TMI Blog2017 (3) TMI 1241X X X X Extracts X X X X X X X X Extracts X X X X ..... nalty order was issued on 25.06.1998, i.e., after 31.3.1998, it would not covered by the certificate issued to the petitioner under the Scheme. The other submission advanced on behalf of the petitioner, which, in my view, also, has merit, is that, the respondents/Revenue, on 25.06.1998 could not have issued an order of "protective" penalty, as order dated 10.03.1997 itself was an order that added the amounts reflected in the FDR (along with interest accrued therein) in the hands of the petitioner on a protective basis. As rightly argued by the learned counsel for the petitioner, while there can be a protective order qua assessment, there cannot be a protective order in respect of penalty. See Metal Stores Versus Commissioner Of Income-Tax. See Metal Stores Versus Commissioner Of Income-Tax [1990 (8) TMI 131 - GAUHATI High Court ] To my mind, a careful reading of the provisions of Section 245 of the 1961 Act would show that the refund could, perhaps, have been adjusted against any amount remaining payable under the Act, provided intimation in writing is given to the concerned person, (in this case, the petitioner) of the action "proposed to be taken", under the said provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate upon this Writ Petition and, in a sense, to untangle the web of circumstances obtaining in the case as well as the prayers made in the Writ Petition, the following brief facts are required to be noticed. 2.1. The petitioner, who, evidently, at the relevant point in time, was an employee of Arignar Anna Sugar Mills, a unit of Tamil Nadu Sugar Corporation Limited, was assessed to tax, on a protective basis, vide order dated 10.03.1997. 2.2. Upon search being conducted under Section 132 of the 1961 Act, in respect of a person, by the name, Sri.A.N.Dyaneswaran, Fixed Deposit Receipts (in short FDRs) of a cumulative value of ₹ 17.97 lakhs, albeit, in the name of the petitioner, were discovered. Consequently, the FDRs were seized and, on protective basis, the said FDRs and the interest accrued thereon, was assessed, as indicated above, protectively, in the hands of the petitioner, under the head other sources , as unaccounted investments of the petitioner, under Section 69 of the 1961 Act. The said assessment order was passed on 10.03.1997. 2.3. The respondents/Revenue claim that vide order dated 25.06.1998, penalty was levied, equivalent to a sum of ₹ 16,51,046 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other words, this cannot be cited before the Hon'ble ITAT in the pending appeal against the assessment made in the case of Shri A.N.Dyaneswaran. 3.1. The record shows that Sri.A.N.Dyaneswaran challenged the substantive assessment made in his hands, which was sustained, right till the Supreme Court. Consequently, necessary deletion was made qua the FDRs and the interest accrued thereon, in the hands of A.N.Dyaneswaran. This order was passed, evidently, on 29.12.2007. 4. Resultantly, on an application being made by the petitioner to respondent No.2 with regard to refund of fixed deposit amount and the interest accrued thereon, as indicated above, the order dated 22.10.2012, was passed under Section 154 of the 1961 Act. Respondent No.2, thus, directed that a sum of ₹ 50,78,928/-, which included the principal fixed deposit amount and the interest accrued thereon, be refunded to the petitioner. 4.1. However, the refund ordered in favour of the petitioner could not see the light of the day, in view of another order passed by respondent No.2 on the very same day, i.e., 22.10.2012, under Section 220(2) of the 1961 Act. 4.2. Via this order, respondent No.2 attempte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Scheme and paid the requisite tax, then, the respondents/Revenue could not have sought to recover penalty, vis-a-vis, a transaction, which was, subject matter of the Scheme. ii)The penalty order dated 25.06.1998, which was stated to have been delivered on 30.06.1998, was not received by the petitioner. Furthermore, no document has been filed by the respondents /Revenue, except for a bare assertion in the affidavit, that the order, was sent by a recorded delivery and served on the petitioner. iii) The adjustment of the amounts, which were to be refunded to the petitioner, was made without any opportunity being given to the petitioner to articulate his stand in the matter. In sum, the adjustment carried out was not in accordance with law. iv) The communication/order dated 21.12.2012, was only an intimation of the factum of adjustment, which did not provide an opportunity to the petitioner to object to the adjustment of refund granted by the very same respondent (i.e., respondent No.2), albeit, by a separate order of even date, i.e., 22.10.2012. v) Since, the fixed deposit amount and the interest accrued thereon were included on a protective basis in the hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otective basis, in respect of AY 1994-95 on 10.03.1997. 8.3. According to the learned counsel, while passing the said order on 10.03.1997, it was specifically noted, that penalty action under Section 271(1)(c) of the 1961 Act should be initiated separately. Therefore, it was the submission of the learned counsel for the respondents/Revenue that upon notice being issued and reply being received, the order dated 25.06.1998 came to be passed, whereby, penalty in the sum of ₹ 16,51,046/- was levied on the petitioner. 8.4. Learned counsel further submitted that as against the protective assessment order dated 10.03.1997, the petitioner had preferred an appeal to the Commissioner of Income Tax (Appeals) [in short CIT (A)] and that, while the appeal was pending, the petitioner applied under the Scheme, which was floated by GOI, in 1998. 8.5. It was, thus, the contention of the learned counsel that the Scheme was available to the assessee, only in respect of arrears of tax, which had accrued, or/were due, as on 31.03.1998. In other words, the submission of the learned counsel was that, since, penalty was imposed after the due due, i.e., 31.3.1998, by virtue of the order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner, had also raised a challenge to the assessment order dated 10.03.1997, passed under Section 143(3) read with Section 147 of the 1961 Act, before the CIT(A). The appeal, was disposed by CIT(A) vide order dated 28.11.1997. While disposing of the appeal, CIT(A), indicated that the amount was being assessed in the hands of the petitioner, albeit, on a protective basis. A specific observation was made by CIT(A) that, if, substantive addition was made in the hands of Sri.A.N.Dyneswaran, then, the addition, made, in the hands of the petitioner, would stand vacated. 9.5. The petitioner carried the matter in appeal to the Income Tax Appellate Tribunal (in short ITAT). While the appeal was pending with the ITAT, the petitioner attempted to avail of the benefit of the Scheme, by filing the requisite Form, on 30.11.1998. Under the Scheme, the petitioner obtained a waiver equivalent to a sum of ₹ 12,09,016/- and, thus, paid tax, amounting to ₹ 5,58,792/-. 9.6. As a matter of fact, on that particular date, the petitioner was in arrears of tax to the extent of ₹ 8,25,523/-. The ITAT recognising this fact, vide order dated 15.03.2004, declared, that the appeal had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a designated authority and, once, a declaration was made, tax qua arrears was payable by the declarant, depending on which clause of Section 88(a) of the Scheme, the declarant's case, fell in. 13.2. Furthermore, within sixty (60) days of receipt of such declaration, the designated authority, under Section 90 of the Scheme, was required to determine the amount, payable by the declarant, in accordance with the provisions of the Scheme and, thereafter, issue a certificate, in the form prescribed, to the said declarant, setting forth therein, the particulars of arrears of tax and sum payable, after such determination, towards full and final settlement of tax arrears. 13.3. The first proviso to Section 90 (1) indicates that, the only instance, in which a proceeding could be reopened was, where the declaration submitted was found to be false. The first proviso creates a deeming fiction, to the effect, that, if, a declaration is found to be false, then, it would be presumed, as if, a declaration was never made and the declarant would thereafter, be visited with every consequence under the relevant enactment, with the added liability of having the pending proceedings being deemed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alty amount and the interest levied thereon by the respondents/Revenue. 15.1. The respondents/Revenue, in rebuttal to the stand taken by the petitioner, have relied upon the definition of term tax arrear , as obtaining in Section 2(m)(1) of the Scheme. For the sake of convenience, the said provision is extracted hereafter: (m) tax arrear means.- (i) in relation to direct tax enactment, the amount of tax, penalty or interest determined on or before the 31st day of March, 1998 under that enactment in respect of an assessment year as modified in consequence of giving effect to an appellate order but remaining unpaid on the date of declaration; ..... 16. A careful perusal of the definition of tax arrear would show that it relates to the amount of tax, penalty or interest determined on or before 31.03.1998 under 1961 Act in respect an Assessment Year, which, as modified in consequence of giving effect to an appellate order, remains unpaid on the date of declaration. 17. In the instant case, the assessment made (under Section 143 read with Section 147 of the 1961 Act), on 10.03.1997, added the amounts reflected in the FDRs and the interest accrued thereon, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come/arrears of tax, waiver of only 50 per cent thereof is available, e.g., interest under section 201(1A), penalties under section 271(1)(b), 271B, 271BB, 271C, 271D, 271E, 271F, 272A, 272AA, 272BB etc. .... Question No.9: Whether the Scheme covers cases where taxes are outstanding on 31st March, 1998 but the appeal is filed after 31st March, 1998? Answer: Yes, the pendency of appeal etc., should be on the date of declaration. ..... (Emphasis is mine) 19. I tend to agree with the submissions made in this behalf by the learned counsel for the petitioner. A perusal of Answers to Question No.5 and 7, to my mind, would clearly establish that under Section 91 of the Scheme, a designated authority is empowered to grant waiver from imposition of penalty and interest in respect of income, which is subject matter of the declaration. Since, penalty and interest was levied in the instant qua tax, which was in arrears, as on 31.3.1998, the declaration issued by the designated authority, according to the Board's circular, would cover the penalty and interest, determined at a later point in time. 19.1. The circular, to my mind, was binding on the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t instance, a proposal for adjustment, by way of a show cause notice, will have to be served on the person, to whom, refund is due. The proposal, to be meaningful, would have to set out the details and the reasons as to why adjustments is required to be carried out by the Revenue, against the refund due. Only after issuance of such a proposal/show cause notice and upon consideration of reply, if any, received - could a decision be taken as to whether or not an adjustment of refund is necessitated. Anything short of such minimum opportunity would, to my mind, result in a complete breach of principles of natural justice. 23.2. Therefore, in my opinion, the communication/order dated 21.12.2012 cannot be sustained. 24. Therefore, having regard to the conclusions reached hereinabove by me, the other issue, with regard to the service of the order dated 25.06.1998, whereby, penalty was imposed on the petitioner, loses its significance. I must, however, indicate that apart from the averment made in the affidavit, no material was placed to show dispatch, or, receipt of the said order by the petitioner. 25. Thus, for the foregoing reasons, the Writ Petition has to be allowed. Conseq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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