Income Tax Appellate Tribunal - Ahmedabad
Gujarat Machinery Manufacturers Ltd. vs Deputy Commissioner Of Income Tax (Also ... on 25 March, 1996
Equivalent citations: [1997]60ITD422(AHD)
ORDER
B.M. Kothari, A.M.
1. All these appeals relate to the same assessee and pertain to same asst. yr. 1983-84. Hence, these are being disposed of by this common order.
2. We will first deal with ITA No. 713/A/91 which is directed against the order passed by the learned CIT(A) in respect of an order under s. 154 passed by the Assessing Officer (AO) relating to interest charged under s. 220(2) for asst. yr. 1983-84.
2.1 The AO in his order under s. 154 passed on 16th Aug., 1989, observed that while giving effect to CIT(A)'s order passed on 28th Jan., 1988, the ITO in the body of the order clearly mentioned that interest under s. 220(2) was to be charged. However, the computation of tax payable in ITNS 150, the same was not charged. He, therefore, issued a notice under s. 154 on 2nd Aug., 1989. After issuing some more notices and after considering the replies submitted on behalf of the assessee, the ITO held that the assessee was liable to be charged interest under s. 220 for the period from the date of provisional assessment, i.e., from 30th Nov., 1984, to the date of assessment order in view of the provisions of s. 141A(4) (b) of IT Act. He accordingly charged interest under s. 220 for different periods aggregating to an amount of Rs. 4,12,480. The details of such calculations made for different periods had been given at pg. 9 of the order passed by him.
2.2 The CIT(A) held that the assessee is not liable to pay interest beyond 30th Jan., 1988, in view of the refunds arising as a result of Tribunal's order. He also directed the ITO not to charge any interest for the period from 1st May, 1986, to 31st Dec., 1987, on the sum of Rs. 3,41,521 which represented the amount of different adjustments and refunds due to the assessee at the time when the original demand notice was served on the assessee on 24th March, 1986. He, however, did not accept the assessee's contention that he is not liable to pay interest during the period from 1st Dec., 1984 to 30th April, 1986, because the refund has been issued to the appellant prior to this date when the provisional assessment was made under s. 141A.
2.3 The assessee is aggrieved by such findings given by the CIT(A) confirming the levy of interest charged under s. 220 for the period from 1st Dec., 1984 to 30th April, 1986, as the demand notice was served on the assessee on 24th March, 1986.
2.4 The learned counsel for the assessee submitted that no interest can be validly charged under s. 220(2) until a demand notice is issued and served upon the assessee. The assessee is required to pay the demand within the period of 35 days from the service of the demand notice. He can be regarded as a defaulter only in the event of non-payment of demand within that period. In the present case, the demand notice was served on the assessee on 24th March, 1986. The assessee was, therefore, not liable to pay the said demand on or before 30th April, 1986. A plain reading of the provisions contained in s. 220(2) clearly indicates that no interest can be validly charged for the period prior to the expiry of 35 days period from the date of service of demand. He submitted that language of s. 141A does not provide that if on completion of the regular assessment the assessee is held to be liable to pay additional demand and return the amount of refund granted to him at the time of provisional assessment made under s. 141A, he will be liable to pay interest under s. 220 from the date of granting of the refund pursuant to provisional assessment made under s. 141A. He, therefore, submitted that the ITO may be directed to delete the interest charged from the period from 1st Dec., 1984 to 30th April, 1986.
2.5 The learned Sr. Departmental Representative submitted that s. 141A(4) (b) clearly provides that where no refund is due on regular assessment or the amount refunded under sub-s. (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly. On the basis of such expression used in the aforesaid section, the assessee will have to be deemed to be in default from the date of provisional assessment when such excess refund was granted to the assessee. Since the assessee has used the amount of excess refund granted to him at the time of provisional assessment, the assessee should be required to pay interest by way of compensation on money so used by him during the intervening period from the date of refund granted on the basis of provisional assessment and the date of making the regular assessment or service of demand notice pursuant to regular assessment. It is not only legal but equitable and fair that interest should be charged for the period for which the assessee has used the Government money.
2.6 We have considered the rival submissions made by the learned representatives of the parties. It would be worthwhile to reproduce the provisions of s. 220(1) and 220(2) of IT Act, 1961 :
"220(1) Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under s. 156 shall be paid within thirty five days of the service of the notice at the place and to the person mentioned in the notice.
220(2) : If the amount specified in any notice of demand under s. 156 is not paid within the period limited under sub-s. (1), the assessee shall be liable to pay simple interest at one and one-half per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-s. (1) and ending with the day on which the amount is paid." The provisos to the aforesaid two sub-sections have not been reproduced hereinbefore, as they are not relevant for deciding the present controversy.
2.7 A perusal of the aforesaid s. 220(1) and 220(2) clearly provides that any amount specified as payable in a notice of demand issued under s. 156 shall be paid within 35 days of the service of the demand notice. Sub-s. (2) provides that if the amount specified in any notice of demand under s. 156 is not paid within the period prescribed under sub-s. (1), the assessee shall be liable to pay simple interest at 15% (sic 18%) per annum from the day commencing after the end of the period mentioned in sub-s. (1) and ending with the day on which the amount is paid. It is, therefore, clear that the aforesaid provisions specifically, categorically and clearly mention the date wherefrom interest is to be charged as well as the date upto which such interest should be charged. It clearly specifies the starting point and the terminal point for levy of interest under s. 220(2). The starting point in the present case will be 35 days from the date when the demand notice was served. Demand notice was served on 24th March, 1986. The period of 35 days expired on 30th April, 1986. The starting point is, therefore, 30th April, 1986, or say 1st May, 1986.
2.8 There is nothing in the language of s. 141A(1) (a) which provides that the assessee shall be deemed to be in default from the date of granting the refund at the time of making the provisional assessment if on completion of the regular assessment it is found that the refund was not due to the assessee or excess refund was granted to the assessee. The provisions contained in s. 141A only provide that after a regular assessment has been made, any amount refunded on provisional assessment made under sub-s. (1) of s. 141A shall be dealt with in the manner specified in sub-s. (4) of s. 141A. Sub-cl. (b) of sub-s. (4) of s. 141A provides that where no refund is due on regular assessment, the whole or the excess amount so refunded to the assessee on provisional assessment shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly. It does not provide that it shall be deemed to be tax payable with effect from the date when such refund was granted on provisional assessment. In the absence of a specific deeming provision that the assessee will be treated to be in default or that it would be deemed to be tax payable by the assessee with retrospective effect from the date when such refund was granted, it is legally not possible to charge interest under s. 220(2) for a period anterior to the date of service of demand notice. Wherever the legislature wanted to levy interest under s. 220 from a specific date prior to issue of demand notice, it has clearly so specified in the relevant provisions contained in IT Act. For instance s. 201(1) clearly provides that where a person responsible for deducting tax at source does not deduct or after deducting fails to pay the tax as required under the provisions of this Act, he shall be deemed to be an assessee in default in respect of the tax. Similarly, in s. 201(1A) it has also been clearly provided that where a company does not deduct tax at source or after deducting fails to pay the tax as required under this Act, it shall be liable to pay interest at 15% per annum on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. No such specific provision is embodied in s. 141A providing for levy of interest on the amount refunded pursuant to provisional assessment from the date of granting of such refund to the date of regular assessment or the date when demand notice is served. In the absence of any provision contained in IT Act providing for levy of interest under s. 220 for the period prior to the date of service of demand, we are of the considered opinion that no interest can be validly charged in the present case for the period from 1st Dec., 1984 to 30th April, 1986, as the demand notice was served on 24th March, 1986. The period of 35 days expired on 30th April, 1986. The starting point for levy of interest under s. 220 will, therefore, be 30th April, 1986, or in other words, the interest could be charged only w.e.f. 1st May, 1986. We, therefore, direct the AO to cancel the interest charged under s. 220 for the period from 1st Dec., 1984 to 30th April, 1986.
3. Now we will deal with ITA Nos. 714 and 735/A/91. These two appeals are cross-appeals and relate to levy of interest (sic penalty) under s. 221 for asst. yr. 1983-84.
3.1 The AO levied penalty under s. 221 amounting to Rs. 4,62,235 vide order dt. 18th Aug., 1989.
3.2 The CIT(A) reduced the said penalty to a sum of Rs. 58,313, in view of the elaborate reasons given in the order passed by him.
3.3 The Revenue is aggrieved against the relief granted by the CIT(A) by reducing the penalty to only Rs. 58,313. The assessee is aggrieved by the finding given by the CIT(A) sustaining the penalty to the tune of Rs. 58,313.
3.4 The learned counsel for the assessee submitted that the assessee filed a return of income declaring loss of Rs. 8,09,160. A provisional order was passed under s. 141A on 30th Nov., 1984, and adjusted the refund of advance tax and TDS towards outstanding demand for asst. yr. 1981-82. The regular assessment was made in March, 1986. The demand notice was served on 24th March, 1986. The assessee soon thereafter had written a letter on 12th April, 1986, to the AO requesting him to adjust their claim for refund/interest amounting to Rs. 9,31,772 against the demand for asst. yr. 1983-84. It was also requested that the balance demand of Rs. 4,54,607 should be kept in abeyance till the disposal of the first appeal, as the entire demand is disputed in the appeal submitted to the CIT(A), Baroda. The AO thereafter issued a notice under s. 221(1) on 14th Nov., 1986, in which he stated that a demand of Rs. 13,86,379 for asst. yr. 1983-84 is overdue. In this notice, the AO further mentioned the following :
"Please pay undisputed demand immediately".
The assessee submitted a reply dt. 2nd Dec., 1986. In this reply it was pointed out that the demand has been created as a result of heavy addition of Rs. 30 lacs which is totally in dispute in appeals. It was also pointed out that interest payable for asst. yrs. 1983-84 and 1984-85 amounting to Rs. 6 lacs and refund for asst. yr. 1976-77 to 1980-81 is due to the assessee-company for which the assessee's representative visited the AO's office twice to finalise the net demand position upto the asst. yr. 1983-84 but the same could not be done in the absence of the concerning clerk. The assessee once again requested that the entire demand is in dispute in the appeal before the CIT(A) and, therefore, the assessee should not be treated as a person in default because the notice required the assessee to pay only the undisputed demand. Since entire demand has been disputed in appeal, the assessee cannot be regarded as a person in default within the meaning of the relevant provisions contained in the IT Act.
3.5 Thereafter the AO sent a letter dt. 6th May, 1987, with reference to assessee's letter dt. 3rd April, 1987, in relation to arrear demand for asst. yr. 1983-84 and demand for asst. yr. 1984-85 and in relation to adjustment of refund due under s. 154. It was mentioned by the AO that previous refundable amount is under scrutiny and after finalisation of the process, the refund, if any, will be adjusted against the demand for asst. yr. 1984-85. He, therefore, requested the assessee to pay the demand for asst. yr. 1983-84 of Rs. 13,86,378 + balance interest under s. 220 amounting to Rs. 2,07,945 immediately. The assessee submitted a reply dt. 13th May, 1987, in response to AO's letter dt. 6th May, 1987. It was pointed out that the assessee requested the AO vide letter dt. 12th April, 1986, for adjusting interest/refund amounting to Rs. 9,31,772. It was further stated in the said letter that AO passed an order under s. 154 and determined interest payable to the assessee at Rs. 2,78,535 and adjusted the same against the demand of asst. yr. 1983-84 leaving balanced demand of Rs. 11,07,888. The assessee submitted that as per their letter dt. 12th April, 1986, the net demand after adjustment of interest/refunds was Rs. 4,54,607. The assessee requested the AO to keep the total demand which was wholly disputed in appeal, in abeyance till the decision of the appeal by the CIT(A). The assessee once again requested the ITO for determining refunds/interest for asst. yrs. 1976-77 to 1982-83. The refund for asst. yr. 1980-81 alone was Rs. 8,88,859. The assessee submitted that you may adjust 50% of this amount against demand of 1983-84 and balance demand be kept in abeyance till the decision of first appeal and 50% of Rs. 8,88,859 be adjusted against demand for asst. yr. 1984-85. The assessee also enclosed the details as to how the amount of interest receivable by the assessee was computed at Rs. 8,35,965 by way of interest receivable and net refund of Rs. 95,807. These details have been given at pages 15 and 16 of the compilation.
3.6 Thereafter, a letter dt. 15th July, 1987, was sent by the assessee to the AO requesting him to grant stay for payment of demand for asst. yrs. 1983-84 and 1984-85. In this application, the assessee once again requested the ITO for adjustments of the old refunds. The assessee also produced a copy of order under s. 154 dt. 27th May, 1993, which shows that after giving effect to the order of the CIT(A) and after adjusting the old refunds, the assessee has been held to be entitled to a refund of Rs. 1,01,420. He also invited our attention towards variations in the demand made for aforesaid year 1983-84 from time to time.
3.7 The learned counsel on the strength of exchange of such correspondance between the AO and the assessee and the assessee's claim for grant of adjustment of old refunds wanted to convey that the assessee was all along the creditor of the Department and, therefore, there is no justification in levying any penalty under s. 221.
3.8 The learned counsel for the assessee further submitted that the assessee was required to pay only the disputed demand by the notice issued under s. 221. In fact the entire demand was disputed in the first appeal before the CIT(A). On this ground itself the assessee cannot be deemed to be in default.
3.9 The assessee submitted applications for grant of stay for payment of demand. No penalty can be validly imposed until the stay petitions submitted by the assessee are rejected. The learned counsel placed reliance on judgments reported as Maratti Kutle Naik vs. Agrl. ITO (1963) 47 ITR 751 (Ker) and P. C. Dwadesh Shreni & Co. (P) Ltd. vs. ITO (1963) 50 ITR 622 (All) to support this contention. The AO is under an obligation to exercise the discretion judiciously while considering the assessee's application for grant of stay, which was not done in the present case. He placed reliance on judgments reported in Esthuri Aswathaiah vs. ITO (1959) 37 ITR 518 (Mys), Om Prakash Agarwal vs. ITO (1967) 66 ITR 175 (All) and MLM Mahalingam Chettiar vs. ITO (1967) 66 ITR 287 (Mad). At this stage, the learned counsel was requested to furnish a chart of refund due as on March, 1986, when the original demand for asst. yr. 1983-84 were served. Such a chart has been furnished which gives the details of pending refund for various years from asst. yrs. 1977-78 to 1983-84. The aggregate amount of such demands due as on March, 1986, comes to Rs. 3,41,521. The assessee submitted that the above refund was granted subsequently to the assessee at the time of framing the assessment order under s. 143(3) of the Act. The final demand was Rs. 7,96,270 for asst. yr. 1983-84 which was totally squared up by adjusting the various refunds as per details verifiable from order under s. 154 passed on 27th May, 1993.
3.10 The learned counsel, therefore, submitted that the entire amount of penalty levied under s. 221 ought to have been cancelled by the CIT(A).
4. The learned Departmental Representative submitted that the CIT(A) has erred in granting substantial reduction in the amount of penalty levied under s. 221. The assessee should be deemed to be in default from the date when the refund was granted to them on making the provisional assessment under s. 144A in the month of November, 1984. He also submitted that the delay in grant of refund for earlier years, if any, cannot be a valid excuse for non-payment of demand in the year under consideration particularly in view of the fact that the assessee is entitled to grant of interest in respect of delayed refunds. He relied upon the reasons mentioned in the order passed by the AO under s. 221 and submitted that the CIT(A) ought to have confirmed the entire amount of penalty levied.
5. We have carefully considered the rival submissions made by the learned representatives of the parties. We have also gone through the orders of the learned Departmental authorities and all other documents to which our attention was drawn during the course of hearing. The position of tax payable by the assessee for the aforesaid year after giving effect to the Tribunal's order and the old refunds adjusted against the demand created for the aforesaid years as given in the order under s. 154 made by the AO on 27th May, 1995, is as under :
Rs.
"Tax payable after giving effect to Tribunal order 7,96,270 Taxes paid as under :
Refunds adjusted as per
order dt. 19th Dec., 1986
A. Y. Rs.
77-78(154) 18,592
81-82(154) 1,01,355
83-84(154) 1,58,588 2,78,535
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Refund adjusted as per order
dt. 13th Jan., 1988
A. Y. Rs.
80-81
(Tribunal's
effect) 5,64,221
81-82 (154) 30,000 5,94,221,
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Refund adjusted of 83-84 dt.
13.1.89 51,894
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9,24,650
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Interest under s. 220(2)
1. On Rs. 7,96,270 from
1.12.84 to 30.4.86 i.e.,
for 17 months 1,69,207
2. On Rs. 4,54,749
(7,96,270 - 3,41,521)
From 1-5-86 to 30-1-88
i.e. 20 months 1,13,687
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Total interest payable 2,82,894
Less : already paid 3,84,314
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Refundable 1,01,420
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The CIT(A) after taking into consideration all the facts and material existing on records made following observations :
"(a) Penalty under s. 221 has been levied by the AO on demand of Rs. 9,24,650 which was the revised demand as per order under s. 154, dt. 14th Jan., 1989. The assessee has successfully established that refund of Rs. 41,521 was due to the assessee at the time when the demand notice was served. The assessee could, therefore, be deemed to be an assessee in default only in respect of the balance sum of Rs. 5,83,129 for the period from 1st May, 1986, to 31st Dec., 1987. He, therefore, directed the AO to levy penalty at the rate of 10% thereof which comes to Rs. 58,313. A perusal of the latest available order under s. 154, dt. 27th May, 1993, reveals that refunds aggregating to Rs. 2,78,535 were adjusted as per order dt. 19th Dec., 1986. These refunds relate to asst. yrs. 1977-78, 1981-82 and 1983-84. Likewise, refund for asst. yrs. 1980-81 and 1981-82 were also adjusted as per order dt. 13th Jan., 1988."
6. It is also evident from record that the assessee submitted elaborate reply in response to all the notices issued under s. 221 in relation to recovery of demand for aforesaid year. In each such application the assessee requested the AO to expedite the final determination of refunds for the earlier years and expressed that such refunds due to the assessee may be adjusted towards outstanding demand for asst. yr. 1983-84 or for other years. The final amount of tax payable determined after giving effect to the order of the Tribunal comes to only Rs. 7,96,270. The payments recovered from the assessee by way of adjustment of old refunds is more than the amount of demand created for the year under consideration. It will also be worthwhile to recall that the assessee paid advance tax of Rs. 21,60,000 which was refunded on provisional assessment made under s. 141A. The assessee has been granted interest under s. 214 in respect of such amount determined as refund on provisional assessment under s. 141A, dt. 30th Nov., 1984, vide separate order passed under s. 154 after a period of more than two years on 19th Dec., 1986. If this interest under s. 214 would not have been granted along with the order under s. 141A, dt. 30th Nov., 1984, instead of granting such interest after a period of two years, the amount refundable to the assessee would have increased by the said amount of interest allowed under s. 214 after a gap of more than two years. A perusal of all the letters submitted in the compilation to which our attention was drawn during the course of hearing establishes the fact that the assessee had promptly submitted elaborate reply in response to recovery notices issued by the Department. Such replies contained justifiable reasons including the prayer made for determination of refunds for earlier years. The Department has not been able to bring any material to rebut the assessee's contention that if an overall position is taken into consideration for all the pending years, the assessee had all along been a creditor of the Department and not a defaulter.
7. On a very careful and thoughful consideration of the entire facts and circumstances of the present case, we are of the considered opinion that the Department was not justified in levying any amount of penalty under s. 221 for asst. yr. 1983-84. In our view, the CIT(A) ought to have cancelled the entire amount of interest (sic penalty) levied under s. 221. We direct the ITO to cancel the same in toto.
8. In the result, both the appeals by the assessee are allowed and the Revenue's appeal is dismissed.