JUDGMENT B.P. Jeevan Reddy, C.J.
1. This writ petition is filed against the order of the Commissioner dated August 28, 1987, under Section 264 of the Income-tax Act.
2. The petitioner is a public limited company. For the assessment year 1984-1985, it did not file an estimate of advance tax which ought to have been filed on or before June 15, 1983. The petitioner filed the return for the assessment year 1984-85 on May 26, 1984, disclosing a substantial loss. Indeed, the petitioner purported to carry forward the losses incurred in the previous years. The petitioner was claiming losses because he was claiming the benefit of Section 80J on borrowed capital.
3. In 1975, the Calcutta High Court held that the said benefit should be computed even on borrowed capital. But, in 1980, Section 80J was amended with retrospective effect clarifying that the said benefit shall not be available on borrowed capital. The validity of the said amendment and the question whether the said benefit can be computed even on borrowed capital was pending before the Supreme Court. Ultimately, in the year 1985, the Supreme Court upheld the validity of the amendment and held that the said benefit cannot be computed on borrowed capital : vide Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308. According to Section 80J, as amended, the petitioner was not entitled to carry forward losses and his return for the assessment year 1984-85 could also be not a return of losses but a return of substantial income. It is on this score that, while making the assessment for the assessment year 1984-85, the assessing authority levied interest under Section 217 for non-filing of the estimate of advance tax. The petitioner then applied for waiving the interest under Section 154 and Rule 40, which was dismissed. The petitioner thereupon filed a revision petition before the Commissioner under Section 264 of the Act complaining against the levy of the said interest. The petitioner pleaded that the question whether the benefit under Section 80J can be computed on borrowed capital was sub judice and, therefore, he was under a bona fide belief that he is entitled to carry forward the losses for the previous years and on that basis he did not choose to file the estimate of advance tax for the assessment year 1984-85. In particular he brought to the notice of the Commissioner that, for the previous assessment years, namely, 1978-79 and 1979-80, the appellate authority set aside the orders of assessments with a direction that the assessments be completed in accordance with settled law that would emerge after the decision of the Supreme Court with respect to Section 80J. These appellate orders were passed on April 3, 1982, and December 6, 1982. He says further that even though the assessment order for the assessment year 1980-81 was passed on March 31, 1983, he had filed an appeal against it which appeal was ultimately allowed on December 6, 1983. On the basis of these facts, the petitioner pleaded that he was under a bona fide belief that he is entitled to compute the said benefit on borrowed capital and, therefore, his return would be a return of loss. The Commissioner, however, referred only to one fact, namely, that the assessment for the assessment year 1980-81 was made on March 31, 1983, which must have put the petitioner on notice that he is not entitled to the benefit of Section 80J and that his return would be one of substantial income. The Commissioner did not advert to the fact that similar assessment orders for the assessment years .1978-79 and 1979-80 were set aside by the appellate authority on April 3, 1982, and December 6, 1982, on the ground that the said dispute is pending decision before the Supreme Court.
4. Under Sub-rule (5) of Rule 40, no doubt the question of waiver lies within the discretion of the Deputy Commissioner and it is for him to consider whether there are circumstances justifying the waiver of interest, In this case, however, it is clear that the said discretion was exercised without adverting to all the relevant circumstances that were brought to the notice of the Commissioner. Had the Commissioner referred to those facts, namely, the appellate orders with respect to the assessment years 1978-79 and 1979-80 and passed the order refusing to waive interest, the situation may have been different but since he has not done so, we are of the opinion that the exercise of discretion by him is vitiated by non-consideration of relevant material. The matter must go back to him for reconsideration.
5. Yet another circumstance relied upon by the petitioner is that his application for waiver of penalty levied for the same default has been allowed by the Commissioner of Income-tax holding that there were sufficient grounds for waiving the said penalty. The petitioner says that the grounds urged by him for waiving the penalty and for waiving the interest are identical. This argument may also be considered by the Commissioner subject to its relevancy and evidentiary value.
6. For the above reasons, the writ petition is allowed and the order of the Commissioner impugned herein is set aside. The matter is remanded to the Commissioner for reconsideration of the revision petition filed by the petitioner afresh in accordance with law. There shall be no order as to costs.