Kerala Financial Corporation V. Union of India and The Chief Commissioner of Income Tax and The Additional Commissioner of Income Tax (Assessment), Special Range

WP(C)/35353/2010

AI Insights

The case involves the Kerala Financial Corporation (petitioner) challenging the rejection of their application for waiver of interest under Section 234B of the Income Tax Act, 1961, for the assessment year 1993-94. The rejection was based on a circular issued in 2006, which the petitioner argued was not applicable at the time their assessment was finalized in 1999. The High Court found that the 2nd respondent should have considered the laws and circulars applicable at the time of the assessment's finalization rather than those from 2006. Consequently, the court set aside the 2010 order and remitted the matter back for a fresh decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 819047 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 01-08-2023
• Assessment Year: misc
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH; P K R MENON
• Assessee Lawyers: M R VENUGOPAL; DHANYA ASHOKAN
• Keywords: Advance tax; Assessment Year; Brought forward losses; Deductions; Income Tax; Waiver of interest
• Section: 148; 143(3); 143(2); 154; 234B; 36(1)(viii); 143(1A); 36(1)(vii)(a)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH TUESDAY, THE 1ST DAY OF AUGUST 2023 / 10TH SRAVANA, 1945 WP(C) NO. 35353 OF 2010 PETITIONER: KERALA FINANCIAL CORPORATION VELLAYAMBALAM,THIRUVANANTHAPURAM-695033. BY ADVS. M.R.VENUGOPAL DHANYA P.ASHOKAN(K/001671/2000) RESPONDENTS: 1 UNION OF INDIA SECRETARY, MINISTRY OF FINANCE(DEPARTMENT OF REVENUE),NORTH BLOCK,NEW DELHI-110 001. 2 THE CHIEF COMMISSIONER OF INCOME TAX KOWDIAR,THIRUVANANTHAPURAM-695003. 3 THE ADDITIONAL COMMISSIONER OF INCOME TAX (ASSESSMENT),SPECIAL RANGE,KOWDIAR, THIRUVANANTHAPURAM-695003. BY ADV SRI.JOSE JOSEPH, SC, FOR INCOME TAX P.K.R.MENON THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 01.08.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) NO. 35353 OF 2010 2 JUDGMENT 1. Heard; Smt. Dhanya P Asokan, learned counsel for the petitioner and Sri.P.K.R. Menon, learned Standing Counsel appearing for the respondents. 2. This writ petition has been filed under Article 226 of the Constitution of India impugning the order dated 18.08.2010 (Ext.P1) whereby the application of the petitioner for wavier of interest under Section 234 B of the Income Tax Act 1961 (the Act in short) for the assessment years 1993-94 and 1995-96 was rejected considering the circular dated 26.06.2006, issued by the Central Board of Direct Taxes. 3. The learned counsel for the petitioner has confined to the submission with respect to the assessment year 1993-94. She has said that she is not pursuing the writ petition in respect of the interest for the assessment year 1995-96 in view of Ext.P13 whereby, the re-opening of the assessment for the assessment year 1995-96 was set aside and annulled. WP(C) NO. 35353 OF 2010 3 4. For the assessment year 1993-94, the petitioner filed a return of income on 30.12.1993. Based on its provisional accounts returning a total income of Rs.90,94,301/- which was fully set off against brought forward losses of the earlier years. The petitioner had also claimed a deduction of Rs.60,22,537/- under Section 36(1)(viii) of the Act. This deduction was made from the total income returned and the balance remaining was set off against the brought forward losses of the earlier years. The petitioner, thereafter, filed a revised return on 13.06.1994 based on the audited accounts, wherein a total income of Rs.80,57,648/- was returned and, after claiming deductions of Rs.7,05,715/- under Section 36(i)(vii a) and Rs.56,45,718/- under Section 36(1)(viii), the balance income was again fully set off against the brought forward business loss of earlier years. The intimation under Section 143(1A) of the Act was given accepting the nil income return by the petitioner by the department. Thereafter, a notice under Section 143(2) was issued. The accounts of the petitioner were not scrutinized and no order WP(C) NO. 35353 OF 2010 4 was passed under Section 143(3). 5. A notice thereafter was issued under Section 148 of the Act on 13.09.1996. In response to the said notice under Section 148 of the Act, the petitioner filed a return, returning a total income of Rs.79,98,465/- after claiming deductions under Section 36(1) (vii a) and 36(1) (viii) as in the original return and setting off the entire income against the brought forward losses for the earlier years. 6. This return filed by the petitioner in response to the notice issued under Section 148 of the Act was not accepted by the assessing authority and the 3rd respondent disallowed the deductions under Section 36(1) (viii). The ground taken by the 3rd respondent was that such deductions could be allowed only on the total income, after setting off brought forward losses and since the total income, after setting off was nil, the petitioner was not eligible for deduction. This order of the 3rd respondent had the effect of enhancing taxable income of the petitioner for WP(C) NO. 35353 OF 2010 5 the assessment year 1993-94 to Rs.72,31,740/-. Thereafter, the 3rd respondent pursuant to issuing notice under Section 154 of the Act demanded interest under Section 234B on an amount of Rs.50,11,920/- which was subsequently reduced to Rs.36,07,760/-. Thereafter, after adjusting excess losses available for set off from earlier assessment years, 3rd respondent reduced the interest further to Rs.11,92,464/- by the original rectification order dated 13.08.1999. 7. Aggrieved by the order dated 13.08.1999 (Ext.P2) passed by the 3rd respondent, the petitioner preferred an appeal before the CIT (Appeals). CIT (Appeals) by order dated 21.02.2000 dismissed the appeal on the ground that the current income of the assessee with respect to the available assessment orders at the time it was required to pay advance tax i.e. in the previous year, did not require the assessee to pay advance tax. The liability to pay advance tax arose subsequently due to modifications in the figures of carried forward losses. The learned Commissioner noted that this could not have been WP(C) NO. 35353 OF 2010 6 anticipated by the assessee. However, he found that the situation was one of Justice Vs. Judicial correctness and as the first appellate authority has his duty to consider the appeal with reference to the position of law. If the law had a lacuna, it might have certain severe implications. He further noted that the Appellate Authority had no right or authority to remedy the situation. There would be no equity about tax. It is relevant to note that the assessing authority had relied on the circular of 2006 while rejecting the application for waiver of interest. It is also relevant to note that the application for waiver of interest was filed in the year 2000. 8. Therefore I am of the considered view that, placing reliance on the circular of 2006 while rejecting the application for waiver of interest by the impugned order dated 18.08.2010 does not appear to be the correct approach. The 2nd respondent was required to consider the relevant circular or the law when the assessment order was finalized or the application for waiver of interest was preferred by the assessee. WP(C) NO. 35353 OF 2010 7 9. Therefore, the present writ petition is allowed. The impugned order dated 18.08.2010 (Ext.P1) is set aside. The matter is remitted back to the 2nd respondent for deciding the question of wavier of interest afresh on the basis of the relevant circular when the assessment order was finalized. The petitioner is directed to appear before the 2nd respondent within a period of 15 days and then the 2nd respondent will proceed to decide the application for waiver of interest in the light of the relevant circular(s) which was/were prevailing on the date of finalization of the assessment order i.e., 13.08.1999. Sd/- DINESH KUMAR SINGH JUDGE SVP WP(C) NO. 35353 OF 2010 8 APPENDIX OF WP(C) 35353/2010 PETITIONER EXHIBITS Exhibit P1 TRUE COPY OF THE ORDER OF THE 2ND RESPONDENT, DISMISSING THE APPLICATIONS PREFERRED BY THE PETITIONER UNDER SECTION 234B OF THE INCOME TAX ACT, DATED 18.8.2010 Exhibit P2 TRUE COPY OF THE ORIGINAL RECTIFICATION ORDER OF THE 3RD RESPONDENT, DATED 13.8.1999 Exhibit P3 TRUE COPY OF THE CIRCULAR DATED 23.05.1996 "