Dr. P.C. Khurana vs Commissioner of Income Tax and Another

Ajay Kumar Mittal, J.

1.The assessee-petitioner has approached this Court by way of instant petition under Arts. 226/227 of the Constitution of India for setting aside the order dated 16-4-1990 (Annex. P5) u/s 264 of the IT Act, 1961 (in short "the Act") read with order dated 6-5-1991 (Annex. P-12) u/s 154 of the Act passed by respondent No. 1 and to cancel the levy of penal interest u/s 215 and 139(8) of the Act by respondent No. 2 vide order u/s 154/155 of the Act, dated 29-9-1988/3-10-1988 (Annex. P3). The facts relevant for the disposal of the present petition as narrated in the petition are that the assessee-petitioner filed his return on 29-7-1985 for the assessment year 1985-86 declaring an income of Rs. 8,80,175. The said return was revised on 13-8-1986 declaring an income of Rs. 7,49,547 which included share from a registered firm M/s. K. & Co., New Delhi, at Rs. 8,28,669. The assessment was completed by respondent No. 2 on 29-1-1988 at an income of Rs. 7,67,880. The share from the registered firm was accepted at the returned figure subject to rectification u/s 154/155 of the Act. The tax on the assessed income worked out to Rs. 4,54,774 against which the petitioner had deposited the advance tax at Rs. 5,90,670. Thus, the refund of excess advance tax along with interest u/s 214 of the Act was allowed to the petitioner. No penal interest u/s 215 and 139(8) of the Act was charged from the petitioner. On completion of the assessment of M/s. K. & Co. where the petitioners share was determined at Rs. 20,82,312, the assessee moved an application dated 16-7-1988 to respondent No. 2 for passing the rectification order u/s 154/155 of the Act. Respondent No. 2 issued a letter dated 23-9-1988 to the petitioner to show-cause as to why the interest paid u/s 214 of the Act allowed to him at the time of making the assessment on 29-1-1988 be not withdrawn against which the petitioner filed his objection. Respondent No. 2 vide order dated 29-9-1988/3-10-1988 rejected the objection of the petitioner and withdrew the interest allowed u/s 214 of the Act and made modification in the income of the petitioner. Respondent No. 2 also levied interest at Rs. 2,63,877 u/s 215 of the Act and Rs. 8,000 u/s 139(8) of Act. Thereafter, the petitioner moved an application under rule 40 of the IT Rules, 1962 (for brevity, "the 1962 Rules") for waiver/reduction of interest chargeable u/s 215/217 of the Act upon which interest levied at Rs. 2,63,877 u/s 215 of the Act was reduced to Rs. 1,35,936. Feeling aggrieved against the levy of penal interest u/s 215 and 139(8) of the Act, the petitioner filed a petition u/s 264(1) of the Act before respondent No. 1. Respondent No. 1 vide order dated 16-3-1990 upheld the levy of penal interest by respondent No. 2 and rejected the revision petition. As respondent No. 1 failed to deal with the grounds and also failed to take notice of various decisions, the petitioner filed an application u/s 154 of the Act bringing all the necessary facts to his notice. Respondent No. 1 vide order dated 6-5-1991 dismissed the said application u/s 154 of the Act. Hence, the present writ petition.

We have heard learned counsel for the parties.

Learned counsel for the petitioner submitted that the Revenue was in error in levying interest u/s 215 and 139(8) of the Act and the rejection of the petition which was filed u/s 264 of the Act was also unjustified. Even the application filed u/s 154 of the Act for rectification of order dated 16-3-1990 passed by the CIT has been declined ignoring well-settled principles of law. According to the learned counsel, the return declaring income for the assessment year 1985-86 was filed on 29-7-1985 wherein the income was declared at Rs. 8,80,175. The regular assessment u/s 143(3) of the Act was framed on 29-1-1988 wherein no interest was sought to be levied u/s 215 and 139(8) of the Act. The Revenue invoked the provisions of section 154/155 of the Act for levying interest u/s 215 and 139(8) of the Act which was not permissible. Learned counsel further submitted that if the AO had failed to levy interest u/s 215 and 139(8) of the Act at the time of regular assessment, it was not open to the Revenue to invoke the provisions of section 154 of the Act in such a situation. Learned counsel also submitted that no notice u/s 154(3) of the Act was issued to the assessee and, therefore, the order u/s 154 of the Act was bad. Support was sought by the learned counsel for the assessee from the following judgments:

(i) Commissioner of Income Tax Vs. S.L. Chopra,

(ii) Commissioner of Income Tax Vs. INDERJEET BEDI,

(iii) COMMISSIONER OF Income Tax, KERALA-II, ERNAKULAM Vs. G. B. TRANSPORTS, GURUVAYUR.,

(iv) Commissioner of Income Tax Vs. Multimetals Ltd.,

(v) Commissioner of Income Tax Vs. I.O.L. Ltd.,

(vi) Commissioner of Income Tax Vs. Ram Lal Babu Lal,

(vii) Commissioner of Income Tax Vs. Pratap Chand Maheshwari,

(viii) Commissioner of Income Tax Vs. Smt. Parvati Devi and Others (L/Heirs of late R.B. Kishore Chand Maheswari),

(ix) Commissioner of Income Tax Vs. Shri Mahinder Singh,

(x) CESC Ltd. Vs. Commissioner of Income Tax,

4 Controverting the aforesaid submissions, learned counsel for the Revenue submitted that there was a mistake apparent on the face of the record in the assessment order dated 29-1-1988. No interest u/s 215 and 139(8) of the Act was leviable at the time of regular assessment on 29-1-1988 in the facts of the present case. According to the learned counsel, there was default in payment of advance tax whereby the advance tax paid by the assessee was less than 75 per cent of the assessed tax. The interest u/s 215 of the Act was leviable unless it was specifically waived under the Rules. On the strength of the judgment of Himachal Pradesh High Court in Commissioner of Income Tax Vs. Prakash Nath, ), it was submitted that the issuance of notice u/s 154(3) of the Act was not essential in the fact and that the interest has been rightly levied u/s 215 and 139(8) of the Act by the AO while passing the order on 29-9-1988/3-10-1988 under the provisions of section 154/155 of the Act. The CIT had, thus, rightly declined the prayer of the assessee for revising the aforesaid order u/s 264 of the Act.

5 We have given our thoughtful consideration to the respective submissions of learned counsel for the parties.

6 The following issues are required to be answered in order to adjudicate the controversy raised in the present petition:

(a) Whether an order passed by the AO u/s 154/155 of the Act entitles him to charge interest u/s 215 and 139(8) of the Act, when the same had not been levied at the time of passing of regular assessment on 29-1-1988?

(b) Whether the order levying interest u/s 215 and 139(8) of the Act while passing order u/s 154 of the Act could be validly passed without adhering to the requirement of notice under sub-section (3) of section 154 of the Act?

Taking up the first issue, the provisions of section 215 of the Act to the extent it is relevant for resolving the present controversy at the material time, read thus:

215(1) Where, in any financial year, an assessee has paid advance tax u/s 209A or section 212 on the basis of his own estimate (including revised estimate), and the advance tax so paid is less then seventy-five per cent of the assessed tax, simple interest at the rate of fifteen per cent per annum from the 1st April next following the said financial year upto the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax:

Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect as if for the words "seventy-five per cent", the words "eighty-three and one-third per cent" had been substituted.

(2)...

(3) Where as a result of an order u/s 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which interest was payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and--

(i) in a case where the interest is increased, the ITO shall serve on the assessee, a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be a notice u/s 156 and the provisions of this Act shall apply accordingly.

(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.

(4) to (6)............

It will be noticed from the wordings of section 215(1) of the Act that a liability is imposed upon the assessee to pay interest where advance tax paid by him on the basis of his own estimate is less than seventy-five per cent of the tax determined on the regular assessment. A simple interest @ 12 per cent per annum from the 1st April next following the financial year in which advance tax less than 75 per cent of the assessed tax was paid, upto the date of regular assessment "shall be payable" by the assessee upon the amount by which the advance tax paid fell short of the assessed tax. The words "shall be payable" bring about the statutory liability to pay such interest and emanates as a direct consequence of non-payment of advance tax as contemplated under this provision.

Under sub-section (3) of section 215 as originally enacted it provided that where as a result of an order under any of the specified sections therein, the amount on which interest was payable by the assessee is reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded. However, after the amendment by Taxation Law (Amendment) Act, 1984, effective from 1-4-1985, it provides that where as a result of an order under any of the specified sections, the amount on which interest was payable by the assessee has been increased or reduced, the interest shall be increased or reduced accordingly. In a case where the interest is so increased, the AO shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable by the assessee. Such notice of demand shall be deemed to be issued u/s 156 of the Act and the provisions of the Act shall apply, accordingly. In a case, where interest is reduced, the excess interest paid, if any, shall be refunded to the assessee.

10 Adverting to the facts of the present case, the regular assessment order u/s 143(3) of the Act was passed on 29-1-1988 which was subject to rectification u/s 154 /155 of the Act. The income of the assessee was assessed at Rs. 7,67,860 on which there was no liability on account of interest u/s 215 and 139(8) of the Act as the advance tax paid was in excess of the tax liability. The assessee was held entitled to refund which was allowed along with interest u/s 214 of the Act. The AO while finalizing regular assessment on 29-1-1988 had adopted the share of the assessee from the firm M/s. K & Co. at the declared figure. This was subject to rectification u/s 154/155 which could be less or more from the assessed figure. Later on, on the basis of an application filed u/s 154/155 by the assessee on 16-7-1988 (Annex. P-2), the order dated 29-1-1988 was rectified u/s 154/155 on 29-9-1988/3-10-1988 (Annex. P-3). When the said order was passed, there was shortfall in payment of advance tax for which the assessee was liable to pay interest u/s 215 arid 139(8) of the Act which was quantified at Rs. 2,63,877 and Rs. 8,000, respectively. However, on an application filed by the assessee under rule 40 of the 1962 Rules, the interest u/s 215 of the Act was reduced to Rs. 1,35,936. The assessment order passed on 29-1-1988 itself provided that the order was subject to rectification u/s 154/155 of the Act which was dependent upon final assessment relating to share of the assessee in the firm M/s. K. & Co. The order passed on 29-9-1988/3-10-1988 was, thus, regular assessment order and under the circumstances, it could not be said that it was beyond the scope of the AO to levy interest u/s 215 and 139(8) of the Act in the rectificatory order and pass consequential order relating to determination of tax and interest. Furthermore, when an assessment order is passed subject to rectification u/s 154/155 of the Act and later on rectificatory order is passed, whatever tax or interest liability based thereon arises would be determined accordingly.

11 Viewed from another angle, at the time of framing regular assessment on 29-1-1988 since no interest was payable by the assessee u/s 215 and 139(8) of the Act, the same would be taken to be "nil". However, after passing of order u/s 154/155 of the Act, the liability of the assessee arose for paying interest u/s 215 and 139(8) of the Act. Therefore, u/s 215(3) after amendment by Taxation Law (Amendment) Act, 1984 effective from 1-4-1985 relating to assessment year 1985-86, where there is any increase or reduction of any liability by virtue of order passed u/s 154 or 155 of the Act, the interest shall be increased or reduced accordingly. However, the position was different prior thereto as no increase of interest liability could be there whereas only reduction therein was permissible.

12 Interest u/s 139(8) of the Act is payable for delay in filing the return whereas interest u/s 215 is payable for deficiency in payment of advance tax. Interest for default in paying advance tax is mandatory and is imposable where assessee was liable to pay advance tax.

13 Adverting to the second issue, sub-section (3) of section 154 of the Act envisages issuance of notice before any liability can be created or enhanced on the basis of an order of rectification. However, the position would be different where, the rectification order has been passed on an application of the assessee. He cannot complain against the order by reason only of the fact that there was no notice to him for levying the interest. In the present circumstances, the assessee had himself filed the application (Annex. P-2) and interest u/s 215 and 139(8) of the Act for default in paying advance tax is mandatory and is imposable where the assessee is liable to pay advance tax. Therefore, no separate notice under sub-section (3) of section 154 of the Act was, thus, required to be issued and no benefit can be derived by him on that count. To conclude, the assessee could not escape from the liability to pay interest and no fault could be noticed in the order of the CIT rejecting the petition of the assessee filed u/s 264 of the Act.

14 Referring to the judgments relied upon by the learned counsel for the petitioner, suffice it to notice that none of these comes to his rescue. In those cases, the assessment year involved is prior to assessment year 1985-86 where the amendment to sub-section (3) of section 215 brought about by Taxation Law (Amendment) Act, 1984 was not in existence. Furthermore, in the present case, there was no liability to pay interest u/s 215 and 139(8) of the Act while passing assessment order on 29-1-1988 which was subject to rectification u/s 154/155 of the Act. However, later on an application had been filed by the assessee u/s 154/155 of the Act for variation in the income of the assessee in view of his share income in the firm M/s. K & Co. The liability to pay interest u/s 215 and 139(8) of the Act arose for the first time thereupon which was not the case in the judgment relied upon by the assessee. However, position could have been debatable where interest u/s 215 and 139(8) of the Act was imposable at the time of finalization of regular assessment but somehow or the other, no interest thereunder had been charged which is not the present case. Taking totality of facts and circumstances, no merit is found in the petition and accordingly, the same is dismissed.