Tax Authority Cannot Deny Interest Waiver Through A Cryptic Order: Karnataka High Court

The Karnataka High Court recently held that a tax authority cannot deny a taxpayer's request for interest waiver through a cryptic order. It must pass a reasoned, speaking order after objectively examining whether the income could have been anticipated at the relevant time.

A Bench of Justice K.S. Hemalekha, partly allowed a writ petition filed by Kanhaiyalal Dudheria (petitioner) and partially set aside an order of the Chief Commissioner of Income Tax, that allowed waiver of the second and third advance tax instalments.

The Bench held:

"...a mere recording that assessee has failed to establish the same, without supporting reasons of factual analysis, does not amount to be a reasoned exercise of jurisdiction and discretion under Section 119(2((a) of the Act."

The petitioner, a partnership firm engaged in iron mining, challenged the order rejecting its request for waiver of interest levied under Section 234C of the Income Tax Act (interest for the deferment or shortfall in quarterly advance tax instalments) for Assessment Year 2008-09.

The firm contended that its mining operations had remained dormant for several years and had only commenced after the renewal of the mining licence in the latter part of the financial year, causing income to accrue after the due dates of the relevant advance tax instalments.

The authority had denied waiver of the second and third instalments on the ground that the petitioner failed to demonstrate that the income was neither anticipated nor contemplated, as required under the conditions set out in the CBDT instructions contained in the Board's order dated 26 June 2006.

The petitioner argued that the rejection was arbitrary and showed a non-application of mind, as the authority did not carry out an instalment-wise examination in accordance with the binding CBDT instructions.

Opposing the petition, the Revenue submitted that interest is statutory and that waiver is discretionary, requiring strict compliance with the prescribed conditions.

The Bench rejected the Revenue's arguments, holding that the impugned order was unsustainable insofar as it related to the second and third instalments.

Accordingly, it set aside that portion of the order and remanded the matter for fresh consideration confined to those installments. It also directed that a reasoned order be passed in accordance with law.

For Petitioner: Advocates, M.N. Shankare Gowda and H.R. Kambiyavar 

For Respondent: Advocate, M. Thirumalesh