Bombay High Court Reasserts Statutory Preconditions for Waiver of Interest under S. 220(2A) of the Income-tax Act, 1961

Introduction

The Hon’ble Bombay High Court in Jitendra M. Doshi v. Chief Commissioner of Income Tax[i], addressed a significant issue concerning the waiver of interest under s. 220(2A) of the Income-tax Act, 1961 (‘Act’). The petitioner sought relief from the payment of interest on his outstanding tax liabilities, citing financial hardship arising from the prolonged retention of his seized assets by the Income Tax Department (Revenue’).

Relying on the Supreme Court’s decision in B.M. Malani v. Commissioner of Income Tax[ii], the Court held that to obtain a waiver of interest under s. 220(2A) of the Act, all three conditions must be satisfied.

This ruling emphasises that an assessee must provide concrete, verifiable evidence to support a claim for waiver. Mere assertions of financial hardship without any supporting evidence are insufficient to discharge the burden of proof. The decision holds particular significance for assessees seeking relief from interest penalties resulting from delays in the encashment of seized assets by tax authorities, and it clarifies the degree of evidentiary rigour required for invoking s. 220(2A) of the Act.

Brief Facts

• The case arises from a long-standing tax dispute involving the seizure of the petitioner’s movable assets, including gold, diamonds, and financial investments, by the Revenue in 2007, as part of an investigation into alleged tax evasion. These assets remained under the control of the Revenue for several years, during which interest continued to accrue on the petitioner’s tax liabilities.

• The petitioner contended that he had requested the Revenue to liquidate his seized assets and adjust the proceeds towards his tax dues. He argued that the continued seizure of these assets had directly impacted his ability to meet his tax obligations, resulting in a substantial accumulation of interest. He further asserted that, had the Revenue acted in a timely manner, he would have avoided the financial burden arising from the accrued interest.

  However, the Revenue rejected the petitioner’s claims, citing contradictions in his stance. While the petitioner initially requested the liquidation of his movable assets, i.e., gold and diamonds, to settle his tax dues, he subsequently directed the Revenue to retain those assets as security until the resolution of his appeals pending before the Income Tax Appellate Tribunal (‘ITAT’) had been disposed of.

• The Chief Commissioner of Income Tax (‘CCIT’) rejected the petitioner’s application for waiver of interest under s. 220(2A) of the Act, citing insufficient financial disclosures, inconsistencies in the petitioner’s statements, and contradictions in his requests regarding asset liquidation. Aggrieved by the CCIT’s decision, the petitioner filed a writ petition before the High Court, seeking a waiver of interest on the grounds that the Revenue had failed to liquidate his movable assets to satisfy his tax liabilities.

Mandatory Statutory Conditions under S. 220(2A)

The Court noted that, for the grant of a waiver under s. 220(2A) of the Act, the following three statutory conditions must be satisfied:

1. Whether the assessee had faced, or would face, genuine hardship in paying the assessed amount?

2. Whether the non-payment of the ascertained liability was due to circumstances beyond the control of the assessee?

3. Whether the assessee had cooperated in the inquiry relating to the assessment or in any proceeding for the recovery of any amount due from him?

Held

• The Court dismissed the petition and upheld the CCIT’s decision, concurring with the reasoning provided. It held that the petitioner had failed to satisfy the three mandatory conditions required for the grant of an interest waiver under s. 220(2A) of the Act.

• The Court held that an application for waiver must be supported by credible, consistent, and verifiable financial evidence. It emphasised that the burden of proof rests with the petitioner to establish that the payment of interest had caused, or would cause, genuine hardship, thereby satisfying the first statutory condition. Meanwhile, the petitioner failed to produce proper documents, such as balance sheets, bank statements, or a breakdown of assets and liabilities, to support his claim.

• The Court held that the petitioner failed to satisfy the second statutory condition, which requires demonstrating that the default in the payment of the amount on which interest was paid or payable was due to circumstances beyond the assessee’s control. Although the petitioner had paid Rs. 91.83 lakhs in taxes, he failed to clarify the source of his funds. Additionally, it was observed that the petitioner did not clearly contend that he was unable to pay due to the seizure of his investments, gold, and diamonds in 2007. He also did not establish that such investments were substantial in relation to the tax and interest demands. Moreover, the petitioner’s position was found to be inconsistent, as he made contradictory statements regarding his assets, sources of income, and tax filings.

• The Court further observed that the petitioner failed to satisfy the third statutory condition, which requires demonstrating cooperation in any inquiry relating to the assessment or in any proceedings for the recovery of dues. The petitioner’s shifting stance regarding the sale of the seized bullion, his request to the Revenue not to sell the diamond jewellery, claiming it formed part of the Streedhan, his failure to explain why he was not liable to pay wealth tax, and his non-disclosure of income sources collectively indicated a lack of cooperation.

• The Court also noted that the mere seizure of assets alone did not, by itself, justify the delay in payment of ascertained liabilities, particularly when the petitioner had alternative financial means. Moreover, the petitioner had been inconsistent in his position regarding the liquidation of his assets. It was held that the CCIT had exercised their powers reasonably, and no case was made out for a violation of the principles of natural justice in this regard.

Our Analysis

The Court’s decision in this case reinforces the principle that the waiver of interest under s. 220(2A) of the Act is not a matter of right, but a conditional relief subject to rigorous statutory strict scrutiny. The ruling stresses that taxpayers must provide clear, consistent, and verifiable financial records when seeking relief from interest liabilities. The Court emphasised that mere assertions of financial hardship are insufficient; an assessee must furnish documented proof demonstrating genuine financial distress. Inconsistencies in statements regarding asset liquidation and tax payments can significantly weaken an assessee’s case, as they cast doubt on the genuineness of the claimed hardship. The judgment also highlights that an assessee seeking a waiver under s. 220(2A) must demonstrate full cooperation with the Revenue authorities during inquiries or proceedings related to assessment and recovery. Such cooperation must be consistent and ongoing throughout the process.

This decision sets an important precedent for future applications seeking a waiver of interest under s. 220(2A) of the Act, reaffirming that an assessee must satisfy all three statutory conditions to qualify for such relief.. It further reiterates that the tax authorities, while exercising their discretion, must do so objectively and with due care, ensuring that waivers are granted only in bona fide cases where the assessee has acted in good faith and demonstrated full and proactive financial transparency. Going forward, taxpayers seeking waivers of interest must maintain consistency in their representations, provide transparent and accurate financial disclosures, and avoid conflicting statements that may undermine the credibility of their claims.

End Notes

[i] 2025 SCC OnLine Bom 107 dated 16.01.2025.

[ii] (2008) 10 SCC 617/ [2008].

Authored by Dhruv Goel at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.