2011 (5) TMI 824 - HC - Income Tax

Waiver of interest - Search and seizure - cash was recovered and seized - Commissioner of Income-Tax to release the seized cash and adjust the same against the self-assessment tax and advance tax liability of the petitioner - While framing the assessment the department demanded interest under Sections 234B and 234C of the Income Tax Act 1961 - petitioner relied on the notification of the Central Board of Direct Taxes dated 23.5.1996 which envisaged waiver of interest under certain circumstances Held that - petitioner made the application for waiver of interest only on 3.11.2007 by which time the previous notification was already rescinded in view of order dated 26.6.2006 of the Board governing cases for waiver of interest under Sections 234A 234B and 234C of the Act petitioner s case would have to be decided on the basis of the prevailing circular/notification/order and cannot be decided on the basis of the guidelines previously prevailing but currently superseded. It is unfortunate that the petitioner s assessment was finalized later on. It was only thereafter that the petitioner applied for waiver of interest petitions are dismissed

Summary

Issues:
1. Adjustment of seized cash towards tax liabilities.
2. Application for waiver of interest under Sections 234A, 234B, and 234C of the Income Tax Act.
3. Validity and applicability of notifications dated 23.5.1996 and 26.6.2006.
4. Interpretation of guidelines for waiver of interest under the Income Tax Act.
5. Consideration of petitioner's request under the prevailing circular/notification.

Adjustment of Seized Cash Towards Tax Liabilities:
The petitioner's premises underwent search and seizure operations leading to the recovery of cash. The petitioner requested the Commissioner of Income-Tax to release the seized cash and adjust it against self-assessment and advance tax liabilities for specific assessment years. The authorities adjusted a portion of the cash against tax liabilities after a considerable delay, resulting in interest liabilities under Sections 234B and 234C of the Income Tax Act.

Application for Waiver of Interest:
Following the assessment, the petitioner sought a waiver of interest under Sections 234A, 234B, and 234C by relying on a notification dated 23.5.1996. However, the application was rejected based on a subsequent notification dated 26.6.2006. The petitioner challenged this rejection, arguing that applying the later notification retrospectively would render it arbitrary and invalid, thus violating fundamental rights.

Validity and Applicability of Notifications:
The petitioner contended that the notification dated 26.6.2006 should not apply to their case as it would give retrospective effect to the notification, making it discriminatory and arbitrary. The respondents maintained that the subsequent notification superseded previous ones, justifying the rejection of the petitioner's waiver application.

Interpretation of Guidelines for Waiver of Interest:
The Court analyzed the notifications issued by the Central Board of Direct Taxes regarding the waiver of interest under specific circumstances. It was noted that the subsequent notification omitted certain categories, including cases where seized cash could not be utilized for tax payments, affecting the petitioner's eligibility for interest waiver.

Consideration of Petitioner's Request Under Prevailing Circular/Notification:
The Court emphasized that the petitioner's application for interest waiver had to be evaluated based on the prevailing guidelines at the time of application. Despite the delay in finalizing the assessment and subsequent waiver request, the Court upheld the application of the notification dated 26.6.2006 in deciding the petitioner's case, emphasizing the importance of following current directives rather than superseded guidelines.

In conclusion, the Court dismissed both petitions, affirming the rejection of the petitioner's application for interest waiver under the Income Tax Act. The judgment highlighted the significance of applying current guidelines and policies in determining such requests, even if filed after the issuance of superseding notifications, without constituting retrospective application of the guidelines.