Income Tax Appellate Tribunal - Hyderabad
Income Tax Officer vs D. Bhaskar on 11 September, 2001
Equivalent citations: [2002]80ITD331(HYD)
ORDER
M.V.R. Prasad, A.M.
1. This is an appeal by the Revenue. It is directed against the order of the CIT(A) II, Hyderabad, dt. 6th Jan., 1997 for the asst. yr. 1993-94, whereby the first appellate authority set aside the order of the AO levying interests under Sections 234A, 234B and 234C for being considered afresh after affording the assessee an opportunity of being heard in the matter.
2. For the asst. yr. 1993-94, assessee filed return, admitting an income of Rs. 28,290. While completing the assessment under Section 143(3) of the Act, by his order dt. 27th March, 1996, on a total income of Rs. 2,29,380, the AO charged interest under Section 234A of Rs. 30,438; under Section 234B of Rs. 26,846 and under Section 234C upto 3/94 of Rs. 2,745. In the appeal preferred against the said assessment, the assessee questioned the above levies of interest on the ground that the AO did not issue any show-cause notice and hence violated the principles of natural justice. It was also submitted that income has been brought to tax on estimate basis, and thus notional income has been brought to tax, and therefore, the levy of interest was not warranted. Since the very levy of interest was questioned, the CIT(A) following the decisions of Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961 (SC) and other High Courts in similar matters, held that the appeal was entertainable. On merits, following the decision of the Cochin Bench of the Tribunal in M. Mani v. Asstt. CIT (1995) 51 TTJ (Coch) 273, the CIT(A) held that the AO was not correct in levying interest under Sections 234A, 234B and 234C of the Act without affording opportunity of hearing to the assessee. Hence, he set aside the order of the AO on this aspect, with a direction to reconsider the same after hearing the assessee.
3. Notice, posting the appeal for hearing on 6th Sept., 2001 was duly served on the respondent-assessee. Still, there was no appearance on behalf of the assessee. There was not even an adjournment petition. In the circumstances, I proceed to dispose of this appeal ex-parte--qua the respondent-assessee--after hearing the learned Departmental Representative.
4. The learned Departmental Representative strongly supporting the action of the AO, submitted that the CIT(A) was not justified in setting aside the levy of interest under Sections 234A, 234B and 234C. He submitted that the decision of the apex Court in Central Provinces Manganese Ore Co. Ltd. 's case (supra) relied upon by the learned CIT(A) is not applicable to the facts of the case on hand, as in that decision, the new provisions of Sections 234A, 234B and 234C were not considered. Placing reliance on the Board Circular No. 549, dt. 30th Oct., 1989 (Explanatory Notes DTA 1987), he submitted that charging of interest under Sections 234A, 234B and 234C are mandatory and as such, show-cause notice to the assessee was not called for. He also placed reliance on the decisions of the Karnataka High Court in Union Home Products Ltd. v. Union of India (1995) 215 ITR 758 (Kar); and of the Punjab & Haryana High Court in Sant Lal v. Union of India (1996) 222 ITR 375 (P&H) in support of the above proposition.
5. I find merit in the contentions of the Revenue in this appeal. Levy of interest under Sections 234A, 234B and 234C is of mandatory nature, and does not call for any opportunity of hearing to be afforded to an assessee. In the case of Union Home Products Ltd. (supra), Hon'ble Karnataka High Court inter alia held as under:
".....
The old provisions providing for payment of interest and penalty have been replaced by the provisions of Sections 234A, 234B and 234C, but the new system does not get its colour from the old. The new provisions will have to be interpreted in the light of the language employed therein and the purpose they purport to achieve. One of the objects behind the introduction of the Direct Tax Laws (Amendment) Bill, 1987, was to remove uncertainty in the matter of assessments by cutting down areas of subjective decisions of the tax authority with a view to ensure uniform treatment of persons similarly placed and to reduce litigation. The fact that the new system introduced by the provisions of Sections 234A, 234B and 234C relating to payment of mandatory interest was also meant to deter the assessees from repeatedly committing default does not necessarily mean that the provisions are penal in character. .That apart, it is one of the well recognised principles governing interpretation of statutes that the Statement of Objects and Reasons is not admissible for construing the provisions contained in an enactment, much less can it control the actual words used in the legislation (See pp. 769C-E, H, 770A-D).
It is not possible to hold that the provisions of Sections 234A, 234B and 234C are provisions of a penal nature simply because in actual application of these provisions there may be situations where an assessee may render himself liable to payment of interest under each one of these provisions simultaneously for the same period nor can the compensatory nature of the provisions be deemed to have been lost simply because in a given situation the provisions may, on account of their simultaneous application to an assessee, raise the liability to pay interest for the overlapping period to a rate higher than two per cent, per month. So long as the basic character of the levy remains compensatory the rate of interest which is levied either by the provision itself or on account of its dual effect in a given situation will be wholly immaterial (See pp. 771G, H, 772A).
...............
Sections 234A, 234B and 234C do not envisage the grant of any hearing or the grant of any relief to the assessee concerned insofar as the levy of interest is concerned. The levy is automatic the moment it is proved that the assessee has committed a default within the comprehension of any one of the provisions in question. That being so it cannot be accepted that the authorities must grant a hearing and exercise the power to grant relief. The principles of natural justice have no application where a statute either by express words or by necessary implication, excludes the grant of hearing to the assessee concerned (See pp. 776H, 777A-B) ............."
The decision of the Punjab & Haryana High Court in the case of Sant Lal v. Union of India (supra) is also to the same effect, and in fact, in that case, the decision of the Karnataka High Court in Union Home Products Ltd.'s case (supra) was followed.
On the other hand, in the case of CIT v. Century Hotels (P) Ltd. (1992) 197 ITR 282 (Kar), followed by the CIT(A) in the impugned order, Hon'ble Karnataka High Court proceeded on the basis that the matter was concluded by its earlier decision in the case of CIT v. H.H. Rajkuverba Dowager Maharani Saheb of Gondal (1978) 115 ITR 301 (Kar). wherein it was held inter alia as under;
"(iii) Since an order under Section 217 does not form part of an order of assessment, the mere omission on the part of the ITO to refer to the penal interest payable thereunder in the order of assessment cannot lead to the inference that the ITO has waived the interest payable without giving any reasons for doing so. If an order passed under Section 217 forms part of the order of regular assessment and the ITO became functus officio after the order of regular assessment was passed, it may be possible to contend that an omission to make a reference to the penal interest payable under any of those sections would amount to an order which is erroneous and which is amenable to the jurisdiction of the CIT under Section 263 of the Act. As an order under Section 215 or Section 216 or Section 217 can be passed only after a regular assessment is made, the ITO will not become functus officio insofar as those provisions are concerned on the making of an order of regular assessment, and an omission to make a reference to interest payable under those provisions in the order of regular assessment cannot amount to an order waiving it. In cases of this nature, there may be other provisions of law which enable the Departmental authorities to ask the ITO who has not taken action under those sections after an order of regular assessment is passed to pass appropriate orders in accordance with law. It may also be possible for the ITO himself to pass an order under Section 217 in accordance with law after giving1 reasonable opportunity to the assessee concerned to make their representations including those falling under r. 40 of the IT Rules, 1962. But the provisions of s, 263 cannot be invoked because one of the conditions precedent for invoking, the jurisdiction under that section is the existence of an order made under Section 217 of the Act in a proceeding before the ITO which is prejudicial to the Revenue.
As in this case, there was in existence no such order passed by the ITO which would clothe the CIT with the jurisdiction to make an order under Section 263 of the Act, the action taken by the CIT was a premature one."
In that case, it appears to us that the issue involved was slightly different. The issue therein was whether the CIT could revise under Section 263 and direct levy of interest under Section 217 when the AO failed to charge the said interest. It was held in that context that the action taken by the CIT was premature because there was no order by the ITO either levying or not levying interest and the existence of an order which is prejudicial to the interests of Revenue is a precondition to invest the CIT with jurisdiction under Section 263. Even though there are remarks of the Hon'ble High Court that the AO could levy interest under Section 217, after granting hearing to the assessee, the issue did not directly crop up before the Hon'ble High Court as to whether grant of hearing opportunity is a precondition for levy of interest under Section 217. At any rate, the entire discussion in that decision, as also in the subsequent decision of Karnataka High Court in Century Hotel (P) Ltd. (supra) was in the context of levy of interest under Section 217 and not. the levy of interest under Sections 234A, 234B and 234C of the Act. Same appears to be the position even in the case of M. Mani v. Asstt. CIT (supra) decided by the Cochin Bench of the Tribunal, relied upon by the CIT(A) in the impugned order. As held by the Karnataka High Court in the case of Union Home Products Ltd. (supra), the provisions of Sections 234A, 234B and 234C of the new system do not get their colour from the old, and the new provisions will have to be interpreted in the light of the language employed therein. Hence, the decisions relied upon by the CIT(A) in the impugned order discussed above, rendered in the context of the old provisions providing for charging of interest have no application to the facts of the present case.
6. In the light of the above discussion, and in the absence of any decision of the jurisdictional High Court to the contrary brought to my notice, I hold that for charging interest under Sections 234A, 234B and 234C, opportunity of hearing need not to be given by the Department to the assessee, in view of the decisions of the Karnataka High Court in Union Home Products Ltd, (supra) and of the Punjab & Haryana High Court in Sant Lal v. Union of India (supra). In this view of the matter, I set aside the impugned order of the CIT(A) and restore the interest under Sections 234A, 234B and 234C levied by the AO by the impugned assessment order dt. 27th March, 1996.
7. In the result, Revenue's appeal is allowed.