The Eligibility Conditions And That Their Case Falls v. The

R.S. MOHITE, JJ. DATE: 4th March, 2008 ORALJUDGMENT (PER F.I. REBELLO, J.): .Rule. Heard forthwith. 2.The petitioner had filed his return of income for the assessment years 2003-2004, 2004-2005 and2005-2006 respectively on 30th September, 2003, 26thSeptember, 2004 and 30th October, 2005. There was asearch and seizure operation on the premises of thepetitioner on 9th December, 2004 and 10th December,2004, as a result of which certain books and paperswere found and seized. The petitioners contend thattheir firm came in existence on 1st May, 2002.During the search a diary relating to receipts andexpenditure of the firm on its project was alsoseized. The entries in the diary are partly recordedin the books of accounts on the basis of whichregular returns were filed.petitioner as the entries in the diary, itsreconciliation with books of accounts and theirinterpretation involved complex investigation, thepetitioner approached the respondent No.1 by filingan application dated 14th September, 2006 underSection 245C of the Income Tax Act, hereinafterreferred to as the Act, under the cover of their According to the letter of their Chartered Accountant dated 20thSeptember, 2006. the eligibility conditions and that their case falls under Section 245C of the Act. Section 245-C of theAct requires that where the income disclosed in theapplication relates to only one previous year and ifthe applicant has furnished a return in respect ofthe total income of that year, additional tax is tobe calculated on the aggregate of the total incomereturned and the income disclosed in the applicationas if such aggregate were the total income. Thepetitioners accordingly took the returned income forthe assessment year 2004-2005 which was the onlyassessment year (P.Y.1.4.2003 to 31.3.2004) being theloss of Rs.93,112/- and added the additionallydisclosed income of Rs.53,57,375/- and arrived at thefigure of Rs.52,64,263/- wherefrom brought forwardloss of Rs.93,193/- relating to the assessment year2003-2004 was deducted under section 72 to arrive atthe aggregate total income as required by Section245-C. According to the petitioner Section 2(45)defines "Total Income" to mean the total amount ofincome referred to in Section 5 computed in themanner laid down in the Act, which obviously includesSection 70 and 72 also, as held by the Supreme Courtin CIT vs. Shirke Construction Equipment P.Ltd.(2007) 291 ITR 380 (S.C.).accordingly worked out additional tax payable on theaggregate total income of Rs.51,70,820/- atRs.18,55,032/- and paid Rs.25,59,932/- together withinterest on 26th May, 2007 i.e.well within time. A The Petitioner .Prior to that the petitioner’s CharteredAccountants M/s.Khandelwal Jain & Associates wrote aletter to the Respondent No.1 dated 11th July, 2007bringing to its notice that in view of the amendmentmade by Finance Act, 2007 to Section 245D (2D) therewas an obligation to pay the additional tax and theinterest on or before 31st July, 2007 and that theyhave already paid additional tax and interest on theincome declared in the settlement petition andfurther requested the respondent No.1 to confirmwhether the said obligation has been complied with.The petitioner also stated that in case it is foundthat there is short fall in payment of additionaltax/interest, the applicant may kindly be intimatedso that the same can be paid and made good on orbefore 31st July, 2007. 4. The petitioners received a letter dated 21st 4. The petitioners received a letter dated 21st September, 2007 from respondent No.1 setting out thaton examination of the application it is seen thatthere is no proof of payment of additional tax andasking the applicant to show cause why theapplication should not be treated as abated. Thepetitioner promptly replied by letter dated 3rdOctober, 2007 stating that the additional tax andinterest was paid on 26th May, 2007 and that proof ofpayment was produced on 13th August, 2007 and also 2007.The petitioners were given notice of hearing.On the matter being heard the respondent No.1passed an order on 28th November, 2007 holding thatthe petitioner’s application stood abated. It is this order which is the subject matter of the present petition. 5. It may be pointed out that the respondent No.1 while rejecting the petitioners application asabated proceeded on the footing that on a plainreading of the relevant provisions of the Act asreproduced in the order, it was clear that for thepurpose of appreciating the compliance of theprovisions of Section 245D(2A) carried forward lossof an earlier year is not to be taken into account.The petitioner had disclosed the income ofRs.53,57,375/- while taxes etc., have been paid onincome of rs.51,71,070/- after adjusting not only theloss (Rs.93,112/-) of the relevant year but also thecarry forward loss (Rs.93,193/-) of the precedingassessment year. The respondent No.1 held that ifthe carried forward loss of the earlier year isignored then the tax paid is rendered inadequatethereby resulting in non-compliance of the provisionsof Section 245D(2A) and accordingly held that theproceedings abated. 6. Reply has been filed by respondent No.3. The same objections based on which the respondent No.1 7. petition are:- The questions for our consideration in this (i) Whether the carry forward loss is not to be taken into account for computing the totalincome. (ii) Whether any payment made after 31stJuly, 2007 can be considered for the purposeof compliance with the requirement of Section245-C(1). 8. We proceed to answer the second issue first. Admittedly the excess amount based on the contentionsurged by the respondents was paid only on 13thNovember, 2007 on payment of additional tax onRs.92,317/- which is beyond the period prescribed interms of Section 245-D(2A). The only contentionraised on behalf of the petitioners is by placingreliance on the judgment of a learned Bench of theKarnataka High Court in the case of D.Komalakshi &Anr. vs. Deputy Commissioner of Income-tax, 292 ITR99 (Karnataka), where also the amount due and payablewas not paid on time. The learned Bench of theKarnataka High Court, however, granted four weekstime to make payment of the admitted amount beforethe authority. Section 245-D(2A) reads as under:- "(2A). Where an application was made under section 245C before the 1st day of June,2007, but an order under the provisions ofsub-section (1) of this section, as theystood immediately before their amendment bythe Finance Act, 2007, has not been madebefore the 1st day of June, 2007, suchapplication shall be deemed to have beenallowed to be proceeded with if theadditional tax on the income disclosed insuch application and the interest thereon ispaid on or before the 31st day of July, 2007.Explanation.-- In respect of the applicationsreferred to in this sub-section, the 31st dayof July, 2007 shall be deemed to be the dateof the order of rejection or allowing theapplication to be proceeded with undersub-section (1)." "(2A). Where an application was made under section 245C before the 1st day of June,2007, but an order under the provisions ofsub-section (1) of this section, as theystood immediately before their amendment bythe Finance Act, 2007, has not been madebefore the 1st day of June, 2007, suchapplication shall be deemed to have beenallowed to be proceeded with if theadditional tax on the income disclosed insuch application and the interest thereon ispaid on or before the 31st day of July, 2007.Explanation.-- In respect of the applicationsreferred to in this sub-section, the 31st dayof July, 2007 shall be deemed to be the dateof the order of rejection or allowing theapplication to be proceeded with undersub-section (1)." This sub-section along with some other sub-sectionsto Section 245-D, were introduced by Finance Act,2007 with effect from 1st June, 2007. The judgmentof the Division Bench of the Karnataka High Court isdated November 8, 2006 i.e. before the amendment.That judgment, therefore, cannot be considered whileconstruing the provisions as amended. In our opinionconsidering the mandate of Section 245-D(2A) thelprovision will have to be construed as mandatory,meaning thereby that the additional tax had to bepaid on or before 31st July, 2007. If that was notpaid, in terms of Explanation, 31st July, 2007 shall be deemed to be the date of the order of rejection. There is, therefore, no discretion in the RespondentNo.1 to condone the delay or accept the additionalamount after 31st July, 2007 as the applicationitself stands rejected by operation of law. Oncethere being no power in the Respondent No.1 it is notpossible to read a power in this Court in theexercise of the extra ordinary jurisdiction underArticle 226 read with Article 227 of the Constitutionof India. The normal construction to be placed bothon literal construction and/or any other mode ofconstruction is that the payment of additional taxhad to be made on or before 31st July, 2007. In theinstant case that was not so done and consequentlythe fact that the petitioners paid the purportedshortfall on 13th November,inconsequential and of no effect. 2007 would be 9.The second question on facts here, however,remains whether the tax paid on the income asdeclared by the petitioners is in terms of Section245-C read with Section 245-D. What, therefore, isthe meaning of the expression "Income" on which thetax had to be paid or the additional amount of IncomeTax payable on the income disclosed. In the normalcourse the petitioner under the provisions of the Actwas entitled to carry forward the loss whilecomputing the tax to be paid. 2007 would be 9.The second question on facts here, however,remains whether the tax paid on the income asdeclared by the petitioners is in terms of Section245-C read with Section 245-D. What, therefore, isthe meaning of the expression "Income" on which thetax had to be paid or the additional amount of IncomeTax payable on the income disclosed. In the normalcourse the petitioner under the provisions of the Actwas entitled to carry forward the loss whilecomputing the tax to be paid. while computing the income on which tax is payableunder Section 245-C read with Section 245-D of theIncome Tax Act. We may firstly refer to the judgmentrelied upon by the petitioner in the case ofCommissioner of Income-tax vs. Shirke ConstructionEquipment Ltd.. (2007) 291 ITR 380 (S.C.).Tthe Courtnoted that in IPCA Laboratory Ltd. vs. DeputyC.I.T. 266 ITR 521 the Court had taken a view that(i) Section 80HHC of the Act is not independent ofSection 80AB and would be governed by Section 80AB;and (ii) losses were to be set off against theprofits earned from export of self-manufacturedgoods. Based on that it is submitted that whileconsidering the income it was open to the petitionersto have set off the carry forward losses whilecomputing the total income and in that context thetax that had to be computed and paid had beencorrectly paid in terms of the income disclosed bythe petitioners and consequently the petitionersapplication could not have been treated as abated.Section 245-C(1B) provides that in the event theapplicant has not furnished a return in respect ofthe total income of that year, then, tax shall becalculated on the income disclosed in the applicationas if such income were the total income. "Income"has been defined under Section 2(45) of the I.T.Act. In so far as Section 245-C is concerned theadditional amount of income tax payable in respect ofthe income disclosed in the application related tothe previous year in case where return has not been filed the amount calculated under that clause and incase whether the return has been filed the amount oftax tax calculated on the total income return forthat year. It would be clear, therefore, fromconsidering the aforesaid provisions what is payableis tax on the total income. That would mean thatwhatever allowance or disallowance that the assesseeis entitled to. If the assessee is entitled to carryforward the loss of the previous year then the totalincome has to be calculated in that manner. TheSettlement Commission while considering as to whetherthe tax has been paid as contemplated by Section245D(2A) has to examine whether that tax is on thetotal income as disclosed. If the argument of therespondent-Revenue is to be accepted that would meanthat the assessee while working out the total incomeif entitled to any deduction, would not be soentitled and because he has applied under Section245-C would have to pay the tax on income whichotherwise would not have been payable. In ouropinion this is not what Section 245C or for thatmatter Section 245D contemplates. The provisionswere enacted so as to enable tax compliance so thatthe additional tax is paid and the party can avail ofthe benefits including non-prosecution. A reading ofthe Section cannot result in holding that ifotherwise the assessee was entitled to the benefitsof allowance or disallowance that cannot beconsidered for the purpose of working out the totalincome under Section 245-C. .In our opinion the respondent NO.1 in holding .In our opinion the respondent NO.1 in holding that the tax was also payable on the loss carriedforward totally ignored the imperative language ofSection 245-C and 245-D. The tax payable would be onthe income as set out in Section 245 of the IncomeTax Act. In the instant case if the petitioner wasentitled to carry forward the loss of Rs.92,370/- thepetitioner has correctly paid the tax and on thispoint there is no dispute. The only dispute waswhether Petitioner could carry forward the loss ofthe preceding assessment year. In our opinion thatcould have been done by the assessee. Consideringthe above in our opinion the finding recorded byrespondent No.1 that the tax was not paid clearlydiscloses an error of law apparent on the face of therecord. The consequences is that finding recordedthat the application has abated, has to be set aside.The application filed by the petitioner in theabsence of any other reasons given by respondent No.1for rejecting the application is to be treated as anapplication to be proceeded with. 11.Rule made absolute accordingly. There shall be no order as to costs. (R.S.MOHITE, J.) (F.I. REBELLO, J)