Income Tax Appellate Tribunal - Jaipur
Income-Tax Officer vs Thanmal Mohanlal. on 23 November, 1987
Equivalent citations: [1988]24ITD132(JP)
ORDER
Per Shri A. Kalyanasundharam, Accountant Member - This is an appeal by the revenue against the order of the AAC, who had held that an ITO cannot levy interest u/s 139(8) in rectification proceedings initiated u/s 154.
2. On behalf of the revenue, Mr. B. K. Iyer appeared while the assessee has chosen to file written submissions. Mr. B. K. Iyer submitted that it is a case of a firm. Mr. Iyer further submitted that the assessee filed appeal against the order of the ITO and an additional ground was also filed in regard to the interest that was charged u/s 139(8). While deciding the main appeal, the learned AAC had not decided the additional ground. A Misc. Application was moved, which was heard and following the Calcutta High Court decision, 139 ITR 946 (sic) he had deleted the penalty. The other argument that was taken by the ITO was that interest though not mentioned in the assessment order but mentioned in the demand notice attaching therewith the calculation sheet clearly indicated that the ITO had applied his mind and had charged the interest. In the written submission, the assessee had submitted that unless and until the interest is charged inthe assessment order itself, the assessee cannot be said to be liable for interest. Even the Allahabad High Court in CIT v. Himalaya Drug Co. (1982) 135 ITR 368 has expressed the same view that what is mentioned in the calculation sheet does not necessarily mean to be part of the assessment order itself.
3. After having heard both the parties and after considering the assessment order that has been passed by the ITO, it seems that the ITO had no intention of charging the interest at all. In the assessment order, the ITO does not mention as to whether the return was delayed or not. The ITO is duty bound to comply with the statutory provisions to mention in the order the defaults that are committed by the assessee. The reading of the ITOs order passed on 28-2-1983 does not indicate that the assessee had defaulted on any of the counts. It is the ITO, who has the powers of passing the orders and also in determining the various defaults committed by the assessee. The Form ITNS-150, which is a departmental form filled up by the clerks on the basis of the assessment order passed by the ITO and the various calculations of tax etc. are made by the clerks on this particular form. The final demand is created after checking this particular form, therefore, it it clear that the starting point for the demand on the assessee is the assessment order. The calculation sheet is only an intermediary working sheet of the department, which is entirely based on the assessment order as such. The demand notice is the culmination of the various steps. On a clear reading of the facts as contained in the order, as already mentioned above, the ITO is totally silent in respect of any default on the part of the assessee. The working sheet made by the clerks of the Income-tax Department cannot be said to be an order passed by the ITO. It is on these lines that the Calcutta High Court in 139 ITR 946 (sic), CIT v. Bharat Machinery & Hardware Mart (1982) 136 ITR 875 (Guj.) and Himalaya Drug Co.s case (supra) have all held that the calculation sheet cannot be the basis of raising the demand on the assessee. Since the ITO has not mentioned it so specifically in the order, the presumption has to be in favour of the assessee that there is no delay and, therefore, no interest is chargeable.
4. In the result, we upheld the order of the AAC and dismiss the departmental appeal.
Per Shri. H. S. Ahluwalia, Judicial Member - I have had the opportunity to go through the order proposed by my learned brother and with great respect to the observations made therein, I have not been able to persuade myself to agree with the same. The reason for my opinion is that (although the position of law as propounded by my learned brother finds support from some of the authorities quoted by him), it would lead to a gross miscarriage of justice. Merely because there has been some accidental slip on the part of the ITO, it should be considered to be fatal to the revenues case. After all day in and day out men commit slips, mistakes and omissions; the remedy under such circumstances is to rectify or remove the mistakes and not to prejudice the case of either party because of the said mistake or slip.
2. So far as the legal position is concerned, according to section 156 of the IT Act, 1961, when any tax, interest penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Income-tax Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable. It, therefore, follows that an assessment order u/s 143(3) would be a separate order different from the calculation sheet prepared under this section. Actually it has been so held in CIT v. Executors of the Estate of Late H. H. Rajkuverba Dowager Maharani Saheb of Gondal (1978) 115 ITR 301 (Kar.). In any event the calculation sheet can be either considered as part of the assessment order or not a part thereof. If it is not a part of it, then no appeal would lie against it under clause (c) of section 246 (1) of the IT Act. In that case the AAC was not at all competent to entertain the assessees ground raised in this behalf. At best the legal position would be that there is no valid order for levy of interest and there was a wrong claim in the demand notice. For that the assessee should have moved for rectification to the ITO himself. In fact in the original memorandum of appeal filed before the AAC, the assessee did not take any ground in this behalf, but later it sought for an additional ground challenging the levy of interest under section 217 and 139(8). In these circumstances the additional ground raised by the assessee should have been straightaway rejected on this score alone.
3. However, leaving aside the technicalities of the matter, I am more concerned with protecting the interests of justice. The appeal would be competent if the calculation sheet is treated to be a part of the assessment order and the demand within the meaning of clause (c) of section 246(1) and in my opinion it should be done so. The only grievance of the assessee then possibly can be that the ITO had not applied his mind while completing the assessment order to levy interest and, therefore, the interest should not be levied. To this contention, there can be possibly two replies, either yes or no. Yes can probably be supported by the fact that the ITO had signed the calculation sheet in which the interest has been claimed. In these circumstances it is a mere omission of the ITO to specifically put in the following words in the assessment order :
"Charge interest u/ss 139(8) and 217."
Such an omission would now be cured by section 292B of the IT Act which reads as under :
"292B, No return of income, assessment, notice, summons or other proceedings furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act."
Obviously the levy of interest by the ITO was in accordance with the intention and the purpose to be fulfilled by the IT Act. At the best, if the answer to the above question is held to be No, it cannot be said by any stretch of imagination that the ITO had consciously waived this interest. The utmost that can be said for the assessee is that he failed to consider this issue in the right prospective. In that case the AAC should have either considered this issue himself and then passed an order levying or waiving interest whatever he thought fit. He should not have cancelled the order altogether. May I just point out that the present order of the AAC itself is an order under section 154 : initially he omitted to adjudicate upon the additional ground of the assessee. Now he has rectified his mistake and disposed of the additional ground raised before hi, but he has not passed any order allowing the assessee to raise the ground as such. Does it mean that the original order should be cancelled because there is a mistake apparent in that or does it mean that this order should be cancelled because he has not specifically passed an order allowing the assessee to raise the additional ground. Such an interpretation divorced from the realities is not expected of mature judicial authorities.
4. Coming to the authorities one can find case laws for everything. So far as the silence of the ITO in relation to levy of interest is concerned, it has been held in CIT v. City Palayacot Co. (1980) 122 ITR 430 (Mad.) that while in cases under sec. 216 it may be possible to infer waiver because of the existence of an absolute discretion, in cases under secs. 215 and 217 it is not possible to infer any waiver from the omission to charge interest especially when the power to waive is restricted to particular cases. It would also be necessary for the officer, if he exercised the discretion, to indicate in his order as to why he waives or reduces the interest liable to be charged. Lastly, very recently it has been held by the Karnataka High Court in CIT v. R. Giridhar (1984) 145 ITR 246 that "the separate sheet of paper, although it did not contain the signature of the ITO, formed part of the assessment order. It was on the basis of that order that the notice of demand was issued indicating the tax payable by the assessee. The assessment order was made after the introduction of s. 292B by the Taxation Laws (Amendment) Act, 1979. The impugned assessment order was in substance and effect held to be in conformity with and according to the intent and purpose of the IT Act. Hence, the assessment order could not be said to be invalid under s. 143(3) of the IT Act, 1961, and could not be annulled.
5. One more ground taken by the assessee in its written submissions was that the department had not challenged the AACs order regarding deletion of interest u/s 217. While the department is not entitled to succeed in relation to this ground, it does not mean that because of this fact alone the ground against deletion of interest u/s 139(8) should be rejected. The department may have thought it fit to agitate over one kind of interest, but there may be some ground for which the department thought it fit not to levy or appeal against the deletion of the other interests.
6. For all these reasons, I am of the opinion that the order of the AAC in question cannot be sustained. At best it can be said that the ITO did not consider the question of waiver of interest u/s 139(8) from a proper angle. In that case, the matter should be restored to him for examining the same and passing a speaking and a well reasoned order after giving an opportunity of being heard to the assessee as well.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Per Shri H. S. Ahluwalia, Judicial Member - There has been a difference of opinion between us. The point of difference is referred to the third Member under sec. 255(4) of the IT Act, 1961 :
"Whether the departmental appeal should be dismissed altogether or the matter should be sent back to the ITO for examining the same afresh."
THIRD MEMBER ORDER Per Shri Ch. G. Krishnamurthy, President - In this appeal originally heard by Jaipur Bench of the Income-tax Appellate Tribunal, a point of difference of opinion arose, which is referred to me under section 255(4) of the Income-tax Act for my opinion. The point of difference of opinion is :
"Whether the departmental appeal should be dismissed altogether or the matter should be sent back to the ITO for examining the same afresh ?"
2. The dispute arose in the the following circumstances : The assessee, a registered firm carrying on business in operation of trucks, filed for the assessment year 1980-81 a return declaring a loss of Rs. 24,520. For the reasons mentioned by the Income-tax Officer in the assessment order, the income was computed at Rs. 56,110. This income was divided among the partners in accordance with profit sharing ratio and registration was granted to the firm and no other direction was given by the Income-tax Officer in the assessment order either to levy interest u/s 139 or u/s 217 or for the initiation of any action under any other section. But in a form called ITNS-150, which accompanied the asst. order the Income-tax Officer directed the charging of interest u/s 217 and 139(8). Aggrieved by the assessment made by the Income-tax Officer and also by the levy of interest, the assessee preferred appeal before the Appellate Asst. Commissioner. In the grounds of appeal originally taken before the Appellate Asst. Commissioner, objection to the levy of interest u/s 139(8) was not taken. But by way of additional ground, the levy of interest u/s 139(8) and u/s 217 was disputed. The Appellate Asstt. Commissioner disposed of the appeal without considering the additional ground of appeal relating to the lavy interest. the assessee then moved a petition be fore the Appellate Asstt. Commissioner u/s 154 requesting him to con-sider the additional ground of appeal and dispose it of no merits. By an order passed u/s 154 dated 18-1-1984, the Appellate Asstt. Commissioner admitted the additional ground and deleted the interest levied u/s 139(8) overruling the objection raised by the Income-tax Officer both in regard to the admission of additional ground of appeal as well as deletion of interest. In the present matter before me, I am concerned with the cancellation of levy of interest. The objection of the assessee for the cancellation of interest was that the Income-tax Officer had not mentioned anything about the levy of interest in the assessment order and he only directed it to be levied in the form ITNS 150 and as ITNS 150 was not an assessment order, levy of interest by or through that form could not be said to be valid. According to the assessee unless the Income-tax Officer directs for the levy of interest u/s 139(8) in the assessment order itself, no interest could be levied subsequently in the form that might accompany the assessment order because the form that accompanied the assessment order was only a sheet showing the calculation of tax, which could not take the form of an assessment order, which is a statutory order to be passed u/s 143(3) of the Income-tax Act. Reliance was placed for this view on the decision of the Jammu and Kashmir High Court in the case of Mulakh Raj Bimal Kumar v. ITO [1977] 107 ITR 382 and another decision of the Calcutta High Court in the case of Smt. Bhagwanti Gidwany v. CIT [1983] 139 ITR 498 (wrongly mentioned by the Appellate Asstt. Commissioner in his order as 946). The Appellate Asstt. Commissioner accepted these arguments and placing reliance upon these two High Courts decisions held that the Income-tax Officer not having given a direction in the assessment order to levy interest u/s 139 and having included it only in the form ITNS-150, which accompanied the assessment order, was invalid and illegal because that form could not be equated to an assessment order. He also referred to a decision of the Allahabad High Court in the case of Himalaya Drug Co. (supra) where also the question of status to be accorded to the form that accompanied the assessment order was considered and decided against the Revenue.
3. Aggrieved by this order passed by the Appellate Asstt. Commissioner u/s 154, the department filed a further appeal before the Tribunal. After hearing the case at length, the Members took two divergent views. The learned Accountant Member was of the opinion, following the judgement of the Allahabad and Calcutta High Courts that the action of the Income-tax Officer in directing the payment of interest through a form ITNS-150 and not through assessment order, the presumption has to be in favour of the assessee that there was no delay in the filing of the return and therefore interest was not chargeable. He upheld the order of the Appellate Asstt. Commissioner in dismissing the departmental appeal. But the learned Judicial Member held that the non-mention by the Income-tax Officer in the assessment order about the levy of interest was only an accidental slip on the part of the Income-tax Officer and that should not be considered fatal to the Revenues case. He was of the opinion that an order passed u/s 143(3) is a separate order different from the calculation sheet, which according to him is a demand notice within the meaning of section 156 of the Income-tax Act and both being orders passed by the Income-tax Officer under the Income-tax Act, they were valid and enforceable. He held that the calculation sheet that accompanied the assessment order, if it is held not as a part of the assessment order, then no appeal lay to the Appellate Asstt. Commissioner u/s 246 of the Income-tax Act. If an appeal against that order lay to the Appellate Asstt. Commissioner, it means that that was an order and once that was an order, the objection raised by the assessee was not maintainable. Since the Income-tax Officer signed the calculation sheet also under which the income-tax was levied, it must be held that the Income-tax Officer applied his mind to the levy of interest and since the purpose of making an assessment order and making it obligatory on the part of the Income-tax Officer to give a direction in the assessment order to levy interest is only to demonstrate that the Income-tax Officer applied his mind. Since that application of mind was discernible from the signing of the calculation sheet by the Income-tax Officer was absolutely legal and should not be nullified. It cannot also be said that the Income-tax Officer has consciously waived the interest. He also referred to a decision of the Karnataka High Court in R. Giridhars case (supra) for the view that the inclusion of a direction in the calculation sheet to levy interest u/s 139 formed very much the part of the assessment order and for the reason that the assessment order did not contain a direction to levy interest alone vitiated the levy of interest. He therefore held in the interest of the case, the matter must be sent back to the Income-tax Officer to examine this matter from proper angle. That is how the difference of opinion arose between my learned brothers.
4. Now as I said earlier the question for my decision is : "whether the departmental appeal should be dismissed altogether or the matter should be sent back to the ITO for examining the same afresh ?"
The departmental appeal would be dismissed altogether only if I come to the conclusion that what all done by the calculation sheet did not have the legal sanctity, and therefore unenforceable at law. If this view is correct in law, then the action of the Income tax Officer can be held to be incorrect. The Calcutta High Court in the case of Smt. Bhagwanti Gidwany (supra) held that unless the order of assessment itself incorporates an order for the payment of interest, the assessee cannot be asked by means of a simple demand notice to pay penal interest both u/s 139 and u/s 217 of the Income-tax Act, 1961. In this case the firm filed a return for the assessment year 1962-63 and applied for registration. Though the assessments on the partners were completed as a consequence of proceedings u/s 147, the partners received notices of demand and challans for payment of tax and it was only through challans that the interest leviable u/s 139 and 217 were charged. When the Revision Petitions challenging the levy of interest was dismissed, a writ petition was filed against the order of the Commissioner against the levy of interest in the High Court of Calcutta. The Calcutta High Court held that though the challan accompanying the demand notice was part of the demand notice as there was no mention of penal interest in the assessment order, the levy of penal interest was not valid. The order levying penal interest was thus quashed. In coming to this conclusion the Calcutta High Court relied upon the decision of the Jammu and Kashmir High Court in Mulakh Raj Bimal Kumars case (supra). More or less to the same effect is the decision of the Allahabad High Court in the case of Himalaya Drug Co.s case (supra). Here the Allahabad High Court has categorically pointed out that Form No. ITNS-150 was only meant for calculation of the tax payable and since it was not an order, the Income-tax Officer was not competent to rectify the same by resorting to section 154 of the Income-tax Act. But a contrary view was taken by the Karnataka High Court in the case of R. Giridhar (supra). Here the Karnataka High Court held that since the determination of the tax payable by the assessee in the assessment order is mandatory and non-compliance with the provisions would vitiate the assessment order. Here the assessment order was passed by the Income-tax Officer, which only contained the computation of income but the computation of tax as in the other case was made on a separate sheet of paper, which was not even sighed by the Income-tax Officer. The question was whether such a sheet of paper unsigned by the Income-tax Officer would constitute part of the assessment order particularly after the introduction of section 292B of the Income-tax Act with effect from 1-10-1975, which was intended to validate certain orders passed if they are strictly in conformity with the rules or contain some mistakes or defects or omission provided those proceedings are in substance and effect in conformity with or according to the intent and purpose of this Act. The Karnataka High Court speaking through Justice K. Jagannath Chetty, as he then was, held that the separate sheet of paper although it did not contain the signature of the Income-tax Officer formed part of the assessment order. It was on the basis of that order that the notice or demand was issued indicating the tax payable by the assessee. The assessment order was made after the introduction of section 292B by the Taxation Laws (Amendment) Act, 1975. The impugned assessment order was in substance and effect in conformity with and according to the intent and purpose of the Income-tax Act. hence the assessment order could not be said to be invalid u/s 143(3) of the Income-tax Act, 1961.
5. Thus there appears to be direct conflict of judicial opinion as to whether a calculation sheet accompanying the assessment order would or world not constitute an assessment order. The learned Accountant Member as well as the Appellate Asstt. Commissioner relied upon the decisions of the Jammu and Kashmir High Court and the Calcutta High Court for the view that if the assessment order did not contain the direction to levy interest, such a levy would by illegal because the inclusion of interest in the calculation sheet would not be according to law. This view proceeded on the assumption that the calculation sheet did not form part of the assessment order. These two decision were given before section 292B of the Income-tax Act was introduced on the statute book. The effect and impact of the introduction of section 292B in the Income-tax Act was considered for the first time by the Karnataka High Court in the case of R. Giridhar (supra). After taking into account the decisions of the Jammu and Kashmir as well as the Calcutta High Courts, the Karnataka High Court came to the view that a calculation sheet formed part of the assessment order provided it as in pursuance of the object of the Income-tax Act, namely. it was in conformity in substance and in effect with the intent and purpose of the Income-tax Act and mere mistake, defect or omission should not be considered as fatal. The facts of this case show that though the Income-tax Officer did not give a specific direction in the assessment order to levy interest u/s 139(8), such interest was included in the total tax payable according to which the demand notice was issued on the basis of which an appeal was filled before the Appellate Asstt. Commissioner. Therefore following the view expressed by the Karnataka High Court, I find it difficult to accept the view that merely on the basis of omission by the Income-tax Officer to give a direction to levy interest u/s 139(8), the levy of interest though by a separate sheet, which is now held to be a part of the assessment order, could be said to be so illegal as to be effaced. There are no circumstances discussed in the order of the Appellate asstt. Commissioner so that it could be said that it could be said that this was a case where the Income-tax Officer could have; waived the interest in exercise of the powers vested in him under Rule 117A of the Income-tax Rules. A mere technicality of this nature should not be magnified as to make the proceeding totally illegal. Though it is possible to argue that when two views are possible in the interpretation of a fiscal statute, the view in favour of the assessee should be preferred. I am unable ton ko that exercise because I find that the earlier two decisions were rendered at a time when section 292B of the Income-tax Act was not on the Statute book and its effect was not at all considered. The only decision that was given after the introduction of section 292B in the Income-tax Act, was by the Karnataka High Court, which also considered the other two high Courts decisions. I feel that the instant case is a case where the matter should be directed to be reconsidered by the Income-tax Officer with regard to the waiver of interest under Rule 117A rather than deleting the interest in toto.
6. I, therefore, express my consent with the view expressed by the learned Judicial Member.
7. The matter will now go before the regular Bench for disposal of the appeal in accordance with the majority opinion.