Commissioner of Income Tax vs Jayendra H. Kharawala

D.A. Mehta, J.—The following question has been referred by the Tribunal, Ahmedabad Bench "C", u/s 256(1) of the IT Act, 1961 (the Act), at the instance of the GIT :

Whether the Tribunal is right in law and on facts in deleting the interest levied u/s 215 of the IT Act amounting to Rs. 1,56,970 ?

The assessment year is 1986-87 and the relevant accounting period is the year ended on 31st March, 1986. While framing the assessment on 7th Feb., 1989 u/s 143(3) of the IT Act, 1961 (the Act), the AO observed "charge interest under Sections 139(8) and 215/217". The assessee carried the matter in appeal before CIT(A) who vide his order held that ground of appeal challenging the levy of interest u/s 139(8) of the Act was not entertained as the legality of the basis of levy had not been challenged as being incorrect.

However, the CIT(A) upheld the submissions of the assessee that the assessee was not liable to be charged interest u/s 215 of the Act. It was held by CIT(A) that firstly, the assessee could not have anticipated the addition of income on the basis of assessments for asst. yrs. 1982-83 and 1983-84 being revised upwards u/s 263 of the Act, and secondly, in similar set of facts and circumstances in assessee''s own case for asst. yr. 1985-86, similar levy of interest u/s 215 of the Act was deleted.

Revenue challenged the order of CIT(A) on this count before the Tribunal. The Tribunal, by its order dt, 25th Oct., 1993, upheld the order of CIT(A). While doing so, the Tribunal took note of the fact that the order of CIT(A) for the immediately preceding assessment year, namely, asst. yr. 1985-86, had been accepted by Revenue and no appeal had been preferred therefrom before the Tribunal. The Tribunal also accepted the findings of CIT(A) that, in the facts and circumstances of the case, the assessee could not have anticipated the additions in question considering the fact that the CIT had, while acting u/s 263 of the Act for earlier assessment years, namely, asst. yrs. 1982-83 and 1983-84, framed the order only in March, 1986 when the last instalment of advance tax had to be paid.

Mr. M.R. Bhatt, the learned senior standing counsel has been heard. Though served, there is no appearance on behalf of the respondent-assessee.

According to Mr. Bhatt, the Tribunal had committed an error in holding that no interest was leviable u/s 215(1) of the Act. The said provision was automatic and did not grant any discretion to the assessing authority. Not only that, it was contended, once the difference between the two parameters namely, advance tax paid and the assessed tax exceeded the prescribed limit, the assessee could not be permitted to deny his liability to interest u/s 215 of the Act. In case any extenuating factors or circumstances justified, according to the assessee, a lower amount of advance tax, that would be a ground for seeking relief under Sub-section (4) of Section 215 of the Act, but could not be pleaded as part of denial of liability.

In the case of Commissioner of Income Tax Vs. Rainbow Industries (P) Ltd., , this Court, while dealing with almost a similar fact situation, has analyzed the scheme of computation of advance tax in the following terms :

Under Section 211 of the Act, the legislature has provided dates during the financial year on which advance tax becomes payable in equal instalments. u/s 209A of the Act, computation and payment of advance tax by an assessee are provided for, However, actual computation of advance tax, viz., the basis on which an assessee is required to estimate the advance tax payable by him, is laid down in Section 209 of the Act. In each financial year, once an assessee finds that the current income is likely to exceed the limit specified in Section 208(2) of the Act, an assessee is obliged to forward an estimate of his current income and the advance tax payable on such current income. While computing the advance tax payable u/s 209 of the Act, the assessee is required to take into consideration his total income of the latest previous year in respect of which, the assessee has been assessed by way of regular assessment; the assessee is also required to ascertain the total income as shown in the return of income of the latest previous year for a year which is later in point of time to the assessment year for which assessment is framed and consider the basis on which tax has been paid by the assessee u/s 140A of the Act for such year. Thereafter, the assessee is required to ascertain which of the two figures exceeds the other, viz., whether the latest assessed income or other way round and taking that as a base, the assessee is required to work out the current income and the liability to pay advance tax.

If the aforesaid scheme is borne in mind, it is apparent that unless and until the Revenue is in a position to state that either of the figures adopted for the purposes of computing the current income and the advance tax payable is incorrect in any manner whatsoever, it will not be possible to accept the contention of the Revenue that levy of interest u/s 215 of the Act being mandatory in nature, nothing further is required to be seen.

Applying the aforesaid ratio to the facts found concurrently by both the CIT(A) and the Tribunal, it is apparent that once the addition of income made on the basis of revisional proceedings for earlier assessment years is kept out of consideration, the assessee had paid advance tax to the tune of Rs. 2,54,743 which did not fall below the stipulated limit of 75 per cent of the total tax payable. Therefore, it is not possible to accept the stand of the Revenue that the assessee had committed a default which made the assessee liable to be charged interest u/s 215 of the Act. In fact, nothing has been brought on record to rebut the findings recorded by the CIT(A) and the Tribunal, namely, the assessee could not have anticipated the upward revision in income, and that too, for earlier assessment years, which was finalized only in March, 1986. The Revenue has not even pleaded, much less established, that the assessee had the knowledge and could have anticipated at the time when it filed its estimate of advance tax payable by it.

In the result, it is held that the Tribunal was right in law in deleting the interest levied u/s 215 of the Act amounting to Rs. 1,56,970. The question is accordingly answered in the affirmative i.e., in favour of the assessee and against the Revenue.

The reference stands disposed of accordingly. There shall be no order as to costs.