Davinder Mehra v. Commissioner Of Income Tax (Appeals) Ii, Amritsar And Another

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 605 of 2006Date of decision: 27.4.2011 Davinder Mehra --- Appellant Versus Commissioner of Income Tax (Appeals) II, Amritsar and another --- Respondents CORAM:HON’BLE MR. JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL--- Present:Ms. Radhika Suri, Advocatefor the appellantfor the appellant Mr. Sukant Gupta, Standing Counselfor the respondent. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act,1961 (for short “the Act”) has been filed by the assessee against theorder dated 20.2.2006 passed by the Income Tax Appellate TribunalChandigarh Bench ‘A’, Chandigarh (in short “the Tribunal”) in ITA No.21/ASR/2005, relating to the block period from 1.4,1989 to22.7.1999. 2.The following substantial questions of law have beenclaimed for determination of this Court: “(i)Whether in the facts and circumstances of the case, theamount of tax paid on undisclosed income of Rs. 7.5 lacscan be retained after the assessment has been set asideamount of tax paid on undisclosed income of Rs. 7.5 lacscan be retained after the assessment has been set aside by the CIT(A) contrary to Article 265 of the Constitution ofIndia? (ii)Whether in the facts and circumstances of the case,learned ITAT Amritsar was correct in law in upholding theorder of CIT(Appeals) by declining the refund of tax paidon a sum of Rs. 7.5 lacs on furnishing the return ofincome pursuant to notice issued under Section 158BC ofthe Income Tax Act even after the entire blockassessment was set aside by the CIT(Appeals) vide orderdated 21.9.2004? (iii)Whether in the facts and circumstances of the case,learned ITAT Amritsar was correct in law in holding thatthe proviso (b) of Section 240 was applicable to the blockassessment proceedings which are regulated by aspecial procedure given in Chapter XIV of the Income TaxAct?learned ITAT Amritsar was correct in law in holding thatthe proviso (b) of Section 240 was applicable to the blockassessment proceedings which are regulated by aspecial procedure given in Chapter XIV of the Income TaxAct? (iv)Whether in the facts and circumstances of the case,learned ITAT Amritsar was correct in law in holding thatthe payment of tax pursuant to filing of return underSection 158BC was not dependent on determination ofincome by the Assessing Officer?learned ITAT Amritsar was correct in law in holding thatthe payment of tax pursuant to filing of return underSection 158BC was not dependent on determination ofincome by the Assessing Officer? (v)Whether in the facts and circumstances of the case,learned ITAT Amritsar was right in holding that issuesregarding charging of interest under Section 158BFA(1)being debatable could not be rectified under Section 154of the Income Tax Act?learned ITAT Amritsar was right in holding that issuesregarding charging of interest under Section 158BFA(1)being debatable could not be rectified under Section 154of the Income Tax Act? (vi)Whether in the facts and circumstances of the case, theorder of learned ITAT is contrary to ratio of the Hon’bleSupreme Court in the case of CIT vs. Shelley Products,261 ITR 367?order of learned ITAT is contrary to ratio of the Hon’bleSupreme Court in the case of CIT vs. Shelley Products,261 ITR 367? (v)Whether in the facts and circumstances of the case,learned ITAT Amritsar was right in holding that issuesregarding charging of interest under Section 158BFA(1)being debatable could not be rectified under Section 154of the Income Tax Act?learned ITAT Amritsar was right in holding that issuesregarding charging of interest under Section 158BFA(1)being debatable could not be rectified under Section 154of the Income Tax Act? (vi)Whether in the facts and circumstances of the case, theorder of learned ITAT is contrary to ratio of the Hon’bleSupreme Court in the case of CIT vs. Shelley Products,261 ITR 367?order of learned ITAT is contrary to ratio of the Hon’bleSupreme Court in the case of CIT vs. Shelley Products,261 ITR 367? 3.The facts, in brief, necessary for adjudication as narratedin the appeal, are that the appellant is an individual assessee. On22.7.1999, a search was conducted at his residential premises. Anotice under Section 158BC on 7.2.2000 was thereupon issued tothe assessee requiring him to furnish the return for the block periodin question within 16 days of the service of the notice. The assesseereceived the said notice on 14.2.2000 and sought extension of timeon 28.2.2000 for furnishing the return for the block period up to31.3.2000. The assessee filed return on 31.3.2000 declaringundisclosed income of Rs. 7,50,000/-. The writ petition filed by theassessee challenging the notice under Section 158BC and allconsequential proceedings taken there-under was dismissed by thisCourt with the observations that the assessee may raise all suchpleas before the appellate authority. 4.The assessing officer thereafter issued notice underSection 143(2) of the Act to the assessee on 4.4.2001 andconsequently, vide order dated 27.7.2001, finalized the assessmentat the total income of Rs. 1,70,00,000/-. The assessee went inappeal before the Commissioner of Income-tax (Appeals) {in short“the CIT(A)”}. The CIT(A) dismissed the appeal on the ground thatsince the appellant had not paid tax on the declared income of Rs.7,50,000/-, the same was not competent. The Tribunal, however, on an appeal being taken by the assessee, set aside the order of theCIT(A) and remanded the matter back to it for adjudication on merits.5.One of the pleas raised on behalf of the assesseethroughout had been that no satisfaction about the search had beenrecorded by the authorities concerned. According to the assessee,search had in fact been conducted on another group and theassessing officer had not been able to establish any inter-connectionbetween that group and the business activities of the assessee. TheCIT(A) vide order dated 21.9.2004 set aside the entire assessmentproceedings holding the same to be void ab initio and also barred bytime as the return was filed on 31.3.2000 whereas notice underSection 143(2) of the Act was served on the assessee on 4.4.2001. 6.After the assessment was set aside, the assessee soughtrefund of tax paid on the sum of Rs. 7,50,000/- and also the interestcharged thereon. The claim of the assessee was disallowed by theassessing officer on the strength of the provisions of Section 240(b)of the Act. The assessing officer upheld the levy of surcharge andinterest under Section 158BFA(1) of the Act, by rejecting applicationof the assessee filed under Section 154 of the Act, vide order dated12.1.2005. Aggrieved by the disallowance of refund, the appellantcarried appeal before the CIT(A). The appeal was partly allowedinasmuch as the levy of surcharge was set aside by the CIT(A). TheRevenue took the matter in appeal before the Tribunal wherein theassessee filed cross-objections voicing his grievance that the CIT(A)was not justified in disallowing the refund on the amount of tax paidon Rs. 7,50,000/- after the assessment for the block period underreference had already been set aside by the CIT(A). 7.The Tribunal, vide the order under appeal, upheld theorder of the CIT(A) holding that the surcharge was not leviable. TheTribunal held that the assessee was liable to pay tax on undisclosedincome, which was not dependent on determination by the assessingofficer. The Tribunal also upheld the levy of interest under Section158BFA(1) of the Act and, as a matter of fact, declined to interferewith the question of levy of interest on the ground that the same wasa debatable issue and, thus, could not be rectified under Section 154of the Act. While disposing of the cross-objections filed by theassessee, the Tribunal made reference to the provisions of Section240(b) of the Act, which provides that when an assessment isannulled, the refund shall become due only of the amount, if any, ofthe tax, paid in excess of the tax chargeable on the total incomereturned by the assessee. 8.This is how, aggrieved by the order of the Tribunal, theassessee is in appeal before us under Section 260A of the Act, 9.We have heard learned counsel for the parties and haveperused the record. 10.The two-fold issues that arise in this appeal forconsideration of this Court are: (a) Whether the Tribunal was right in holding that theassessee was not entitled to refund of tax on theundisclosed income declared in the return in spite of thefact that the assessment had been annulled by the CIT(A)?assessee was not entitled to refund of tax on theundisclosed income declared in the return in spite of thefact that the assessment had been annulled by the CIT(A)? (b)Whether charging of interest under Section 158BFA(1) of the Act being debatable could not be rectified underSection 154 of the Act?Section 154 of the Act? 11. The Tribunal had recorded in para 9 of the order, as under: “We have heard both the parties and carefully consideredthe rival submissions with reference to facts and evidenceon record. We have also gone through the orders ofauthorities below. From the facts discussed above, it isobvious that in this case the assessee had declaredundisclosed income of Rs. 7.50 lakhs and had also paidthe tax due thereon. It is true that such assessment wasannulled by the CIT(A). Now sub-section (b) of Section240 reads as under:- “(b) The Assessment is annulled the refund shallbecome due only of the amount, if any of the taxpaid in excess of the tax chargeable on the totalincome returned by the assessee.” It is no doubt true that chapter XIV B lays down specialprocedure for assessments of Search cases. But it doesnot mean that provisions of other sections are notapplicable to completion of block assessments. In fact,Section 158BH of Chapter XIV B specifically reads asunder: “Save as otherwise provided in this Chapter, allother provisions of this Act shall apply toassessment made under this Chapter.” “(b) The Assessment is annulled the refund shallbecome due only of the amount, if any of the taxpaid in excess of the tax chargeable on the totalincome returned by the assessee.” It is no doubt true that chapter XIV B lays down specialprocedure for assessments of Search cases. But it doesnot mean that provisions of other sections are notapplicable to completion of block assessments. In fact,Section 158BH of Chapter XIV B specifically reads asunder: “Save as otherwise provided in this Chapter, allother provisions of this Act shall apply toassessment made under this Chapter.” No where, chapter XIV B excludes operation of Section240(b) of the Act to block assessment. Therefore, we areof the opinion that contention of the assessee that section240(b) is applicable only to regular assessment and notto block assessment is devoid of any merit and hence,rejected. Even otherwise, provisions of Section 140Ahave been made applicable to tax payable onundisclosed income and, therefore, the assessee wasrequired to pay such tax at the time of filing the return forblock assessment. Therefore, there is no question ofassessee having made the payment as a result ofabundant caution. The assessee was under a statutoryduty to make such payment at the time of filing the return.The payment of tax on admitted undisclosed income wasnot dependent on determination of income by the AO atthe time of completing the assessment. Therefore, eventhe judgment of Supreme Court in the case of CIT vs.Shelly Products, supports the case of the Revenue asassessee was even otherwise required to pay such tax onhis own at the time of filing the return. In view of this, wedo not find any justification in interfering with the order ofCIT(A). The same is upheld and this ground of appeal isrejected.” 12.No perversity could be pointed out by the learned counselfor the assessee in the aforesaid approach of Tribunal. Section158BH, Chapter XIV-B of the Act provides that all other provisions ofthe Act would apply to the assessment made under this Chapter and, thus, Section 240(b) was applicable. Further, under the provisions ofSection 240(b) of the Act, the assessee was not entitled to the refundof any amount which had been paid on the income declared by theassessee even though the assessment had been annulled. 13. Similar issue arose before the Hon’ble Supreme Court inCommissioner of Income Tax v. Shelly Products, (2003) 261 ITR367 wherein it was held that the advance tax and self assessmenttax paid by the assessee cannot be refunded even where theassessment order is held to be void ab initio. The Supreme Courthad analysed various provisions of the Act as under: “Sub-section (2) of S. 4 in terms provides for payment oftax in advance or deduction of tax at source as providedunder the Act. For the deduction of tax at source andpayment of tax in advance, the relevant provision is S.190. It provides that notwithstanding that the regularassessment in respect of any income is to be made in alater assessment year, the tax on such income shall bepayable by deduction at source or by advance payment,as the case may be, in accordance with the provisions ofChapter XVII. This is without prejudice to the charge oftax on such income under the provisions of sub-section(1) of S. 4. Section 192 enjoins on any personresponsible for paying any income chargeable under thehead "Salaries" to deduct income-tax on the amountpayable at the average rate of income-tax at the time ofmaking payment. Section 199 provides that anydeduction made in accordance with the provisions of Ss. 192 and 194 and other sections mentioned therein andpaid to the Central Government shall be treated aspayment of tax on behalf of the person from whoseincome the deduction was made and credit shall be givento him for the amount so deducted. Section 202 clarifiesthat the power to levy tax under the aforesaid sections iswithout prejudice to any other mode of recovery. Under S.205 where tax is deductible at the source, the assesseeshall not be called upon to pay the tax himself to theextent to which tax has been deducted from his income. Under S. 207 tax is payable in advance in accordancewith the provisions of Ss. 208 to 219 except in the casesof incomes specified therein. Such advance tax ispayable during the financial year in accordance with theprovisions of S. 208. Sections 209 and 210 provides forcomputation of advance tax and for payment of advancetax by the assessee. Section 211 prescribes theinstalments of advance tax and the dues dates. The aforesaid provisions, therefore, clearly spell outthe scheme of the Act which provides for deduction of taxat source and advance payment of tax. On suchdeduction or deposit of tax credit is given to the assesseefor the amount so deducted or paid as advance tax. Section 139 of the Act mandates every person tofurnish a return of the total income during the previousyear if the income is chargeable to tax. Section 140-Aprovides for self-assessment and lays down that any tax payable on the basis of any return required to befurnished under S. 139 or S. 148, after taking intoaccount the amount of tax, if any, already paid, shall bepaid by the assessee together with interest payable underany provision of the Act for any delay in furnishing returnor for any default or delay in payment of advance tax.Thus an assessee who has defaulted or delayed paymentof advance tax or the instalment of advance tax, is liableto pay interest. The provisions of the Act, therefore, castan obligation on the assessee to pay the advance tax bymaking the deposits in instalments as required by theprovisions of the Act, and after taking into account the taxpaid in advance, to pay the balance of the tax andinterest, if any payable, while filing the return of income.Similar is the provision with regard to the income-taxdeducted at source. It cannot, therefore, be contendedthat the deposit of advance tax or deduction of income-tax at source is not authorised by law in view of the clearmandatory provisions of the Act. The question is whetherthe charge itself fails if there is no computation of totalincome by the assessing officer and whether as aconsequence thereof the tax paid as advance tax or self-assessment tax or tax deducted at source, cannot beretained by the department without violating theprovisions of Article 265 of the Constitution of India.”14.It was concluded by the apex Court as under: “We find considerable force in the submission of therevenue and it must be upheld. We have earlier noticedthe scheme of the Act. Section 4 of the Act creates thecharge and provides inter alia for payment of tax inadvance or deduction of tax at source. The Act providesfor the manner in which advance tax is to be paid andpenalises any assessee who makes a default or delayspayment thereof. Similarly the deduction of tax at sourceis also provided for in the Act and failure to comply withthe provisions attracts the penal provisions against theperson responsible for making the payment. It is,therefore, quite apparent that the Act itself provides forpayment of tax in this manner by the assessee. The Actalso enjoins upon the assessee the duty to file a return ofincome disclosing his true income. On the basis of theincome so disclosed, the assessee is required to make aself-assessment and to compute the tax payable on suchincome and to pay the same in the manner provided bythe Act. Thus the filing of return and the payment of taxthereon computed at the prescribed rates amounts to anadmission of tax liability which the assessee admits tohave incurred in accordance with the provisions of theFinance Act and the Income-tax Act. Both the quantum oftax payable and its mode of recovery are authorised bylaw. The liability to pay income-tax chargeable under S.4(1) of the Act thus, does not depend on the assessmentbeing made. As soon as the Finance Act prescribes the rate or rates for any assessment year, the liability to paythe tax arises. The assessee is himself required tocompute his total income and pay the income-tax thereonwhich involves a process of self-assessment. Since allthis is done under authority of law, there is no scope forcontending that Art. 265 is violated”. Accordingly, the first issue is decided in favour of the Revenue. 15.Adverting to the second issue regarding rectification oforder relating to charging of interest under Section 158 BFA (1) of theAct, the Tribunal while considering this issue in para 13 of its orderrecorded as under: “We have heard both the parties and considered the rivalcontentions. As per provisions of Section 158 BC(a)(ii) ina case where search took place on or after the Ist day ofJanuary, 1997, the AO is required to issue a noticespecifying time for not less than 15 days but not morethan 45 days for furnishing a return. In this case, searchtook place after 1.1.1997 and time specified by the AOwas for 16 days. However, the return was filed on 45[th]day i.e. beyond the period given in the notice. Section158BC does not give any discretion to AO to extend thedate for filing the return. Now section 158BFA(1)provides that if return u/s 158BC is furnished after theexpiry of the period specified in such notice, the assesseeshall be liable to pay simple interest at the rate specifiedtherein. Thus, it is a mandatory on part of A.O. to chargeinterest in case of default. The submissions before us would be valid for purpose of penalty u/s 158BFA(2). Inthe case of D.G.P Windosr (India) Ltd. Vs. Dy. CIT(supra), the return was filed within the time allowed by theAO himself. Therefore, the decision of ITAT, Mumbai isnot applicable to the facts of the present case. Further inthis case, the AO was requested not to charge interest byway of rectification proceedings u/s 154 of the Act. Nowthe issue, whether interest in such a case should becharged or not is a debatable issue and, therefore, thesame falls out side the scope of Section 154 of the Act.Reliance in this regard is placed on the judgment of ApexCourt, in the case of Volkari Brothers 82 ITR 50. We are,therefore, of the opinion that Ld. CIT(A) was justified insustaining the interest under Section 158BFA(1). Weconfirm his order and reject this ground of C.O.” 16.The Tribunal came to the conclusion that the interest wasleviable under the provisions of Section 158BFA(1) of the Act andfurther the assessing officer was justified in holding that the issuebeing debatable was outside the scope of Section 154 of the Act.The approach of the Tribunal in that behalf has also not been shownto be perverse in any manner. The issue under discussion is,therefore, decided against the assessee.17.In view of the above, the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE April 27, 2011*rkmalik* (ADARSH KUMAR GOEL) JUDGE