Income Tax Appellate Tribunal - Jaipur
Rajasthan Spg. And Wvg. Mills Ltd. vs Deputy Commissioner Of Income-Tax on 24 March, 1993
Equivalent citations: [1993]46ITD24(JP)
ORDER
J.K. Verma, Accountant Member
1. The only ground of appeal pressed by the learned counsel for the assessee in this case reads as under :
The said Commissioner of Income-tax (Appeals) has further erred in maintaining the charge of interest of Rs. 5,01,855 under Section 215 of the Income-tax Act, 1961, which too is quite erroneous, illegal, unjustified, extremely high and not based on the facts. There are no orders for charging interest. No opportunity of hearing for charging of interest has been given to the assessee by the Income-tax Officer. Moreover the charge of interest is only on account of the additional demand created for retrospective effect of amendment in legislation in Section 80J in 1981 and the Hon'ble Supreme Court has taken many years for decision, therefore the same should be deleted.
2. Brief facts of the case are that the assessee had filed a return showing loss of Rs. 4,43,750 which was revised on 15-3-1982 to a figure of Rs. 7,08,546. The ITO completed the assessment on 30-8-1983 on a total income of Rs. 3,02,077. In the end he wrote-
Charge due interest However, since the assessee had paid tax by way of TDS at Rs. 2,67,518 and the assessed tax was Rs. 1,74,564, the interest was not charged under Section 215. Thereafter, the matter became a subject matter of appeal and the CIT (Appeals) set aside the assessment on certain points. Meanwhile the assessee along with Lohia Machines Ltd. had approached the Supreme Court against the amendment of Section 80J with retrospective effect. By the time the ITO gave effect to the appellate orders, the decision of the Hon'ble Supreme Court in the case of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308 : 20 Taxman 9 had been reported and hence while computing the total income of the assessee the ITO mentioned that the deductions under Section 80J admissible to the assessee as per Supreme Court decision worked out to Rs. 10,96,508 against Rs. 29,12,378 originally allowed. This resulted in the increase of the total assessed income which now worked out to Rs. 16,71,242. The total tax on this income worked out to Rs. 9,65,120 and after giving credit for the tax deducted at source at Rs. 2,67,518, the net tax found payable by the assessee worked out to Rs. 6,97,602. Since now instead of refund there was tax payable by the assessee, the ITO also charged interest under Section 215 of the Act to the tune of Rs. 5,01,855. The assessee went in appeal against the order of the ITO by which he had given effect to the earlier order of the CIT (Appeals). The CIT (Appeals) vide his order dated 29-8-1988 upheld the action of the ITO charging interest under Section 215 and hence the assessee has come up in appeal before us.
3. It was argued by the learned counsel for the assessee that the addition to assessee's income was due to amendment in Section 80J vide Finance Act, 1980, as a result of which the borrowed capital had been excluded from computation of capital for allowing relief under Section 80J. Shri C.L. Jhanwar, learned counsel for the assessee submitted that in the financial year 1978-79 when the assessee was required to estimate and pay advance tax, there was no advance tax payable by the assessee in view of the provisions of Section 80J as they existed at that time. He argued that it was only subsequently that the Section 80J was amended with retrospective effect vide Finance Act, 1980 and that retrospective amendment was upheld by the Hon'ble Supreme Court on a further later date in the case of Lohia Machines Ltd. (supra) and hence the assessee could not be said to be liable for payment of advance tax in the financial year 1978-79 which is relevant for the assessment year.
He further submitted that as per the provisions of Section 215(3) as they existed in the assessment year 1979-80, the law did not permit the Assessing Officer to increase the interest chargeable under Section 215 if the income was increased as a result of any rectification or appellate order etc. He submitted that this amendment, permitting the Assessing Officer to increase the interest both under Section 215(3) as well as in Explanation 2(b) of Section 139(8) had been introduced vide Taxation Law Amendment Act, 1984 with effect from 1-4-1985 and hence even if the income of the assessee increased by giving effect to the amended provisions of Section 80J which were upheld by the Hon'ble Supreme Court, the interest charged under Section 215 could not be increased or could not be charged if it was not charged originally. The learned counsel referred to the decision of the Hon'ble Rajasthan High Court in the case of CIT v. Multimetals Ltd. [1991] 187 ITR 98 so also to a decision of the Ahmedabad Bench of the Tribunal in ITO v. Coronation Flour Mills [1990] 32 ITD 550. He submitted that as per the decision of the Hon'ble Rajasthan High Court it had been held that the interest under Section 215 could be charged only on the basis of regular assessment and that the amendments to Sections 215(3) and 139(8)- Explanation 2(b) were prospective and not retrospective. The same view was taken by the Ahmedabad Bench of the Tribunal in the case mentioned above.
4. Shri C.L. Jhanwar submitted that an alternative argument to the effect that in the order under dispute, the Assessing Officer has not mentioned "Charge interest" and since there was no authorisation to charge interest, the interest under Section 215 could not be charged.
5. The learned Departmental Representative on the other hand drew our attention to the decision of the Hon'ble Rajasthan High Court in the case of Golecha Properties (P.) Ltd. v. CIT [1988] 171 ITR 47 : 36 Taxman 227 in which it had been held that it was not necessary to issue a show-cause notice before charging interest under Section 215 and that there was no presumption of waiver of interest by the ITO. He further pointed out that as per the original assessment order the ITO had specifically mentioned "Charge due interest" which would mean that if interest was to be charged, due interest should be charged. He submitted that if it was found that the interest become chargeable on modification of assessee's income as a result of giving effect to appellate orders, interest had to be charged on correct basis which had been done in this case. So far as the question of circumstances given by the assessee for not having paid advance tax and thus not being liable for payment of interest under Section 215 is concerned, he submitted that for this purpose the assessee could have moved the appropriate authority, namely, the ITO or the Dy. Commissioner for waiver of interest. But on the basis of reasonings given by the learned counsel, it could not be said that the assessee was not. liable for payment of interest under Section 215 at all.
6. We have carefully considered the submissions from both the sides and have taken into account the material on record and the case law on the subject. We are, however, unable to agree with the arguments of Shri Jhanwar for the reasons given in the following paragraphs.
7. In the first instance we may point out that in the case of Multimetals Ltd. (supra) the question involved was with reference to provisions of Section 263 of the IT Act and their Lordships had held that since an assessment completed under directions from the CIT under Section 263 was, as per the language of the IT Act, a "fresh assessment order", it could not be considered to be a "regular assessment" within the meaning of Section 215 of the IT Act and hence they held that the amount of interest could not be increased if assessee's income was increased on the basis of orders of CIT under Section 263. In the same context their Lordships have observed that the amendment providing for increase of interest if the income was increased as a result of an order under Section 263 was introduced with effect from 1-4-1985 and that it was prospective and not retrospective. However, in our view the facts and circumstances of the case before us are different. We may point out that in the first instance it is not correct, as was argued before the learned CIT (Appeals) so also before us on behalf of the assessee, that the deductions under Section 80J had been reduced on account of retrospective amendment to Section 80J introduced by Finance Act, 1980 the validity of which was upheld by the Hon'ble Supreme Court in the case of Lohia Machines Ltd. (supra). A perusal of the order of the Hon'ble Supreme Court in the case of Lohia Machines Ltd. (supra) would show that their Lordships have not only upheld the validity of the retrospective amendment to Section 80J by virtue of Section 80J(1A) but they had discussed in detail the historical background of those provisions starting from Section 15C of IT Act, 1922, Section 84 of IT Act. 1961 (before its amendment and substitution by Section 80J) and Rule 19A of the IT Rules. Their Lordships have also specifically held that the provisions of Rule 19A (as it stood in the assessment year under consideration before us, namely, assessment year 1979-80) which provide for exclusion of borrowed capital for the purpose of computation of capital for giving relief under Section 80J were always valid. Since the law interpreted by the Hon'ble Supreme Court is supposed to be the law of the land and it is also supposed that it was always the correct interpretation and in fact also their Lordships have mentioned that such an interpretation was being accepted ever since the provisions of Section 15C were introduced in the IT Act, 1922, it cannot be said that what the assessee claimed by way of deductions under Section 80J was a correct claim. Even if for the sake of argument it is accepted that the assessee was really not aware of the correct provisions or interpretation of Section 80J when the advance tax for this assessment year had to be computed by it, in our view in the instant case what the Assessing Officer had done is not what was done in the case of Multimetals Ltd. (supra) or in the case of CIT v. Mannalal Nirmal Kumar [1992] 198 ITR 556 (Raj.) where the question involved was of reassessment; in the instant case it is only a computation of correct income by the ITO after giving effect to appellate order. It is by now well settled principle of law that appellate proceedings are only continuation of the original proceedings and hence in our view when an assessment has been framed by an ITO but the assessee goes in appeal to the appellate authorities, that assessment order cannot be said to be a regular assessment order because it becomes an assessment order which is sub-judice and it becomes a regular assessment order only when the final appellate authority concludes the matter. It is also an accepted legal proposition that interest charged under Section 215 is not penal in nature but is compensatory. (Observations of the Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961 : 27 Taxman 275 at page 966 top may be seen). In this view of the matter when on the correct assessment, correct tax is computed, it has to include correct calculation of interest under Section 215 and as observed by the Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. (supra) that the levy of interest is part of the process of assessment. Their Lordships have further observed-
Although Section 143 and Section 144 do not specifically provide for the levy of interest and the levy is, in fact, attributable to Sub-section (8) of Section 139 or Section 215, it is nevertheless a part of the process of assessing the tax liability of the assessee.
In the later part of that judgment their Lordships have observed to the effect that there are provisions in the IT Rules to the effect that if the assessee can show sufficient cause for reduction or waiver of interest, the assessee can approach the ITO or the Deputy Commissioner of Income-tax, as the case may be. This would mean that if in the instant case the assessee had some reasons on the basis of which it claimed that the interest charged should have been reduced or waived, it could have approached the appropriate authorities, but it could not be said that no interest was chargeable at all particularly when the assessee had withheld payment of correct advance tax for which it had to compensate the Government by way of payment of interest under Section 215. In this context we may also refer to the decision of Hon'ble Rajasthan High Court in the case of Golecha Properties (P.) Ltd. (supra), cited by the learned Departmental Representative where on page 56 of the report their Lordships have observed as under :
The material provisions are Section 139(8) (a) and the proviso thereunder read with Rule 117A of the Income-tax Rules, 1962. and Section 215(4) read with Rule 40 of the Income-tax Rules, 1962. A plain reading of these provisions and their harmonious construction lead to the inevitable conclusion that the liability for payment of interest thereunder is incurred automatically in the event of default by the assessee specified therein. This being so, the question of giving any show-cause notice prior to fixing the liability for payment of this interest by an order does not arise. This liability for interest is attracted automatically by operation of law without the further requirement of any order to that effect. The order made merely quantifies the amount of interest. However, the Income-tax Officer is empowered to reduce or even waive the interest at the instance of the assessee, if good cause is shown for the same by the assessee. It is, therefore, obvious that no prior show-cause notice is required to be given to the assessee, since liability to pay the interest is attracted automatically by operation of law, but the rigour thereof is mitigated by empowering the Income-tax Officer to reduce or even waive the amount, if good cause is shown by the assessee after incurring that liability. There is no breach of any principle of natural justice in the penal provision inasmuch as the assessee has an opportunity given by the statute to apply for reduction or even waiver of the amount by showing proper cause. The basic requirement of the principles of natural justice are therefore, fully satisfied and it is incorrect to say that the provision violates the principles of natural justice by imposing a penalty without giving any opportunity to show cause against the same.
We may observe that it is the duty of the assessee to invoke the authority's power of reduction or waiver of the amount of interest when the liability has been incurred by operation of law and, therefore, the occasion for the authority to decide this question would arise only when the assessee invokes that power by a proper application setting out the grounds on which reduction or waiver of interest is sought. Since the reduction or waiver can be granted only on good cause being shown by the assessee, it is obvious that the authority cannot act suo motu, the facts constituting ground for waiver or reduction being within the special knowledge of the assessee who has to disclose them.
8. Regarding the argument of the learned counsel that the amendments in Section 215(3) are perspective and not retrospective, there can be no dispute but it has to be kept in mind that the provisions of Section 215(3) as they stood prior to the amendment did not include Section 147 and Section 263, which Sections have got the provision of enhancing the income of an assessee and hence what was contemplated before amendment was only that situation where the income could not be assessed at a higher figure than the figure at which it was originally assessed by the Assessing Officer, although it could have reduced as a result of giving effect to the Sections which were mentioned in Section 215(3), namely, Sections 154, 155, 250, 254, 260 and 262. But the decision in the case of Lohia Machines Ltd. (supra) has not come under any of the Sections which were mentioned in Section 215(3) before its amendment; that decision has been given in a writ petition which had been filed by Lohia Machines Ltd. (supra) and in which the assessee itself was also a petitioner and hence it cannot be said that the income of the assessee has increased as a result of an order under Sections 154 or 155 or 250 or 254 or Section 260 or Section 262 or Section 264 which only provided for reduction of interest but not its increase. Hence on the basis of these arguments also the assessee does not succeed.
9. Taking all these facts into account, we are satisfied that the action of the Assessing Officer so also of the learned CIT (Appeals) was justified and hence charging of interest under Section 215 is confirmed. Appeal filed by the assessee is dismissed.