Blow to income tax department

The income tax department is once again facing a major roadblock in its recovery proceedings to meet the steep collections target this fiscal. This time, it is in the form of interest income charged as a penalty for tax defaults.

The Supreme Court has stayed the proceedings for the recovery of interest payment towards default in filing income tax or advance tax.

This comes as a major jolt to the department which is struggling to step up the tax recovery to meet the enhanced target of around Rs 45,000 crore (Rs 450 billion).

According to legal sources, the SC has admitted petitions of assesses challenging the revision of waivers or reduction of interest payments awarded by the IT Settlement Commission.

Sources said the issue was resolved in the Ghaswalla case where the apex court of the country ruled that the income tax settlement has no jurisdiction to reduce or waive interest payment under Section 234 A, B, C of the IT Act.

While Section 234 A of the Act deals with default in furnishing of returns of income, Section B and C relate to default in payment of advance tax and deferment of advance tax respectively. Once the taxes are not paid, the interest accumulates at the rate of 10-15 per cent per annum.

After the SC verdict, I-T departments across the country filed applications for rectification of earlier orders where it had waived or reduced interest rates under Section 154. Following this, settlement commissions set aside their judgment and recovery of the dues was allowed.

However, early this year Supreme Court stayed the recovery proceedings after admitting petitions of Charanjit Singh Channi Vs CIT, Ludhiana and Brijlal and others vs Cit Jallandhar among others.

As per the petitions, the assesses have challenged that once an order has been passed for waiver or reduction of interest dues, it cannot be rectified citing Section 245 (D)(F) of the Act.