Commissioner of Income Tax (Central) vs Gobind Ram

Ajay Kumar Mittal, J.—This appeal has been preferred by the revenue under Section 260A of the Income-tax Act, 1961 (in short, "the Act") against the order dated 8.4.2005, Annexure A. 4 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short, "the Tribunal") in I.T.(SS)A. No. 15(ASR)/2001 for the block period 1.4.1988 to 22.9.1998, proposing to raise following substantial questions of law:--

"(i) Whether, on the facts and in the circumstances of the case, the ITAT was justified in deleting the addition of Rs. 26,24,280/- made on account of disallowances under section 40A(3) of the I.T. Act?

(ii) Whether, on the facts and in the circumstances of the case, the ITAT was justified in directing the A.O. not to charge interest under Section 158 BFA(1) for late filing of return, when the learned CIT(A) already dismissed the appeal of the assessee on this ground being infructuous one?"

A few facts relevant for the decision of the controversy involved, as narrated in the appeal, may be noticed. The respondent-assessee is a proprietary concern. It deals in fire crackers, toys etc. A search and seizure operation was carried out at the residential and business premises of the respondent on 22.9.1998. Simultaneously, survey under Section 133A of the Act was conducted at the shop and godown of the respondent. Notice under Section 158BC of the Act was issued on 10.12.1998 for filing the return for the block period in Form No. 2B. In response to the notice, return was filed by the respondent on 25.2.1999 declaring income of Rs. 31,42,090/-. Assessment under Section 158BC of the Act was completed at an undisclosed income of Rs. 6,46,52,570/- on 28.9.2000, Annexure A. 1. Besides the other additions, addition of Rs. 26,24,280/- was also made on account of disallowances under Section 40A(3) of the Act. Addition of Rs. 6,11,31,013/- was made by the Assessing Officer on account of suppressed profit. Interest under Section 158BFA(1) of the Act was also charged for late filing of return in response to notice under Section 158BC of the Act. Aggrieved by the order, the respondent filed appeal before the Commissioner of Income-tax (Appeals) [CIT(A)]. Vide order dated 30.3.2001, Annexure A. 2, the CIT(A) partly allowed the appeal. However, the CIT(A) confirmed the addition on account of unexplained investment and charging of interest under Section 158BFA(1) of the Act for late filing of return. The CIT(A) vide order dated 14.6.2001 passed under section 154 of the Act partly allowed rectification application filed by the respondent for correcting certain errors which had crept in the order dated 30.3.2001. The plea of the respondent for reducing the income was rejected. Not satisfied with the findings of the CIT(A), the respondent as well as the revenue went in appeal before the Tribunal. The Tribunal vide order dated 8.4.2005, Annexure A. 4 allowed the appeal of the assessee on the ground of unexplained investment and charging of interest under Section 158BFA(1) of the Act and dismissed the appeal of the department on the ground of addition on account of disallowances under Section 40A(3) of the Act. The issue relating to addition made by the Assessing Officer on account of suppressed profits was restored back to the file of CIT(A) to adjudicate upon the issue afresh in the light of the fact that the provisions of section 145(3) of the Act were now applicable to the block assessment after amendment of Section 158BC(b) of the Act for fresh decision. Hence the present appeal by the revenue.

We have heard learned counsel for the parties and perused the record.

This Court while admitting the appeal on August 22, 2006 noticed that in so far as question No. (i) is concerned, the same was covered against the revenue. A Division Bench judgment of this Court in Commissioner of Income Tax Vs. Smt. Santosh Jain, had adjudicated the said question in favour of the assessee and against the revenue holding that where the income of the assessee has been computed by applying gross profit rate, there is no need to invoke the provisions of Section 40A(3) of the Act as the gross profit rate takes care of expenditure incurred otherwise than by way of cross cheques also.

Adverting to question No. (ii), the issue herein arises regarding chargeability of interest under section 158BFA(1) of the Act for late filing of return. As noticed by the Tribunal in its order dated 8.4.2005, Annexure A. 4, the Assessing Officer issued show cause notice under Section 158BC of the Act to the assessee on 10.12.1998. The assessee vide letter dated 7.12.1998 i.e. prior to the issue of the show cause notice requested for supply of the seized material. The assessee deposited the requisite charges but even then the copies of the documents were not supplied to it in time. Ultimately, vide letter dated 5.1.1999, the assessee requested that since the copies of the documents were not supplied, it was not possible to file true and correct return for the block period in question and as such the time may be extended. The assessee filed return for the block period on 25.2.1999. The assessee declared the undisclosed income in the sum of Rs. 31,42,090/-. The Tribunal after considering the aforesaid facts had come to the conclusion that there was no delay on the part of the assessee in filing the return. The assessee could not file the return for the block period as the department had taken time to supply the copies of the seized documents on the basis of which the assessee had filed the return for the block period on 25.2.1999. There was no delay on the part of the assessee in filing the return after the supply of copies of the seized documents by the revenue. In such circumstances, deletion of levy of interest by the Tribunal is justified.

Further, learned counsel for the respondent had relied upon judgment of the Delhi High Court in The Commissioner of Income Tax Vs. MESCO Airlines Ltd., wherein it was held that the time taken for supplying the documents by the department to the assessee has to be excluded for purposes of determining the delay in filing the return and for charging of interest under section 158BFA(1) of the Act. The relevant observations read thus:--

"10. On the other hand, the department also slept over the request of the assessee for furnishing the copies of the documents. It took more than one year in supplying the documents as the request was made on 1.10.1997 and documents were supplied on 20.11.1998. For this delay which is attributable to the department, the assessee cannot suffer and pay the interest. Thus, the approach of the Assessing Officer in directing the assessee to pay the interest for the entire period which included aforesaid 13 months consumed by the department in supplying the documents is clearly wrong. The Tribunal, on the other hand, ignored the fact that the assessee made a request for supply of copies of documents after waiting for 41 days and thereafter took another 41 days in filing the return. It counted the period of 45 days, as required under the law for filing the return, only from 20.11.1998 and absolved the assessee from liable to pay any interest. If such practice is allowed, any assessee on the last date of filing the return may ask for supply of copy of documents and thereafter from the date when the documents are supplied, would get another 45 days to file the return. This also has to be countered."

Accordingly, question No. (ii) is also answered against the revenue. As a result, the appeal stands dismissed.