Punjab-Haryana High Court
Darshan Lal Gulati vs Commissioner Of Income Tax And Anr. on 19 March, 2008
Equivalent citations: (2008)3PLR87
Author: Ajay Kumar Mittal
Bench: Ajay Kumar Mittal
JUDGMENT Ajay Kumar Mittal, J.
1. This appeal by the assessee under Section 260A of the Income Tax Act, 1961 (for short "the Act") is against the order dated 31.10.2006 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (SMC)(hereinafter referred to as "the Tribunal") in IT.A. No. 188 (ASR)/2006 relating to the assessment year 1988-89.
2. Vide order dated 18.9.2007 while issuing notice of motion by this Court, the learned Counsel for the assessee has claimed that the following substantial question of law would arise for determination of this Court:
Whether in facts and circumstances of the case, the Income Tax Appellate Tribunal had fallen in error in confirming the charge of interest under Section 217 of the Income Tax Act by invoking the Sub Clause 6 of Section 215 even though the original return of income was filed by the Assessee on 31st August, 1988 and the reassessment made under Section 147 of the Income tax Act was not the "first assessment?
3. The facts, in short, are that the assessee filed the return of income for the assess ment year 1988-89 on 31.8.1988. A search and seizure operation was conducted at the business premises and the residential premises of the partners of the assessee on 13.5.1989. A notice was issued under Section 148 of the Act to initiate the reassessment proceedings under Section 147 of the Act. The assessment was completed on 6.3.1995 at an income of Rs. 3,42,380/-. It was pleaded that interest to the tune of Rs. 47, 912/- and Rs. 69,390/- was charged under Section 139(8) of the Act as the assessee had not furnished any evidence to show that the original return had been filed. Being aggrieved, the assessee filed appeal before the CIT(A) challenging the action of the Assessing Officer for charging interest under Sections 139(8) and 217 of the Act. The assessee pro duced letter No. 1872 dated 6.8.1997 of ITO, Ward No. 1, Phagwara where he had admitted the filing of original return of income by the appellant on 31.8.1988. The CIT (A) vide order dated 20.8.1997 allowed the appeal of the assessee holding that the interest was not chargeable either under Section 139(8) or Section 217 of the Act. The revenue thereafter took the matter in appeal before the Tribunal and the Tribunal vide order dated 20.12.1994 modified the order of the CIT(A) to the extent that the interest under Section 139(8) was chargeable for a default of one month and not beyond that and had accepted that original return was filed on 31.8.1988. As regards the interest charged under Section 217 of the Act, the Tribunal remanded the matter back to the CIT(A) to re-decide the issue after affording due opportunity to the parties. The CIT(A) took up the appeal and after hearing the parties, upheld the action of the Assessing Officer for charging interest under Section 217 of the Act being regular assessment within the meaning of Sub-section 6 of Section 215 of the Act. Hence the present appeal by the assessee.
4. Ms. Radhika Suri, learned Counsel for the assessee-appellant raised an argument that the assessee had filed a valid return on 31.8.1988 and this fact has been acknowledged by the Tribunal in its orders dated 20.12.2004 and 31.10.2006. Learned Counsel submitted that in the facts and circumstances of the present case, the substantial question of law as framed has two facets. According to the learned Counsel, once it was held that a valid return had been filed on 31.8.1988, then two eventualities arise; a) either an order of assessment had been passed on the said return or b) there were no assessment proceedings undertaken by the department. Learned Counsel urged that, in both the situations, no interest under Section 217 of the Act could be levied. If the assessment proceedings were undertaken then the assessment made in pursuance to the notice under Section 147 of the Act dated 22.3.1989 was not the assessment made for the first time, whereas if no assessment proceedings had been completed, then in view of judgments in Commissioner of Income-Tax, Madras v. M.K.K.R. Muthukaruppan Chettair , B.R. Bamasi v. Commissioner of Income-tax Bombay City II and CESC Ltd. v. Deputy Commissioner of Income-Tax , the issuance of notice for re-assessment proceedings under Section 147 itself was bad and the question of levy of interest did not arise.
5. On the other hand, Mr. Sanjiv Bansal, learned Counsel for the revenue supported the orders passed by the authorities below and prayed for dismissal of the appeal as the appeal involved no substantial question of law, He placed reliance upon the judgment reported in K. Govindan and Sons v. Commissioner of Income-Tax (2001)247 I.T.R. 192 (S.C.) in support of his submission that even in the case of assessment in pursuance to the proceedings initiated under Section 147 of the Act, the assessee was liable for interest under Section 217 of the Act.
6. We have heard the learned Counsel for the parties and perused the record with their able assistance.
7. We propose to deal the case from both angles. Section 215 of the Act provides for payment of interest by the assessee if the advance tax paid by the assessee under Section 209A or Section 212 on the basis of his own estimate is less than 75% of the tax assessed on the, regular assessment. Section 217 provides for payment of interest by assessee where he has not sent the statement or estimate of income as provided under Section 209-A.
8. Section 215 and 217 of the Act which are material for adjudication for the present controversy at the relevant time read thus:
Section 215.
(1) Where, in any financial year, an assessee has paid advance tax under Section 209A or Section 212 on the basis of his own estimate (including revised estimate), and the advance tax so paid is less than seventy-five per cent of the assessed tax, simple interest at the rate of fifteen percent per annum from the 1st day of April next following the said financial year up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax.
Provided that in the case of an assessee, being a company, the provisions of his Sub-section shall have effect as if for the words "seventy-five per cent", the words "eighty-three and one-third per cent" had been substituted.
(2) Where before the date of completion of a regular assessment, tax is paid by the assessee under Section 140A or otherwise:
(i) interest shall be calculated in accordance with the foregoing provision upto the date on which the tax is so paid; and
(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax as so paid (in so far as it relates to income subject to advance tax) falls short of the assessed tax.
(3) Whereas a result of an order under Section 147 or Section 154 or Section 155 or Section 250 or Section 254 or Section 260 or Section 262 or Section 263 or Section 264 the amount on which interest was payable under Sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and-
(i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee, a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice under Section 156 and the provisions of this Act shall apply accordingly;
(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.
(4) In such cases and under such circumstances as may be prescribed, the Assessing Officer may reduce or waive the interest payable by the assessee under this section.
(5) In this Section and Sections 217 and 273, "Assessed tax" means the tax determined on the basis of the regular assessment (reduced by the amount of tax deductible in accordance with the provisions of Sections 192 to 194, Section 194 A, Section 194-C, Section 194D, Section 195) so far as such tax relates to income subject to advance tax and so far as it is not due to variations in the rates of tax made by the Finance Act enacted for the year for which the regular assessment is made.
(6) Where, in relation to an assessment year, an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this Section and Sections 216, 217 and 273.
(1) Where, on making the regular assessment, the Assessing Officer-finds-
(a) that any such person as is referred to in Clause (a) of Sub-section (1) of Section 209-A has not sent the statement referred to in that clause or the estimate in lieu of such statement referred to in Sub-section (2) of that section; or
(b) that any such person as is referred to in Clause (b) of Sub-section (1) of Section 209 A has not sent the estimate referred to in that clause, simple interest at the rate of (fifteen) per cent per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance with the said Sub-section (1) or Sub-section (2) up to the date of the regular assessment shall be payable by the assessee upon the amount equal to the assessed tax as defined in Sub-section (5) of Section 215.
(1A) Where, on making the regular assessment, the Assessment Officer finds that any person, who is required to send an estimate under Sub-section (4) of Section (3A) of Section 212 has not sent the estimate referred to therein, simple interest at the rate of fifteen per cent per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance with the said Sub-section (4) or, as the case may be, Sub-section (3 A) up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax paid by him falls short of the assessed tax as defined in Sub-section (5) of Section 215.
(2) The provisions of Sub-sections (2), (3) and (4) of Section 215 shall apply to interest payable under the section as they apply to interest payable under that section. Sub-section 40 of Section 2 defines "regular assessment". According to the aforesaid Section, at the relevant time, any assessment made under Section 143 or Section 144 of the Act is regarded as regular assessment However, Section 215 of the Act w.e.f. 1.4.1985 by way of amendment by Taxation Laws (Amendment) Act, 1984 (for short the "Amendment Act") has brought about important changes in the scheme of interest by the assessee. After the aforesaid amendment, Sub-section 6 of Section 215 provides that where in respect to an assessment year, an assessment is made for the first time under Section 147, the assessment so made would be regarded as a regular assessment for the purposes of this section and Sections 216,217 and 273.
9. Firstly, taking up the case that an assessment had been framed in response to the return filed on 31.8.1988, then it is manifest that first or initial assessment made by the Assessment Officer would be treated as regular assessment and in that situation assessment in pursuance to t Officer would be treated as regular assessment and in that situation assessment in pursuance to re-assessment proceedings cannot be termed as "first assessment" and does not come within the meaning of the expression regular assessment. Accordingly, the interest under Section 217 of the Act could not have been charged.
10. Now adverting to the second facet of the controversy, the Apex Court in M.K.K.R. Muthukaruppan Chettiar's case (supra), where the return filed by the assessee was closed by the Assessing Officer by noting as 'no assessment' in the order sheet, held that it was not an order terminating the proceedings, with the result that the return was not disposed of and the Income tax Officer by ignoring them could not validly issue the notice of reassessment. Still further, it has been held in the cases of B.R. Mamasi (supra) and CESC Ltd cases (supra) that the notice for re-assessment cannot be issued be fore original assessment has been completed. The Calcutta High Court in CESC Ltd.'s case (supra) has observed as under:
Therefore, during the pendency of such return, notice under Section 148 for reopening assessment under Section 147 cannot be validly issued. No notice under Section 148 can be issued against an assessee so long as a return validly filed remains pending and undisposed of Estate of the Late A.M.K.M. Karuppan Chettiar v. CIT . Until and unless the return filed is held to be invalid, no action under Section 147 can be taken until the assessment is complete pursuant to such return. It is only when a return is invalid or non est, this jurisdiction can be exercised.
11. Accordingly, it is held that in case no assessment was framed on the return filed on 31.8.1988, then no notice under Sections 147/148 could have been validly issued, and, therefore, no interest under Section 217 of the Act was impossible. In all fairness to the learned Counsel for the revenue, we refer to the judgment relied upon by him. The issue before the Supreme Court in K. Govindan and Sons' case (supra), was, whether an assessment made for the first time in pursuance to proceedings under Section 147 of the Act was a "regular assessment" on which interest can be charged under the provisions of Sections 215 and 217 of the Act. The Apex Court held that first or initial assessment under Section 147 of the Act is a regular assessment. However, the issue in the present case is different and the said decision does not advance the case of the revenue.
12. Viewed from any angle, the levy of interest under Section 217 is unsustainable and the Tribunal was not correct in deciding the case against the assessee. The substantial question of law is consequently decided in favour of the assessee. The appeal is allowed and it is held that no interest under Section 217 of the Act could have been validly levied on the assessee. No costs.