Reduction or waiver of penal interest [Notification No.F.No.400/234/95 I.T (B) dated 23.5.1996] :
(1) The Central Board of Direct Taxes has authorised the Principal Chief Commissioner or Chief Commissioners and Directors and Directors-General (Investigation) to reduce or waive penal interest charged under section 234A/234B/234C in the following circumstances, namely:
(i) Where, in the course of search and seizure operation, books of accounts have been taken over by the Department and were not available to the taxpayer to prepare his return of income;
(ii) Where, in the course of search and seizure operation, cash had been seized which was not permitted to be adjusted against arrears of tax or payment of advance tax instalments falling due after the date of the search.
(iii) Any income other than “capital gains” which was received or accrued after the date of first or subsequent instalment of advance tax, which was neither anticipated nor contemplated by the taxpayers and on which advance tax was paid by the tax payer after the receipt of such income;
(iv) Where, as a result of any retrospective amendment of law or the decision of the Supreme Court after the end of the relevant previous year, Certain receipts which were hitherto treated as exempt, become taxable. Since no advance tax would normally be paid in respect of such receipts during the relevant financial year, penal interest is levied for the default in payment of advance tax;
(v) Where return of income is filed voluntarily without detection by the Income-tax Department and due to circumstances beyond control of the taxpayer such return of income was not filed within the stipulated time-limit or advance tax was not paid at the relevant time.
However, no reduction or waiver of such interest shall be ordered unless the assessee has filed the return of income for the relevant assessment year and paid the entire tax due on the income as assessed except the amount of interest for which reduction or waiver has been requested for. The Principal Chief Commissioner or Chief Commissioner of Income-tax or the Director-General of Income-tax may also impose any other conditions deemed fit for the said reduction or waiver of interest.
(2) The class of income of cases in which the reduction or waiver of interest under section 243A or section 234B or, as the case may be, section 234C can be considered, are as follows:
(a) Where during the course of proceedings for search and seizure under section 132 or otherwise, the books of account and other incriminating documents have been seized and for reasons beyond the control of the assessee, he has been unable to furnish the return of income for the previous year during which the action under section 132 has taken place, within the time specified in this behalf and the Principal Chief Commissioner or Chief Commissioner or, as the case may be, Director-General is satisfied having regard to the facts circumstances of the case that the delay in furnishing such return of income cannot reasonably be attributed to the assessee.
(b) Where during the course of search and seizure operation under section 132, cash is seized which is not allowed to be utilised for payment of advance tax instalments as they fall due after the seizure of cash and the assessee has not paid fully or partly advance tax on the current income and the Principal Chief Commissioner or Chief Commissioner or the Director-General is satisfied that the assessee is unable to pay the advance tax.
(c) Where any income chargeable to income-tax under any head of income, other than “Capital Gains‟ is received or accrues after the due date of payment of the first or subsequent instalments of advance tax which was neither anticipated nor was in the contemplation of the assessee and the advance tax on such income is paid in the remaining instalment(s) and the Principal Chief Commissioner or Chief Commissioner/Director-General is satisfied that this is a fit case for reduction or waiver of interest chargeable under section 234C.
(d) Where any income which was not chargeable to income-tax on the basis of any High Court order passed in the case of an assessee, and as a result, he did not pay income – tax in relation to such income in any previous year and subsequently after the end of the previous year, in consequence of any retrospective amendment of law or, as the case may be, the decision of the supreme court in his own case, in any assessment or reassessment proceedings the advance tax paid by the assessee during the financial year immediately preceding the relevant assessment year is found to be less than the amount of advance tax payable on his current income, the assessee is chargeable to interest under section 234B or section 234C and the Principal Chief Commissioner or Chief Commissioner or Director-General is satisfied that this is a fit case for reduction or waiver of such interest.
(e) Where a return of income could not be filed by the assessee due to unavoidable circumstances and such return of income is filed voluntarily by the asses see or his legal heirs without detection by the Assessing Officer.
(3) The Principal Chief Commissioner or Chief Commissioner of Income-tax/Principal Director General or Director General of Income-tax may order the waiver or reduction of interest under sections 234A, 234B and 234C but shall not so reduce or waive penal interest in those cases where waiver or reduction of such interest has been rejected in the past on the merits of the case.