is this entitlement which is the bone of contention in the instant case. The assessee if falling under any of the classes of income or classes of cases enumerated under paragraph 2 of the notification, necessarily gets an entitlement to be considered for waiver or reduction of interest. Once entitlement is proved, then waiver or reduction does not automatically follow; it is a matter of discretion of the competent authority. However, if the assessee does not fall under the classes in paragraph 2, there can be no consideration of the claim. The entitlement of the assessee does not fall for any adjudication, nor is it in the realm of discretion and cannot change with opinions and persons. The fact that the order passed under Section 154 runs to several pages has no bearing on the issue, since the Chief Commissioner, under Section 154, was concerned only with the entitlement of the assessee for consideration of waiver or reduction of interest as per the notification. It is also pertinent that the Chief Commissioner wrote an elaborate order under Section 154 since the assessee specifically raised the issue of the scope of the provision for rectification. The earlier order passed by the Commissioner granting waiver of interest under the notification was without noticing that the assessee as per the specific terms of the notification is not entitled to make such a claim, nor the W.A.No.1972/2010 & connected cases. - 9 - Chief Commissioner conferred with powers to consider that claim. This is not an error which is to be “established by a long drawn process of reasoning on points where there may conceivably be two opinions” (sic) [Satyanarayan Laxminarayan Hegde v. Mallikarjun Bhavanappa Thirumale, AIR 1960 SC 137]. The Supreme Court in Deva Metal Powders case (supra) also while considering the powers under rectification held thus:- “The power to rectify the mistake, however, does not cover cases where a revision or review of the order is intended. “Mistake” means to take or understand wrongly or inaccurately; to make an error in interpreting; it is an error, a fault, a misunderstanding, a misconception. “Apparent” means visible; capable of being seen, obvious; plain. It means “open to view, visible, evident, appears, appearing as real and true, conspicuous, manifest, obvious, seeming”. The earlier order of the Chief Commissioner granting waiver was definitely a misconception or an error in interpreting the notification, which could be rectified under Section 154. As stated earlier, the detailed order passed under Section 154 was due to the assessee's contention regarding the scope of rectification under Section 154 and the only perceivable consequence of the order passed under Section 154 is rectification of an error in interpreting the terms of the W.A.No.1972/2010 & connected cases. - 10 - notification and reversing the process for the only reason of the assessee being disentitled from applying for waiver or reduction of interest under the notification under Section 119(2)(a). According to us, the fundamental error committed in the order dated 26.11.1999 was rectified. In the circumstances, we are of the opinion that the judgment of the learned Single Judge is not liable to be interfered with and we dismiss the Writ Appeals. No costs. Sd/- C.N.Ramachandran Nair, Judge Sd/- K.Vinod Chandran, Judge. vku/-