Karnataka High Court
The Commissioner Of Income Tax vs K L Srihari on 31 July, 2009
Bench: D.V.Shylendra Kumar, Aravind Kumar
Q§ IN THE HIGH COURT OF KARNATAKA AT BANGALORE Dated this the 315' day of July, 2009 PRESENT TI-IE I~ION'BLE MR JUSTICE 1) V _ T T THE HON'BLE MR JUsTxcE Az3Av1Np_ Income Tax Appeal N;:~-2:5?'of"2oQ4 " Income Tax ADD Cu_I'PJbL.2* of -. Between: 1. THE cQMMI'ssi01'51g;R o.1_«"'1Nc-OM13)' TAX CENTRAL CIRCLE if ' ' ' CRBUILDING « . QUEEN-S' ROAD, ;aANGAL0.RI:;,. THE DEPVVL'ITYMC.O1\V?1MISf3iO§ER OF IEECOMETAX' ~ = CIRCLELE. C R BUILDENG QU.EEN:'3 ROAD, BANGALORE. . AI?PEL_LAN1§3' ~ Si:-1 M V Seshachala, Adv} SR1 ii L_.é';R1HAR1 .. No.9, SESHADRI ROAD -- BANGALORE -- 1 RESPONDENT
V' EBy Sri Ashok A Kulkarni for Sri K R Prasad, Adv.} 2 THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, PRAYING TO SET ASIDE THE ORDER DATED 1512-2003 PASSED IN IT (SS}A N0 23/ BANG/ 1999 AND ETC, In ITA No 28} of 2004 Between:
I. THE COMMISSIONER OF INCOME TAX CENTRAL CIRCLE C R BUILDING -
QUEENS ROAD 1 BANGALORE.
2. THE DEPUTY COMMISSIONER _ OF INCOME TAX CIRCLE--1, C R BUILDING ' QUEENS ROAD ..
BANGALORE. ' 5 ~ APPELLANTS [By Sri M V A;dNf.
M/S K1HOD¢AY'1NDiAL.L1M1'rBID' _ NO 54, KANNAYAKANA ANEKAL TALUL. ' ' A BANGALORE RESPONDENT I _ A. AS1j10k AKuikami for Sri K R Prasad, Adv} .'rH_IS1 FILED UNDER SECTION 260A OF THE "W,1_VV.,1NCOME ACf:fI_.A119S1, PRAYTNG TO SET ASIDE THE ORDER DATED 1~5--12'4f2Q()3 PASSED IN IT [SS}A N0 22/ BANG/ 1999 AND ETC, 'Tr:.ESE"'ApPEA1S, COMING ON FOR HEARING THIS DAY. * srii'IgE?IY_D1e:A KUMAR J., DELIVERED THE FOLLOWING:
JUDGMENT"
These two appeals are by the revenue under-.:Sectio1i it 1 260A of the Income Tax Act, 196 against two orders dated l5;;l2~2003lpasseldl thgellll it income tax appellate tribunal, li11. No 23 /Bang/ 1999 and;::4_.""I*Il(S.iéllt§t--.l i 9- 22/BVal1§V/ 1999 respectively. The revent1e_p.il:s._ income tax tribunal Vlassessees in both the cases for correction of the orders',_passecl-"by:_:the.trib_u~nal, posing the following ) substantial questions of. law for answer in the two appeals}. it 9 :;'_1_§ll:VI1'l§.:lNeVA'2--7.7 OF 2004 l/'v'h_e_ther; the tribunal was correct in A . hnldingj that tf the assessee has incurred expelndtture towards part of the income a which is taxable and part of the income which is exempt then the entire ' expenditure can be disallowed?
.. _ Whether the assessee is liable to pay interest under Section 158BF--A[1} of the 4 Act in view of the mandatory provision for belatedly filing the return of income for the block period?
IN ITA No 281 OF 2004 1} Whether, the tribunal was correcff . holding that no surcharg-3"for.the 1:>locl?:_ period 1-4-1990 to 1V0--1':l~--.2900 jige, assessment years 1991-92 to 2001-02 a "
collude be levied as proviso to-,.Seection"IIV3.., of the Act came into effectfroni--- .1V--6--2_OO':3 and as the search in theelpresent case had taken place 10-.i'1?20{)O"'s~.before"'the proviso was introduced?' ;
2} Whether the provisoifto the Act shouitibe read aiong Atv.ithfil'.ie Finance Act for..""ea{ch. ,of{'j'the eariajer assessment years . .Vfor:.; :. the "entire. __ __blor;'k period and :'tsurchafrge should" be "levied from the 'inception.ofChapter.XIVB of the Act?
3) = was correct in _. .. holding' that interest under Section 158BF-- A{1) of theAct_r'.s charged for non-payment tif by the assessee to the department? :4j- ' the mandatory interest under ' seem: 158BF--A{1} of the Act was ._ correctly levied by the assessing officer on ,. account of the failure of the assessee to the return of income which was filed it belatedly on 22--2--1999 after the notice was issued on 27-11-1997 and the due date for filing the return was 12~1--1998? % r 5
5) VVhether, the tribunal was correct in holding that no interest under Section _ >7 158BF--A(1) of the Act can be levied as the_"'-. Finance Bill 1999 had proposed extension. .. _._ it of payment of selflassessment tax liability under Section 158BC..__,von.ly'i..V:' ._ prospectively with effect from ».I.--.6--I--'999'?*.. '4 '
2. In so far as the assessee concerned, the assessee is an happens to be a directorvo4i"*~-the the other case viz., ITA No 28 1A_o_fv is a company. in the case of individual~ass.esse'eVh period 198'7--~88 to 1997-98, the provisions of Section 158AI3Dp'of so far as the assessee in ITA No of 260'-4.._v_iSv"C0ncerned, it is a company, which _Vassessepd«.._to tax foilowing issue of notice under Sectio_ri5'.1pEi8I§C_..nofV.tiie Act. 3'
3.j T asspessfrnents and the action preceded to it were pursuant to a search conducted on 13-24997 V' premises of the company--~assessee, wherein the §/ 6 officiais of the income tax department found a large amount of undisclosed income and considerahie discrepancies in the books of account of the companyfl.
4. The assessing officer, found in the personal of the individua.l--assessee, a directoeof V assessee, several documents evide'nVci:ngd';V immovable properties, particularlyian e1§tent'o_f of land at Manvarthakavalx/"Z'a}agatp:ura,. the source of this investment expiained and at any rate soin:e':~part olifiiyprice having been in ..._ had not been properly accounted, etc'. "
é_ W1;-iiev the asse'sse_e_,had indicated that there was an uV'n_disc1osed,__incotfie to the tune of Rs 19.00 lakh at the 'vV,__time of the search and as a fol1ow~up action, a notice _4V:"--._V_I,144I'ivf:1_'(3I' see.tie;t 1 58131) of the Act had been issued by the the department on 28--11~1997, the assessee ._ to have tiled a return of income for the block M4 3 7 period on 194-1999, offering undisclosed income of Rs 45.00 iakh for the block period and had also cia.i1ned__uak deduction towards interest by way of expenditn_'1fe:
incurred for earning the income in a sum of A ' in the very return, which had come-Ito be the assessing officer, which has fpormetd of questions in this appeal, as officer was affirmed by theIappellatejthccrninission'e1' this aspect. but the tribunai has allowed the deduction for§t}ie_b?.ocI;
6. One "arises in respect of the individual assesseex"for1:the"_;~biock period is as to the §ega1ityv_.»of ievyx'oi7int_er.est under Section 158BF-A(1) of the for -the ipeiiod between 15 days after the receipt of Id"s..x__pnotice.'u1iider 115BD of the Act and the date of $a._.fii"1t1hg of ttthetireturn, which is at 1% per month on the arnount"'-..¢of tax found due on the assessment as V. _deteriniI1ed by the assessing officer pursuant to the V filed by the assessee.
7. In the case of the c0mpany--assessee, the Search being of the premises of the company and notice"'l1£iyi:_fl§ been issued under Section 158BC of the av' 1997 and the assessee having respondedlzby' undisclosed income of Rs 60.00'lal{h forxtlie in question. and filed a return resulted in the assessment order date:d_2i3-2:5' _
8. In so far as this assessee_and::the.t1uevsltions in ITA No 281 of 2004 are relating to the 'levy of interest"uin§.dei37;3cction as in the case of individuai~--assessee question of levy of tax including Surcharge' on Athelltax liability over and above rateelof»--.taX'l*as indicated in Section 1 13 of the Act.
H Sri.Seshachala, learned standing llg.ccuVnsel folk. the appellant and the learned counsel for the assessee in both the appeals. V 9
10. Submission of Sri.Seshacha1a, learned counsel for the revenue, by pointing out to the provisions of Section 158BF-A(1) is that the statute in terms of the Section"
indicated that occasion arises for levy of is * situation where the assessee does return of the undisclosed income as amount to tax; that a return is Vreé:uiredi.to 15 days from the date vofppppreceiptlihof 'the notice «under Section 158 BC of the ease of the Company assesse.e~th*_e. 115BD had been issuef;i"ofi"?.V3V% thlellassessee had filed the return only'7on~2V2af$¥'l§§99'-.ar:dvtherefore the assessee is liable to pay interest tax liability as determined the A'sseasmentV"""Oérder for the period between 22* 2~lio99pandfl'i.i§§ "days}~after 2&1 1~ 1997. It-is subrnitted in the case of the individuai also " is 1i1{e._.'-Wise delay in filing of the return in the sense the 'rindiviiduai assessee had also not filed the return 15 days from the date of receipt of the notice%/_ 10 Though the notice was characterized as notice under Section 158BD of the Act the procedure for computation of tax iiability even in terms of Section 1581-3D of is only as provided for under section 158BC of ~ the very chapter namely Chapter XIV B' different from a notice issued under Act. it i 2 V '
12. It is also the submisspion of this regard that the provisions' of of the Act operates on its 'own and ::is:'..no«t érei_atedif'to or linked to any other but -is only linked to the extent of deiay in aciretnm by the assessee while g.omputi«ngV the iiabilitywin terms of a block assessment o'rder;v"--TVhis 'submission is made to drive home the point that 'the.'1evyt--"."ofVp'interest under Section 158 BF--A[1) is attracted, irrespective of compliance or non--comp1iance iother "provisions of the Act, in the context of a V' _regu1ar assessment or a re--opened assessment and also A. éfthe requirement of payment of advance taxes etc. 11
13. It is submitted in this regard that the Tribunal has on a very erroneous assumption made references series of occasions wherein the Supreme Court High V' Court had occasion to characterise t}:ie"l'eVy of interest as; compensatory and therefore un1essK__tlhe. reyenue sufiered a loss in the sense that quantified and called upon to be assessee and only on the non--payment stipulated time, there can 'sieofpe and such line of reasoning 'as"'the Tribunal has neither "of the levy nor the question examined on"-___the_ xpre1nise""_;s.of the circumstances not the leyy... therefore submitted that the 'i'ri_bu.;r'1'a1Visiclearly in error in deleting the interest which had" *t§ée.n by the Assessing Officer and as affirxnediuin by the Appellate Authority. 14-.." so far as levy of tax inclusive of surcharge is A concerrled, it is a question which arises only in the case $/s 12 of company assessment. Submission of Sri.Seshacha1a is that the question is no more res integra and it is covered by the decision of the Supreme Court in the Commissioner of Income Tax Vs. reportedin(2008]297ITR 322(sc). A C it g V
15. In this regard Sri.Seshacha_la our notice a subsequent decisionlof» the rendered in the case of , VsivH"Sri.Rajiv Bhatara rendered in sLp_(c) VVb3§iieee:fi2'}i:2goos in Civil Appeal No.1i21/20o§2l3'¢o. of 'isplaced before the Court, to Court having followed it's earlier rulinygliin Suresh_Cgupta's case, this declaration oflaw is}acceptedV'to..be___th.e proper legal position, there is not V V'1'"ril5'unal characterising the levy is not Vsurcharge. ifhereifore it is submitted that the decision of VlggtghevTribunaligrinipugned in this appeal is not sustainable «the principle enunciated in Gupta's case and the question raised by the revenue on this aspect has to be p. .pp{;tl'iSWer€Cl in favour of the revenue and in the negative. 13
16. In so far as the question of deduction of claim by the individual assessee under the provisions of Section 36(1)[iii) of the Act is concerned, the return 2 purposes of block assessment during the 1986-87 to 96-97, submission of the question of claiming a deduction is t' in the nature of expenditure the business and for ea%fi1i_ng of allowing deduction arises under the head business so far as the assessee referable to assessee's share on being .atipVarVtne1*::i11.iapartnership firm came to be totally eseinpted purview of tax in terms of the provisions .ot".Se:ctio_n 10(2A) of the Act; even with effect from. year 1993434 onwards there is Vjtabsoluteiy, need for action to compute the interest and proiitttqattrjbutable to the partnership firm for the previous relevant for the biock assessment period and when ,"t_1;1.ere is not even the exercise of computing the income 9$/ 14 under the head profits and gains of business or profession attributable to the investment in partnership firm and the extent claimed beingAV.A.i_1_i nature of interest paid on the investment the assessee had borrowed from occasion to allow this deduction it 36(1)(iii) of the Act. K V. V' it
17. It is submitted that an error in not examining under Section of there being no need from the share of the profits of the assessee"4'fro'rn"'_.*the partnership firm but in to to :t§§_§a_'oi1ity of any amount received by the a.s's--essee"as..pV'av __ partner in a partnership firm in the Vnattirehof V.sa1ar§fi/Vinterest but also the receipt being "=._tre.ated as part of business income of the assessee in of-._Section 28(v] of the Act. Submission is that provisions of Section 28(v) is in no way attracted for deduction under Section 36(1)(iii) of the Act. 15 There is no occasion for computation of the expenditure in terms of Section 36(1)(iii) when only there is no attributable to the business and when A ' computation, such exercise having» "been under the provisions of Section the question of computing profit arivse' aliowing the deduction it is submitted that the Tribunaldd such deduction.
18. In submission of Mr.Seshac11a1a,"is, that the Tribunal has also committed' the ratio of the ofthe Court in the case of CIT Vs. Maharashtra«.Sugat_Mii1s Ltd., reported in (1971) 82 ITR 452'. asddsfnedither the principle of law enunciated Sflntlrxenrein Aapplicabie to the present case, nor attracted facts' and circumstances. Submission is that the assessee though had in fact not claimed at any time .,,_é§r1ier the facturn of investment made for earning profits §/ H. 16 from the partnership as by way of assessee's contribution. for which purpose the assessee had borrowed such amount and allowed in the earlier years while as deductible expenditure while computing the _ the assessee from his share of contribution it nevertheless claiming deduction as the nature of interest paid"iV_'v(;nz it h investment in the firm claim towards interest by the statutory provisionsf."
19. It is poin.ted'oVu't-"where assessee had claimed at any point"'of this investment had been talten from had been invested in the so c'a1led"m.on,ey.len'ding business and on which premise the Vvpassesseeihad deduction in the return filed for the _P°u.rposes assessment and for the first time. It is pointedbut that it was not a situation where either the i" .assessee had allowed the factual foundation for claiming deduction as an expenditure incurred in the course 05/' 17 business of money lending as the assessee had not time earlier claimed any investment having been the money lending business for earning interest.--ir'omlé A "
activity but also, that the assessee of the deduction as attributable to some part attributable in the investment It is pointed out that all 'along claimed the entire investment to be purpose he had borrowed, claimed as deductible filed for the block asses'sm'e1it:V5yea}fV novv claimed the other way i.e., ezrpenditure incurred for investment, in the_'rnoney': lending business for which no {actual "fo:un":iation halslmbeen laid and not any part over the §ncome..:'of_the-assessee under the head business and 'profession. git on such premise Sri. Seshachala would thatlthe Tribunal has committed an error in the deduction as claimed by the assessee and it the income of the assessee to this extent when M 18 neither any factual foundation has been laid by the assessee nor the ratio of the judgment of the Supreme Court in the case of Maharashtra Sugar Mills' applied to the facts of the present case. i t V
20. Countering such submission ma,de__on it revenue, Sri.Kulkarni, learned counse} zfgoriy would very vehemently urge error of law or of fact committedVppb¥grfthe" the orders passed by the 'Case of the individual assesseeiias is quite gustified the rightly allowed and no interference is ca_}led_ the appeals are to be dismissed.
2-1. ,' 'E1aboratin"g«-his submission in so far as the question of 1é'vy'"é»f~tifiteresi~t','uhder Section 158 BF--A(1) which is a ouestion' to both the appeals, Mr. Kulkarni has Veihernently submitted that the very fact the amount as interest is suggestive that it is V 20 XIVB is concerned, there is no provision or situation warrantingpayment of any advance tax as in the normal course of assessment and also the possibility of paym.e'nt of tax aiong with the return is not mandatory period relevant to the block assessment "
fact it had become so only amendment effected by the of V effect from 1-6-1999 that wherii'.:V.:tl'1ere a requirement of payment ior the block period when the in the contemplation it Chapter XIV, when there is no'-.requVi1'err1entll"ofl"'p'ayment of tax before the Assessing. Ofi'1cer actually"determines the tax liability, and :,f'the-- pyassesysee to make payment of the tax __a 'sti:p1i.1ated:'_i.time and thereupon only that too in 1"""'case oi*---default the assessee by not paying within the ""l.-:i.p'errn§tted 'period can it be said that there is a loss to the revenue In the present case such being not the case, it levy interest on the assessee and therefore levy V 21 interest both on the individual assessee and company assessee in terms of the assessment orders were wrong and the Tribuna} has correctly interfered with the ~. V. of interest part. H
23. Sri.Kulkarni has taken quite home the point that in the a¥>3sence7..of-._a payment of any tax on a there is mandate of non--payrneritHof attract the levy of interest even as of Section 140A that there of interest in the presentpsituatiolrig L' ' l y l l " l
24. The provisions" olfm Section 1588C has also been taken of to lfl5e=.ir1lv(_'3__1_iideC§ within Section 140A of the Act the with effect from 1-6-2999 by the very is also clearly demonstrative of the °a.__fa'ct that it to this period there was no scope or i:nt'.ention.l to levy interest on the assessed amount even in :¢:¥ms or Chapter XIVB and therefore the Assessing Officer as the Appellate authority are clearly wrong in v/ 22 holding that the assessee was liable to pay interest in terms of Section 158BF--A(1) of the Act. It is therefore submitted that Tribunal has rightly deleted this levy.-~-of interest and no interference is warranted questions on this aspect are to be answered TCVCDUC .
25. Mr.Ku1ka.rni would draw suppolrt the clauses provided under Finance for of amendment of Section A of'the'Act._as cnl'iedVi'out at page 141 of the journa} lSle.ction 141 and clause 63, has also a7Boardl'circ11i'ar explaining the scope of the amendment' of amendment on Section _]_.4.0A inzterrris of l3_o_ard circular as contained at page ia7ojf*9.o3et and 240 ITR 36 paragraph 45.1 and has cirawii on-rgj-atatention to the memorandum explaining the provlis-ionshliln the Finance Bill as culled out at page l236HlITR 141. One another submission made by on the question of non-justification of levy of l'l"'i.,gilnterest under Section 158 BF~A(1), so far as the a/ 23 individual assessee is concerned, it is that even in terms of the provisions of Section 158 BF--A.{l) levy of interes.t"i.s"'-pp' only in a situation where block assessment is pursuarit-ito * a notice issued under Section i58BC'**a;3\d in individual assessee notice issued oriiy --. ,unci.<§r... Section 158BD of the Act, Sectiorit:'p:'i~F38BAF~A(i},_is_:not'"even attracted apart from the: .argun'1ent_:':re'latin'glAto levy of interest and therefore it case of individual assesseetiherieflno scope or justification ' the statutory provision .l A V
26. However, iqluestion of the tax liability in the case of Company assessee including surcharge on 3-.th€'" ..Ip"-lie" 'of'"'6VG°/6 of the assessed income is colfieerriedl would not dispute that in 1'"Gupta's._case~$upreme Court did take the view that even " i,in__lr'espectoflthe block assessment under Chapter XIVB of th_eAct, the Word "taX" has to be understood as inclusive it ofitsu-rlcharge as provided in the Finance Act, submission 24 is that in a subsequent decision. another Bench of the Supreme Court has doubted the correctness and the reasoning as indicated in Gup'ta's case and been ordered to be referred to a larger Bench C' in the case of CIT Vs. Vatika Township' 3p order dated 6-1-2009 passed it Special Leave to Appeal (Civil) against the judgment of' {seat 1724--
2007 rendered in bench having not opined s_;1swer.t tdthe question, be deferred thélléoupreme Court itseif having doubted, V of the legal position, there is no need ratio of Gupta's case, the laild:ddwr1"lin Guptals case need not be followed. V27. fi*ieljother hand this court having answered "».__such question earlier in favour of the assessee and "revenue in ITA 88/2004 CIT Vs. M/s Hotel sass; Mission Street, dated 30-8-2007, it is more .,,ajppropz'iate this Court should follow the judgment of the%/' 25 earlier Division Bench of the very Court rendered, than___to apply the ratio as laid down in Gupta's ease thougl'il--. the Supreme Court but doubted by the . itself and the question having been:.:referrecllA.lt¢::3ll<"
Bench.
28. We have bestowed our seiious considerationijtea the submissions made at the bar "pe'rused the records made available to us.
29. We will exarnii§je:.lthe*.'questions 'lone--'rafter one. We first take expenditure amount claimed in his return for the block assessment V_pe1fi.odd"for""a sum of Rs.66,000/-- as an '.ir1curred; ddddd "for paying interest on the in\}estin.ent..fnadejinjmoney lending business. So.4__farv_.a;s_;tl1dis question is concerned we notice that assesses: in fact had not even laid any factual foundation to indicate that there was some investment rnadedin money lending business for which purpose the M 26 assessee had borrowed commensurate amount. At the outset the assessee had not been paying interest on investment in the money lending business. It is not though a claim of this nature had been made A ' the assessee earlier but was for first return fiied in response to the assessee under section 158BDVian:ci~~._pChapt;3.I" the Act and was not a claim at-' point of time earlierfé
31. It is the admitted case jthe---asysessee".an amount of expenditure by inte'res:t._fpaidjj-on investment which had been 'earlier years and only for the purpose ortheamolignt .'b¢-rrowed to investment in the p.artnersE].ip as oft assessee's capital contribution aridnloit in any manner to the firm.
32. H 'lthtthefly as's_esse.e has not even averred the factual position to indiclate that the income attributable to money earning such income from money lending, somellamount had been borrowed for this business and m/ 27 had been invested in this business and for which assessee was paying interest to the person who had lent money to him for this purpose, there is no assessee claiming so, in the return filed undezfsection " it l58BC of the Act. The assessee him.self"has"--,not so either before the first appellate authority or before' "
the Tribunal. But strangely eno'u_.§lri the itself takes upon the question only on the basis of the stand of assessee;..:lVthat»__expenditure claimed is attrib_utable t'h'e'; in money lending busin"e'sdsi1vf, the unwarranted finding has-called of the Supreme Court in _}VIahara'shtra.l\/Iills' case which is not at all touthteiacts Voflthe case.
33. H is nolt"."p:as'.::.though the expenditure incurred was Vflhsuch that.' itawas not possible for apportionment of the expenditure to the different business activities carried on b'y5"th'e assessee and as to in respect of which business amount of interest had been paid. There was no 29 fact the question is on an hypothetical basis as the assessee had not established any right for making claim. Though Mr.Seshacha1a, ieamed standing for the revenue pointed out that the claim T' 36(1)(iii) of the Act cannot be made arose in the wake of exemption; to Section of Act we are of the opinion that even that question may never made good the clainifor paid on investment made lending"---v"business and therefore lbeiunecvessarily answered in the negative--.and The Tribunal was clearly inVe_rro1"in Vdirectingt deletion of this amount as of?-finc'orne assessee from money lending businessfi " R llnjso the question of levy of interest under .:b_lyj.Sec.tion 15§§'[.BC of the Act is concerned, we have to that the scheme of block assessment under . XIVB of the Act is virtually a self contained codeély/_ 30 providing for a variation of the manner in which the iiability for payment of tax is determined and covering a situation where an undisclosed income relatable to the block period had not suffered taxe only due nondisclosure and the nondisclosure coming "
the course of certain Search proceedi1*1'gs"etc.1 period of limitation for re--opening is and one very distinguishing featureis that-the. at which the income as assessed"for'.period is to be made liable is provmediroirpperleer 113 of the Act itself ijinlike :sit:uations;'lWhere rate of tax is relegated to"'t.he. of. each year.
36. This provisio.n as it raorir occurs in Section 113 of the is Way of 'amendment inserted by Finance Act effect from 1421995.
Rbackground we notice the provisions of * j;S~e_ct.ion 158___l§F--A of the Act which reads as under:
®/ 31 158---BFA. Levy of interest and penalty in certain cases.-- {1} Where the return of total income including undisclosed income for the block period, in respect of search initiated under Section 132 or books of account, other documents or any assets requisitioned under .g Section 132--A on or after the 19' day ofw," _ V January, 1997 as required by a notice under .. clause {a} of Section 158--BC, is furnished after A the expiry of the period specified in such notice,' or is not furnished, the assessee, shall be zzaue ._ , to pay simple interest at the rate of {one* _ A cent] per cent of the tax on undisclolsed mconbe, , " A S determined under clause (cf; of Section. 158.-l:.€C,' ' y for every month or part of a comprised the period commencing on the day inunediately; following the expiry of the t.in1e "specified in~--the"
notice, and --- ' T .
(a) after the dexpiryyivfof the aforesaid, ending on 'the dateloffurn'is_h'in_g' the return; or
(b) Loh;e_re no" been furnished, on _._the date~..cJ' 'completion of assessment under cla1ise__'(g[.-' of Section 158--BC. "
38: i levy of interest in respect of situation and a,s"sessme'nt";)i1rsuant to a Search initiated under Section 132--A on and after the first day of 32
39. It is of significance to notice that even the concept of block assessment is one of an exception to the scheme of the Incorne--tax Act in bringing to tax the income of the previous year in the corresponding assessment year.--f
40. We appreciate the fair submission of "
and as urged by Sri.Seshachala that 'so'-far 2 assessment is concerned there is corresponding previous year but taken as one period and as_sessed tithe' rate as provided under Section 1
41. Therefore 'for 'iev;:p'o£p'irit:erest'in terms of Section 158 BF-A(1) is concerned!' requirement is that a situationias"contemplated in this very provision should have occurred.
42. We are' 'emphasising on this aspect for the reason for the assessee had made a valiant home his point for ievy of interest as it con1*p'ensatory and therefore in turn is linked to the 9/ 33 statutory provisions of Section 140A of the Act and when Section 140A did not provide for the levy by not making-._a reference to the assessment in terms of Section .. any point of time prior to Finance Act of brought on the Statute Book with 'from 2 there was no occasion to levy is it compensatory. K V. V it
43. In support of his the nature of compensatory reliance on the following 'V
--. ' it 'f'SC}" of the Supreme Court [ii)'"' 'and"2sél.1Ti§§.te2 of our High Court While ratjiol in ternis"ofVtlfiese authorities is that no liability can be" ..fastene-ddvon the assessee without an enabling the liability cannot be avoided on _fl~.._'.n2ere legal ijzjinciples unless it is held that the statutory Vp_ro1Visior1«yproviding for the levy itself is bad in law either .. gyinconstitutional or on any other ground. But in they/,_ 34 present case levy Of interest is fully enabled under the statute itself and it is not as though it is otherwise.
44. We have examined the submission Srijiuikarni on all aspect and in all ~ arguments but still are unable to» proposition that the levy of interest A(1) is in any way linked to the of the Act. For foisting of' Se'ctiovr§1 158 one has to look into only and the quantification being' 'linked during the default in filing' Vrperiod alone is to be taken into considerationv as the levy of interest ceases 'very lmornent the return is filed and the interest for the delayed peI'iOd'0f filing return and to the payment of taxes per se but links it to delay in filing a return. no doubt true that for quantification of the it i_r1'c'orrie/interest, it is linked to the final payment of tax as $§/ _ 35 determined for the block period and at a given percentage every month. But the levy of interest itself ceases return is flied in time, but the liability for ' arises as rightly submitted, only on
46. In fact the reference made to Act and the subsequent amendirteiat» inA.th__is to include Section 158 BC also is '..oni'§,.fe_:'inC1»icati\}e"thati after the introduction of Section scope of Section 140 A payment of interest does --the return but is thereafter avttractediii._terrns:of__Section 140A of the Act till payment of ta'2;__i1i1 Vtei*1jnasiV.'of Section and even now the grovisioné jof~Section..ViVVSHSE;FA[1] and Section 140A operate iridep;en_dVent1y,*.:°Therefore the amendment to Section v14OA"is=»of vr1o"Lj~.CvCvnsequenCe so far as determination of V'7@ i'n'terest 4'under.Section 158130 is concerned and we are of *.riVeiW«--that any contrary View by the Tribunai is clearly ,, and is required to be set right.
36
47. One another argument addressed by Sri.Kulkarni, learned counsel for the assessee in so far as the individual assessee's case is concerned on the question of levy of interest, is that even in V. provisions of Section 158 BC levy of interest" S only in a situation where a notice'; issued in terms of Section admittedly notices having been to" S assessee in terms of Section evenvllhevre the provision of Section 153...",/4;1fig1dergone an BC also within the scope of by way of amendment through Act.2'OC)2 effect from 1-6~2002, it is t.hat'"-- prior tomthe amendment so far as a notice 358 BD, provision of Section 158 A(1}-..__was*n'GtAl attracted. For this reason the levy of " ?''inte'rest isnolt justified. - This argument we are afraid also c'anno"t~ succeed for the simple reason a reading of it p_4rovi-sfions of Section 158 BD prior to the amendment in fi/ 37 terms of Finance Act 2002 i.e., before adding the words 'under Section I58BC', Section itself indicates procedure that was required to be followed assessing officer, is only in terms of the very this chapter namely chapter XIVB of and Section 158 BC as well as Section otherwise attracted and just léecauseh thought it fit to add or .158 13C by Way of amendment through would not make any differe{r:ce}sto the .._pro'v~1sions of Section 158 B2 wiiieh-exéee eevieeges within itself the provisions Sections 158 BD and 158BF A[1__).
otvoiiifiinderstanding of the provisions oilfitectilone and 158 BD as indicated above we of that the Tribunal is clearly in error in
--...{..fjv»'vtii__IV"c'i'3l;iI'1g deletion of the interest part on the tax T.-as ultimately determined but for the period which there is a delay in filing the return%/ 38 Questions are accordingly answered in favour of the revenue and against the assessee in the negative.
49. So far as the other question of tax liability incluwdirigg the surcharge in the case of the company concerned, we are of the View that the 3"
Supreme Court rendered in Suresh:=.y:Guptja's4'acase C subsequent to the judgment of -our the it Case of COMMISSIONER OF _q TAX HOTEL NAUFAL, the Supreme Court hayiiigvldhcategoiijcaily opined that surcharge has to be and added ultirnately 131:0 ._i:he'C"t~$2'_y determined in terms of Section 158 BC__of the we are afraid that it is not open forflthis bench..Vto enter into debate or discussion regarding the«.deci~sion for excluding the surcharge in the vtotail' the assessee for the block period, hggthough would request us to defer answering for the reason that another bench of the Court had subsequent to the judgment in case doubted the ratio and had directed a 39 reference to the larger bench and the larger bench has to still opine. Subsequent doubt is no law but the law as laid down in Suresh Gupta's case on the other hand having been followed and applied even in a case decided..~latcr'__'toj* the reference order in the case of Commissionerioflncorne if T ax, Jalandhar--1 Vs. Rajiv Bhatara are left with no choice but to apply l_aw as the decision of the Supreme in case. Even if it is p0ssiVbllef--to Clluelstion on legal principle judicial and the provisions:_"ofll"Ar{jfc'le the_lll'Constitution does not allow us liberty: for this and accordingly this question has: be necessarily answered in favour of the revenlue."aaI'1d.. againstmtlhe assessee. 50; '*'£hle.:_:'1".l?iSu:lt--.. both appeals are allowed and the as affirmed by the first appellate
-4l.l.l'_j':..an'thority areiconfirnied and orders of the Tribunal are set asitillfii-'V _i_l.rAccordingly, the substantial questions of law in these appeals are answered as follows: M 40 In ITA}No 277 of 2004:
36 Question Answer 1 Whether, the tribunal was In the .
correct in holding that if the assessee has incurred expenditure towards part of the income which is taxable and part of the income which favour of the re'v.en11e--._ the.' ' a.ga.ms;i assessee ~ -:i.«e__.W . tne 7 tribunal is.
.Ve"Xpendi't~uree for "earning V. .. _ an " exempted 'income _ be' allowed.
holding _that''' no i is exempt then the entire"~._deduction 'ftowajrds * ' expenditure can be" 9 disallowed?
Whether the assessee isV_li'abVle to pay interest under §Section_ 158BF~A(1) of?_'the;i1\ct. in view "
of the Inandiatory for"-4 belatedly i'iiing'ii__t;§i1e return; or income for-thge'blocigperiod? In the pojsi.tive, in favour of-,_ he, " revenue and a.gai.nst='the assessee i.e. _liable to pay interest.
In rm No 231' of mid Q. No. Question.
Answer 1__ . .
Whet1*;;:er,_lA' the l"trib_1_i__nva1 was correct "iii holding that no ' ._s'urc11arg_e"~for. the block period 1~4ai99o 0411-2000 i.e. assessment fyears 1991-92 to 2001'~--.O2..__"co.u'1d be levied as 'wproviso to Section 113 of the ,came' into effect from 1--6--
"2'0Q2'""and as the search in the __._pres'en't case had taken place "on 10--11~2000 before the proviso was introduced?
In the negative, in favour of the revenue and against the assessee i.e. the tribuna} is wrong in holding that the tax chargeable under Section -113 of the Act cannot be increased by adding the surcharge leviable for the assessment year 31/ , 41 relevant to the previous year, in which search was initiated as.g"'*per Section 132 of the~.Act.' ._.........;.....
Whether the proviso to Section 113 of the Act should be read along with the Finance Act for each of the earlier assessment years for the entire block period and surcharge shouidg be levied from the inception S Chapter XIVB of the Act'? 1 "9356 .. _ 9 Ag ' N g as [(2op_.3) 297' r:m322] In the positive',* -in' ~ _ favour of 1'e_venu.e' K it a;j~sses_see,, Zaplplying the law last declared ~ .
Supreme Cgoifiirty in the " of vs ' GUPTA Whether, the tnbun;_Zr« was correct in holding that interest. under Section ].58BF5A£1]'=.of.l the Act is charged fijgr _,non--~.V payment of by the, assessee to =:the_,_dep'ar__tni'ejntl?-- *favourf».ro'1"--. the revenue garicl', "V-against "return.
negative. in the assessee, by holding thatliiiterest on the tax amount is levied for the delayed filing of the on a,cqi;ount of the 'failure of the . "'assesseeF.to"i-- file the"return of incorne ., "belatedly »._on 1999 after ' filing it they return was 12--1-- Whether ._ ~ the' , _V "1naIic¥at_ory interest 'under Section' ~1.__5'8l3F-- A(l) of th'eAct was, c--orr-ectly levied' by the assessing 'officer was filed the notice Feras issued on 27- 11--l-.997.-anti the due date for In the positive. in favour of the revenue and against the assessee, by holding that the assessing officer had levied interest correctly.
having regard to the facts and circumstances of the case and the provisions of Section 158BFA(1) of the Act.
" ollwghether, the tribunal was correct in holding that no In the negative, in favour of the revenue &/ 42 interest under Section 1588133 and against the ml) of the Act can be levied as assessee. The tribunal the Finance Bill 1999 had in is error in so hold__ing.
proposed extension of "
payment of se1f--assessrrient Section 1588C only prospectively with effect from 1-6-- 1999?
51. However, list this matter tornorrow;»"u'0'asi:g_V_.Mi'. Seshachaia learned standing counéselhas eiiprelssedvfsome difficulty in securing the _reeoIids;Vi_ vwfi-ic*h.A."wpe wanted to peruse and can be made-.,afvgi1.3Able' *t_orf1VOrrow before disposing of ' ' » [Notei-Uptol this the judgment was dictated"o_n V30'-_7--;?..O'0g9"_;~ and the matter was adjou_rned'to_Bile?-2009, as indicated in para-- 5"3b°V'3] Gram} afi'*~31-7-2009:
0. the judgment in these appeals 'l».__y4esterday, 30.07.2009 and the appeals were not f_"-disposed'-..gofV' only for the reason that Sri. Seshachala, standing counsel for the appellants - revenue was tax to the liability under 43 unable to produce the records relating to the details of investment made by the individual assessee in purchase of about 424 acres of land in _ Thalaghattapura Village and the mattherppvvpas be ~« listed today only for the purpose of standing counsel to place the assessment order.
2. Sri. Seshachala, counsel for the appellants «- revenue;;pleads plaice the records before the courtwpptoidajrl requlevstls the matter to be called on
3. Weedo itlriécessary to keep the matter I-pefiding-.':'on1y "for thismlreason but keeping open' the qu1estio_n Vasjito wh'et:her any further directions are required be perusal of the record, for the present.
appeals are allowed in terms of the judgment " ' V . i4ndicat'ed5above.
44
4. However, it may be listed for further orders on 05.08.2009 for production of records and to exa1nineV;fh.e"'--VV' need for issuing further directions.
5. Appeals allowed. Parties to costs. V ¢eLlUDGEsJ