MOTILAL M. GUPTA vs. CHIEF COMMISSIONER OF INCOME TAX AND ORS.

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WP/7921/2006HC BombayHCBM01039646200623 January 2007Author: HON'BLE SHRI JUSTICE J.P. DEVADHAR,HON'BLE SHRI JUSTICE DR. S. RADHAKRISHNAN5 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the CCIT's refusal to waive interest was unsustainable on all three grounds. Firstly, regarding the outstanding tax liability, the Court found that the assessee had paid more tax than was payable and that the CCIT should have adjusted the excess payment towards the tax due, not the interest. Therefore, the conclusion of outstanding tax arrears was incorrect. Secondly, the Court found that the additional income was offered during the search and revised returns were filed after permission for spread over, making the CCIT's finding that income was offered post-Section 148 notice incorrect. Thirdly, concerning the seizure, the Court noted that the entire stock was seized, which incapacitated the assessee from paying taxes. The Court reasoned that the Board's circular focuses on whether the assessee was incapacitated from paying tax post-search, which was the case here. Consequently, the Court quashed the CCIT's order and remitted the matter back for reconsideration.

What were the facts?

The petitioner, Motilal M. Gupta, challenged an order dated March 20, 2006, by the Chief Commissioner of Income-tax (CCIT) under Section 119(2)(a) of the Income Tax Act, 1961. The CCIT had refused to waive interest levied under Sections 234A, 234B, and 234C for Assessment Years (AYs) 1989-90 to 1992-93. A search under Section 132 was conducted on March 5, 1992, leading to a declared undisclosed income of Rs. 42.82 lakhs for AY 1992-93. The assessee was permitted to spread this income over AYs 1989-90 to 1992-93. Subsequently, revised returns were filed, and interest was levied. The CCIT rejected the waiver application on grounds of outstanding tax liability after adjusting prepaid taxes, voluntary filing of returns, and absence of cash seizure.

What were the issues?

1. Whether the CCIT erred in holding that there was an outstanding tax liability of Rs. 9,06,449/- after adjusting prepaid taxes, thereby refusing waiver of interest under Section 119(2)(a)? The assessee contended that taxes paid (Rs. 16,53,720/-) exceeded the tax payable (Rs. 14,84,635/-) and that the CCIT should have adjusted the excess payment towards tax due, not interest. The revenue's position, as reflected in the CCIT's order, was that after adjusting prepaid taxes towards interest, an outstanding tax liability remained. 2. Whether the CCIT erred in holding that the additional income was offered after notices under Section 148, thus not qualifying for waiver of interest under Section 234A? The assessee argued that the income was disclosed during the search on March 5, 1992, and revised returns were filed only after the Commissioner permitted spread over under Section 132(12). 3. Whether the CCIT erred in refusing waiver of interest under Sections 234B and 234C on the ground that no cash was seized during the search? The assessee contended that the entire stock was seized, incapacitating them from paying taxes immediately after the search.

Which sections of the Income-tax Act were involved?

Section 119(2)(a),Section 234A,Section 234B,Section 234C,Section 132,Section 132(12),Section 148

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.7921 OF 2006 Motilal M. Gupta Moti Building, Ghungat Nagar Bhiwandi, District Thane .. Petitioner. V/s. 1. Chief Commissioner of Income-tax, Vardaan, 1st Floor, MIDC, Wagle Industrial Estate, Thane 2. Income Tax Officer Ward 1(2), Rani Mansion, Murbad, Kalyan 3. Tax Recovery Officer, Ward 1(1), Rani Mansion Murbad, Kalyan .. Respondents. Mr.Salil Kapoor with Mr.Jitendra Shah i/by Mr.K. Gopal for the petitioner. Mr.Ashok Kotangale for the respondents. CORAM : DR.S. RADHAKRISHNAN & J.P. DEVADHAR, JJ. DATED : 23RD JANUARY, 2007.

ORAL JUDGMENT : (Per J.P. Devadhar, J.) ORAL JUDGMENT : (Per J.P. Devadhar, J.) ORAL JUDGMENT : (Per J.P. Devadhar, J.) . Rule, Rule made returnable forthwith. By consent of petition is taken up for final hearing. In this petition, the petitioners have challenged the order dated 20th March, 2006 passed by the Chief Commissioner of Income Tax, Bombay (‘CCIT’ for short) under Section 119(2)(a) of the Income Tax Act, 1961 (‘the Act’ for short). By the said order the CCIT has declined to grant waiver of interest CNR No : HCBM010396462006 Uploaded on - 22/08/2020 levied upon the petitioner under Section 234A, 234B and 234C of the Act for the AY’s 1989-90 to 1992-93. 2. The facts relevant for the present petition are that, on 5th March, 1992 search action under Section 132 of the Act was carried out at the office premises of the petitioner. At the time of search, the assessee declared undisclosed income of Rs.42.82 lakhs for AY 1992-93. Accordingly, the assessee filed return for AY 1992-93 offering the aforesaid undisclosed income. Pursuant to the order passed by the Commissioner of Income Tax dated 12th February, 1992 under Section 132(12) of the Act, the assessee was entitled to seek spread over of the undisclosed income for AY 1989-90 to AY 1992-93. Accordingly, the petitioner filed revised return for AY 1989-90 to AY 1992-93. In the assessment order passed thereon, the assessing officer levied interest under Section 234A, 234B and 234C of the Act.

3.

Thereupon, the petitioner filed an application before the CCIT seeking waiver of interest levied upon the petitioner. By the impugned order, the CCIT has rejected the waiver application mainly on three grounds : (a) on adjustment of the prepaid taxes towards the interest, the outstanding tax liability is Rs.9,06,49/- (b) additional income has been offered after the notices under Section 148 of the Act on Uploaded on - 22/08/2020 22nd July, 1992, hence returns filed cannot be said to be voluntary for waiving interest under Section 234A and (c) no cash was seized during the search and, therefore, the interest under Section 234B and 234C cannot be waived. Challenging the aforesaid order, this petition is filed.

4.

Admittedly, the tax payable by the petitioner for the assessment years in question is Rs.14,84,635/- whereas the tax paid by the petitioner is Rs.16,53,720/-. As per the circular issued by the Board, the petitioner is entitled to seek waiver only if the tax payable have been paid before seeking waiver of interest. In the present case, taxes paid by the petitioner are more than the tax payable and it is only because the amount of tax paid has been adjusted towards the interest, the CCIT has come to the conclusion that there are outstanding tax arrears to the tune of Rs.9,06,449/-. In our opinion, the proper course for the CCIT was to adjust the amount of tax paid by the petitioner towards the tax due and payable instead of adjusting the same towards the interest payable by the petitioner. Therefore, refusal to waive interest on the ground that the tax liability has not been discharged cannot be sustained. Uploaded on - 22/08/2020

5.

The findings recorded by the CCIT that the additional income has been offered after issuance of notice under Section 148 of the Act is also unsustainable because in the present case during the course of search the assessee had made disclosure of additional income in the sum of Rs.42.82 lakhs on 5th March, 1992 and offered the same for AY 1992-93. It is only after the Commissioner of Income Tax in his order dated 2nd February, 2005 passed under Section 132(12) of the Act permitting spread over of the undisclosed income, revised returns were filed. In these circumstances, the findings recorded by the CCIT to the effect that the additional income has been offered after issuance of notice under Section 148 cannot be accepted.

6.

Third reason for rejecting the application for waiver of interest is that no cash was seized during the search. Under the Board circular what is to be seen is whether the assessee was incapacitated for making payment of tax immediately after the search and seizure action. In the present case admittedly, entire stock belonging to the petitioner were seized during the course of search and seizure operation and they were not released. In these circumstances, grievance of the petitioners that on account of seizure of entire stock, he was not in a Uploaded on - 22/08/2020 position to pay the taxes ought not to have been disbelieved.

7.

For all the aforesaid reasons, we quash and set aside the order passed by the CIT under Section 119(2)(a) of the Act on 20th March, 2006 and remit the matter back to the CCIT to consider the application of the petitioner in accordance with law and pass appropriate orders thereon.

8.

Rule is made absolute in terms of this order with no order as to costs.

9.

The writ petition stands disposed of. (DR.S. RADHAKRISHNAN, J.) (J.P. DEVADHAR, J.) Uploaded on - 22/08/2020 Powered by TCPDF (www.tcpdf.org)

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