Shakti Tiles Industries vs Commissioner of Income Tax

A.R. Tiwari, J.—At the instance of the assessee, the Income Tax Appellate Tribunal has referred the undernoted question of law for our opinion arising out of the order dated December 4, 1986, passed in I. T. A. No. 311/(Ind) of 1986 for the assessment year 1975-76 :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that interest u/s 139(8) of the Income Tax Act, 1961, was rightly levied on the assessee ?"

Briefly stated, the facts of the case are that the assessee filed its return for the assessment year 1975-76 on July 3, 1979. The return was barred by time. The Income Tax Officer, after obtaining the approval of the Commissioner, issued notice u/s 148 of the Income Tax Act, 1961 (for short, "the Act"). Instead of filing the return in response to the notice, the applicant requested the Department to accept the return filed earlier. The Income Tax Officer, on the basis of the return, completed the assessment on March 30, 1983, and directed levy of interest of Rs. 3,408 u/s 139(8) of the Act. The applicant objected to the imposition of the interest on the ground that it was not a regular assessment and sought correction u/s 154 of the Act. The Income Tax Officer, vide order dated May 1, 1985, rejected the prayer. The appeal filed by the assessee was also dismissed. On further appeal, the order was maintained by the single member of the Tribunal. The Tribunal rejected the appeal. Aggrieved, the applicant filed the application u/s 256(1) of the Act. On that application, the Tribunal referred the aforesaid question of law.

We have heard Shri Ram Gilda, learned counsel for the assessee, and Shri D.D. Vyas, learned counsel for the Department.

Section 139(8) of the Act empowers the authority to impose the liability of payment of simple interest on completion of the assessment. Regular assessment is made u/s 143 of the Act where a return has been made, u/s 139, or in response to notice under Sub-section (1) of Section 142, and u/s 144 on the best judgment assessment on failure to make the return as required.

In the instant case, the assessment was not made either u/s 143 or Section 144 of the Act. Indisputably notice was issued u/s 148 of the Act which takes care of a situation where income has escaped assessment. It is a trite position of law that where a return is filed beyond the prescribed period then, it is no return in the eye of law and it should then be held as if no return is filed. It is not disputed before us that an assessment made after issuance of notice u/s 148 of the Act is not a regular assessment.

In Charles D''souza Vs. Commissioner of Income Tax, Karnataka-II, , the High Court of Karnataka held that no interest u/s 139(8) and Section 217 is leviable in a case of assessment or reassessment made u/s 147 of the Act.

In CIT v. Padma Timber Depot [1988] 169 ITR 646, it is held as under (headnote) :

"The condition precedent for the levy of interest u/s 139(8) of the Income Tax Act, 1961, as well as u/s 217 is that the assessment made should be a ''regular assessment''. The expression ''regular assessment'' has been defined in Section 2(40) as an assessment made u/s 143 or 144. The definition contained in Section 2 prevails unless the context requires otherwise. Only orders passed by the Income Tax Officer under Sections 143 and 144 could be considered as regular assessments within the meaning of Section 2(40) of the Act and it is not possible to expand the scope of the expression ''regular assessment'' to include other orders. Where an assessment is made u/s 143(3) read with Section 147, interest cannot be charged under Sections 139(8) and 217."

The authorities were not justified in holding that it was a case of regularising the return. Two factors stare in the face-

(a) The return was filed beyond the prescribed period and, as such, it was to be held that there was no return in the eye of law. The request of the assessee to treat the return in response to the notice u/s 148 should naturally mean that it was a return in response to the notice u/s 148 of the Act. (Jashumal Harimal (Firm) v. CST [1995] MPLJ 42 Note).

(b) It was not a case of regular assessment and, as such, it was not proper to go under the umbrella of Section 143 of the Act to justify the levy of interest.

As it was not a case of regular assessment, but an assessment made in pursuance of the notice u/s 148 of the Act, we hold that the Tribunal was not right in law in holding that the interest u/s 139(8) of the Act was leviable.

Consequently, we answer the question in the negative, i.e., against the Revenue and in favour of the assessee.

The reference application is accordingly answered, but without any orders as to costs. Counsel fee for either side is, however, fixed at Rs. 750, if certified.

A copy of this order, under the seal and signature of the Registrar of the High Court be forwarded to the Tribunal.