TMI Blog2005 (5) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... NT The judgment of the court was delivered by Swatanter Kumar J.- The petitioner, a limited company, is engaged in the business of marketing, sales and servicing of consumer electronic and audio-visual products in India. The company is a regular income-tax payer. It claims that as on March 31, 2005, it had assets worth more than rupees 350 crores and its turnover was more than rupees 840 crores giving a profit of more than rupees 19 crores. For the assessment year 2002-03, a return declaring income of Rs. 8,71,08,860 was filed by the company on October 31, 2002. Book profits under section 115JB of the Income-tax Act, 1961 (hereinafter referred to as "the Act") was calculated at a loss of Rs. 34,30,515. The return was processed under section 143(1) on February 25, 2003. The assessee filed a revised return on January 31, 2004 showing an income of Rs. 8,67,46,730 and book profits under section 115JB of the Act were shown at a loss of Rs. 30,17,013. This revised return was processed on June 18, 2004. The case for the assessment year was taken up for scrutiny and a statutory notice under section 143(2) was issued and duly served upon the assessee-company. After providing opportunity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. However, in the meantime, it came to the notice of the Assessing Officer that the assessee-company, which was carrying on manufacturing and trading activities had stopped manufacturing and shifted over to only carrying out the trading of the products which they were importing from their holding company. There was, thus, containment of business activities on the part of the petitioner-company and the petitioner-company had not paid advance taxes in the assessment year 2005-06. However, a sum of Rs. 432 lakhs was paid on March 15, 2005. As there was breach of payment of advance taxes and in view of the above-noticed circumstances, the Assessing Officer had reduced the period for payment of the tax due, to 7 days in terms of the jurisdiction vested in the Assessing Officer under section 220(2) of the Act. There was a huge liability of tax payable by the assessee, therefore, the power has been exercised by the Assessing Officer judiciously and in consonance with the provisions of the Act. The respondents, thus, pray for dismissal of the writ petition. The answer to the rival contentions raised in the present writ petition would obviously lie on a comprehensive discussion on the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief Commissioner or Commissioner may reduce or waive the amount of interest paid or payable by an assessee under the said subsection if he is satisfied that- (i) payment of such amount has caused or would cause genuine hardship to the assessee; (ii) default in the payment of the amount on which interest has been paid or was payable under the said sub-section was due to circumstances beyond the control of the assessee; and (iii) the assessee has co-operated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him. (3) Without prejudice to the provisions contained in sub-section (2), on an application made by the assessee before the expiry of the due date under sub-section (1), the Assessing Officer may extend the time for payment or allow payment by instalments, subject to such conditions as he may think fit to impose in the circumstances of the case. (4) If the amount is not paid within the time limited under subsection (1) or extended under sub-section (3), as the case may be, at the place and to the person mentioned in the said notice the assessee shall be deemed to be in default. (5) If, in a case where payment by instal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the notice under section 156 is not paid within the stated period, the assessee is liable to pay simple interest at one per cent, for every month or part thereof. The Chief Commissioner or Commissioner under sub-section (2A) of section 220 has been empowered to reduce or waive the amount of interest paid or payable by the assessee under the said sub-section, if he is satisfied of the requirements stated in the provisions. Sub-section (3) grants liberty to an assessee to make an application for extension of time but such an application has to be moved before the expiry of the period stated in the notice and the Assessing Officer has the power to do so. In the event of default and subject to the provisions of sub-section (1) or (3), the assessee would be treated and deemed to be in default. Sub-section (6) of section 220 further provides a protection to an assessee who has preferred an appeal under section 246 of the Act to make an application of the Assessing Officer and request him not to treat the assessee in default in relation to the demand raised during the pendency of the appeal. These various provisions of section 220 clearly indicate various checks and balances, which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mething out of the enactment or to qualify something enacted therein, which but for the proviso would be within the purview of the enactment. Grant of 30 days' time for payment of demand is the generality of the main section and statutory discretion vested in the Assessing Officer provides an exception and takes it out of the main provision by reducing the prescribed period by such proportion as may be considered proper and in the interest of the Revenue. Analysis of various settled principles of interpretation would make it obvious that the proviso normally should be construed strictly and more so when it relates to fiscal provisions even inviting penalty consequences, whenever there is a default in compliance. Applying reasonableness within the doctrine of strict interpretation, this proviso should be given a meaning which would be read and construed into general harmony with the terms of the consequence. For proper applicability of the proviso to sub-section (1) of section 220, it will be appropriate to spell out the following essential features: (a) Sub-section (1) pre-supposes existence and issuance of a notice under section 156 of the Act. (b) The Assessing Officer shou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... changed in operation of fiscal provisions. Reasons are the link between the material on which the conclusions are based and they alone can exhibit how the mind is applied to the subject-matter for arriving at a decision. Rational nexus between the facts considered and conclusions reached is the main consideration. "Reason to believe" must relate to the standards of belief of a reasonable man and not to a prejudicial or biased mind. In the case of Thompson v. Thompson [1956] 1 ALL ER 603 (PDA) interpreting the expression "reason to believe" under section 19(3) of the Matrimonial Causes Act, 1950 it was held that the petitioner had no reason to believe that the other party had been living within that time, should be evidence that he or she was not dead until the contrary was proved. The test whether or not there is "reason to believe" that the other party has been living must relate to the standards of belief of a reasonable mind and not to those of a particular petitioner. In the case of Dr. Partap Singh v. Director of Enforcement [1985] 155 ITR 166; 58 Comp Cas 477; AIR 1985 SC 989, their Lordships of the Supreme Court held that it is open to the court to examine the question in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at dues of the Revenue may not be recoverable without any material or information on the record of the Assessing Officer to support such an apprehension, would in our view be not permissible under the legislative scheme of this provision. We have already noticed that the consequence of default under the provisions of section 220 are of a severe nature including imposition of interest and penalty. In the normal circumstances, an assessee would have 30 days period to meet this demand and it is only after the expiry of such period that the assessee would entail the liabilities afore-referred. The assessee would still have the right to pray to the Assessing Officer not to treat the assessee as an "assessee in default" in respect of the demand under section 220(6) of the Act. Where the assessee would be deprived of seeking recourse to such remedy on the one hand, there on the other he would be exposed to liability of interest and penalty immediately on the expiry of the reduced period. Thus, an order of the Assessing Officer under the proviso to section 220(1) vests the assessee with serious consequences. Once such are the serious consequences of the default in compliance with the direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ender it impossible for the Revenue to recover its dues on account of arrears or current demand; and (v) closing of business by the assessee coupled with such other factors as may be deemed relevant by the Assessing Officer to reach a conclusion that in the interest of the Revenue, the period should be curtailed. These are mere illustrations and are not intended to give any exhaustive dimensions to the limitations on the powers of the Assessing Officer under these provisions. These reasons supported by record of the Assessing Officer could constitute a valid cause for invoking the provisions of section 220(1) of the Act. Analogous to these illustrative cases are the provisions of Order 38 of the Code of Civil Procedure. Under Order 38, rule 1, at any stage of the suit where the court is satisfied that the defendants with an intention to delay or to avoid any process of the court or obstruct or delay the decree that may be passed against the defendant, the defendant has absconded or left the limitation of the jurisdiction of the court, is about to do so or has disposed of or removed his property or any part thereof under the jurisdiction of the court, the court could issue a warra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Siemens Engineering and Mfg. Co. of India Ltd. v. Union of India [1976] 2 SCC 981; AIR 1976 SC 1785, where at page 986 it has been stated that where an authority makes an order in exercise of its quasi-judicial function it must record its reasons in support of the order it makes. In other words, every quasi-judicial order must be supported by reasons. In our opinion, the observations in that case would apply in the present case also." The order passed should be self-explanatory or at least there should be material before the Assessing Officer before he could invoke the powers vested in him under this provision. If the order contains no reason and there is no material for issuing such a direction on the record of the Assessing Officer, the order would offend the basic rule of law and the principles of natural justice. Now, we may refer to the reasons which persuaded the Assessing Officer to reduce the period of 30 days to 7 days in this case, as they appear from the record produced before the court. On March 21, 2005, after passing an order under section 143(3) of the Act, the Assessing Officer further made the following order: "It has been gathered that the assessee-company i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion for leave encashment, details of other income, details of LADT and to explain the allow -ability of prior period expenses of Rs. 6,81,551. This query continued and even on March 16, 2005, certain other queries were raised by the Assessing Officer upon representation of the assessee. It may be useful to notice here that being satisfied of furnished details and attitude of the assessee, the Assessing Officer on March 16, 2005, while dropping the penalty proceedings passed the following order: "Considering the oral submissions of the A/R and the subsequent promptness in furnishing details as requisitioned, penalty proceeding under section 271(1)(b) is hereby dropped." Again a show cause notice was served on March 21, 2005, after passing the order of assessment under section 143 (3) of the Act, the officer recorded that penalty proceedings have been initiated separately and copy of the order be furnished to the assessee giving seven days time for payment of the demand. There are two reasons which have been stated by the Assessing Officer while issuing the impugned order. Firstly, that it has been gathered that the petitioner-company is winding up its manufacturing activity i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the company as the trading activity was considerably enhanced. According to the petitioner there was no material, much less valid reasons, before the Assessing Officer to believe that grant of the normal period for meeting the demand of tax would be detrimental to Revenue. In terms of the directions issued by the Assessing Officer, the assessee had furnished complete details in regard to note of business activity, details of bank accounts, addition to fixed assets including the fact that in addition to providing clarification to all other questions raised by the Assessing Officer. From the reading of the order sheet, it is clear that the Assessing Officer did not record his dis-satisfaction in regard to these matters which obviously has a connection to the reasons provided in the above noting leading to passing of the order under section 220(1) of the Act. The respondents have not placed on record any material to show that the manufacturing activity was reduced by the company with an intention to evade payment of tax due from the assessee. While one reason is factually incorrect, the other is without any foundation. The Assessing Officer could have easily called upon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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