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TMI Blog2021 (7) TMI 227X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., whether the tax refund should be adjusted towards the arrears of the tax proper first and balance towards interest and penalty or conversely towards interest and penalty first and balance towards arrears of tax. 2. The petitioner's case is that it is a company engaged in the business of exporting tobacco. The petitioner was assessed income tax under the Income Tax Act (I.T. Act) and has been filing its returns before the Assistant Commissioner, Circle-I, Guntur, who is the Assessing Officer. While so, for the assessment year 1986-87 the petitioner had filed returns on 23.01.1987 disclosing a net income of Rs. 1,87,540/-. The Assessing Officer issued notice under Section 143(2) of the I.T. Act and passed an assessment order under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of the same, the tax liability will be determined at a flat rate on the disputed liability. In pursuance of the above, the petitioner has withdrawn I.T.C.No.145/1998 which was pending on the file of the High Court of A.P. (c) While so, when the respondent authorities failed to determine the amount payable within 60 days from the date of receipt of declaration from the petitioner as stipulated in the KVS scheme, the petitioner filed W.P.No.4670/2000 which was disposed of by order dated 08.06.2000. Pursuant to the said order, the respondent authorities despatched the Certificate of Intimation under Section 90(1) of the Finance (No.2) Act, 1998, whereunder the respondents have determined an amount of Rs. 3,70,103/- as the amount payable tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. The respondent filed counter which is somewhat dubious in nature. At one breath, it is contended that as per the Board directions, any payment or part payment of taxes should first be adjusted towards tax and balance towards interest and same was in fact correctly adopted in the instant case, while determining the tax payable under the KVS scheme. On another breath, it is contended that the refund tax of Rs. 4,86,970/- was adjusted towards penalty and thereafter arrears of tax was arrived at Rs. 3,70,013/- as per the provisions of the KVS scheme. 4. So, on a careful scrutiny of the counter averments, it is evident that the respondent authorities have applied the refund tax amount of Rs. 4,86,970/- towards penalty only but not towards t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme. If the Board's circular is properly implemented, there is no reason for the respondent authorities to adjust the tax refund amount first to the penalty rather than arrears of the tax. No answer is provided by the respondents in this regard. (b) In Mangilal S. Jian v. Commissioner of Income Tax (2003) ILR NULL 2066 = MANU/KA/0321/2002 which is similar to the case on hand, the High Court of Karnataka dealt with the question whether any amount paid towards the tax arrears (which includes the income tax and interest payable) should be taken as payment towards tax or towards interest for the purpose of the KVS scheme. (c) Answering the above question, while referring the provisions of the Finance (No.2) Act, 1998, the Division bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the CBDT as follows: "19. If any amount paid towards arrears during the pendency of the litigation (by way of appeal, revision, etc.) is to be irreversibly adjusted against the interest under Section 140A, that would render infructuous the pending litigation (in this case pending revision petition)........xxxx........The relevant portions of the clarifications (questions Nos.4 and 7 and their answers) are extracted below (page 51): "Question No.4: Where the tax arrear comprises tax and interest, how will the part payment be first appropriated--towards tax or interest? Answer: The part payments are appropriated first towards tax and then towards interest. Question No. 7: The Scheme offers full waiver of interest and penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X
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