Full Judgment Text
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
BENCH AT AURANGABAD
TAX APPEAL NOS.37/2005 TO 41/2005 AND 43/2005 TO
50/2005
TAX APPEAL NO.37/2005
Sk.Muneer Sk.Mannu Choudhary,
age 65 yrs., occu.business,
r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3(1), Aurangabad.
..Respondent..
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TAX APPEAL NO.38/2005
Master Oil Company,
Through its Proprietor,
Sk.Muneer Sk.Mannu Choudhary,
age 65 yrs., occu.business,
r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
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TAX APPEAL NO.39/2005
Sk.Khalil Sk.Mannu Choudhary,
age 50 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through General Power of Attorney
Sk.Muneer Ssk.Mannu Choudhary,
age 65 yrs., occu.business
r/o Jinsi, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
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TAX APPEAL NO.40/2005
M/s Choudhary & Sons,
a proprietary concern of
Sk.Fattu Sk.Mannu Choudhary,
age 50 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through General Power of Attorney
Sk.Muneer Sk.Mannu Choudhary,
age 65 yrs., occu.business,
r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3(1), Aurangabad.
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..Respondent..
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TAX APPEAL NO.41/2005
Sk.Aziz Sk.Munir Choudhary,
age 60 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
Attorney Sk.Muneer Sk.Mannu
Choudhary, age 65 yrs., occu.
business r/o Old Mondha,
Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3(1), Aurangabad.
..Respondent..
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TAX APPEAL NO.43/2005
M/s K.C. & Company,
Through its proprietor
Sk.Muneer Sk.Mannu Choudhary,
age 65 yrs., occu.business,
r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
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TAX APPEAL NO.44/2005
Sk.Nazir Sk.Kasim Choudhary,
age 27 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
Attorney Sk.Muneer Sk.Mannu
Choudhary, age 65 yrs., occu.business,
r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3(1), Aurangabad.
..Respondent..
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TAX APPEAL NO.45/2005
Sk.Azim Sk.Fattu Choudhary,
age yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
Attorney Sk.Muneer Sk.Mannu
Choudhary, age yrs., occu.
business r/o Old Mondha,
Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
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TAX APPEAL NO.46/2005
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Ashok Brothers,
through its General Power of Attorney,
Sk.Muner Sk.Mannu Choudhary,
age 65 yrs., occu.business,
r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
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TAX APPEAL NO.47/2005
Sk.Nazim Sk.Fattu Choudhary,
age 27 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
Attorney Sk.Muneer Sk.Mannu
Choudhary, age 65 yrs., occu.
business r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3(1), Aurangabad.
..Respondent..
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TAX APPEAL NO.48/2005
Sk.Kasim Sk.Mannu Choudhary,
age 50 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
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Attorney Sk.Muneer Sk.Mannu
Choudhary, age 65 yrs., occu.
business r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3(1), Aurangabad.
..Respondent..
TAX APPEAL NO.49/2005
Sk.Saieed Sk.Munir Choudhary,
age 30 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
Attorney Sk.Muneer Sk.Mannu
Choudhary, age 65 yrs., occu.
business r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
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TAX APPEAL NO.50/2005
Amir Khan Mohd.Khan Pathan,
age 55 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
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Attorney Sk.Muneer Sk.Mannu
Choudhary, age 65 yrs., occu.
business r/o Old Mondha, Aurangabad.
..Appellant.
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
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.....
Shri S.V. Gangapurwala, Advocate for appellants.
Shri Alok Sharma, Assistant Solicitor General for
respondent.
.....
CORAM: N.V. DABHOLKAR &
M.G. GAIKWAD, JJ.
DATE: 14/15.3.2007
ORAL JUDGMENT (Per Dabholkar, J.) :
1. All these are appeals u/s 260-A of the
Income Tax Act, 1961, and since the facts are
absolutely similar / identical and the same
question of law is raised in all the appeals, those
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are being considered for disposal by this common
judgment. (Henceforth we shall refer the appellant
as "assessee" for the sake of brevity and the
respondent as "department").
2. A search was conducted by the authorities
of the department in accordance with the provisions
of Section 132 of the Income Tax Act, 1961
(henceforth referred to as the Act for the sake of
brevity) in the premises of the appellants on
24.9.1998. Certain assets, cash, documents and
books of accounts were seized from the premises of
all the appellants. On 9.10.1998, the appellants
requested Assistant Director of the Income Tax
(Investigation) for inspection of the seized
documents and xerox copies of some of those.
Similar prayer was repeated on 3.3.1999 and
6.4.1999. On 5.7.1999, Assessing Officer directed
the appellants to pay requisite copying charges for
obtaining xerox copies of the seized documents.
The assessee submitted copy of the challen
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regarding deposit of copying charges and requested
for the copies of seized documents on 30.7.1999.
On 11.10.1999, the Assessing Officer directed the
assessee to arrange for a xerox machine for the
purpose of getting the documents xeroxed.
Ultimately, copies of the seized documents were
furnished to the appellants on 1.11.1999.
. In the meanwhile, on 28.2.1999, the
Assessing Officer issued a notice u/s 158-BC (a) of
the Act asking the assessee to file the return
within 16 days from the date of notice. It is the
claim of the appellants that taking into
consideration the time required for furnishing the
copies, the Assessing Officer had extended the
time for the purpose of filing the return and the
time was extended till 24.2.2000 (In fact, on
referring to the documents, it appears that it was
only on 17.3.2000, the Assessing Officer refused to
extend the time for filing return in response to
notice u/s 158-BC(a) of the Act).
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. Deputy Commissioner of Income Tax, Circle
3(1), Aurangabad, on 29.9.2000 passed an order u/s
158-BC (c), undisclosed income of the appellants
was determined and these amounts are different in
case of each appellant. Levy of interest u/s
158-BFA(1) of the Act was ordered because of delay
in filing the return. (It is the contention of the
appellants that they filed the return some time in
August, 2000). Penalty u/s 158-BFA (2) was
directed to be considered by initiating separate
penalty proceedings.
. This order was challenged by the appellants
before Commissioner of Income Tax (Appeals)-II,
Aurangabad. The appeals were dismissed by judgment
and order dated 11.3.2002. The learned
Commissioner concluded the order thus:
".........In my opinion, therefore, even on
merits, the appellant does not have a
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strong case.
10. However, as there is no provision for
appeal against charging of interest, I
decline to interfere with the order of AO."
. On going through the order, it is evident
that the reasons for delayed filing of return were
pleaded before the learned Commissioner (Appeals),
which did not find favour with him and, therefore,
he has recorded a conclusion saying that even on
merits, the appellants do not have a strong case.
However, mainly the appeal is dismissed as
unavailable remedy.
. The assessees carried the matter before
Income Tax Appellate Tribunal, Pune Bench, Pune,
which authority also considered all 14 appeals
together on one common issue i.e. levy of interest
u/s 158-BFA (1) of the Act. After considering the
rival contentions and the judicial precedents
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placed before them, learned Members of ITAT
dismissed the appeals and the conclusion can be
read in para 33 thus:
"In view of the discussions in the above
paragraphs, we hold that u/s 246-A of the
Act, an appeal is not provided against levy
of interest u/s 158-BFA(1). Since the
appeal filed by assessee has been held as
not maintainable, the other grounds
relating to the quantum of interest have
become infructuous. The order of CIT (A)
is, therefore, upheld."
. Thus, the decision of Commissioner of
Income Tax (Appeals) that remedy of appeal was not
available to the assessees is upheld by the ITAT
and the appellants are before us challenging the
said decision.
3. Heard respective counsel.
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4. We may state here itself the grounds of
appeal those were pleaded by the assessees before
Commissioner of Income Tax (Appeals):
"The order of the AO is arbitrary, contrary
to the fact and bad in law.
The interest levied by the AO is just
mechanical __________ and hence the same
should be cancelled."
. On reference to Column 9 in Form No.35 of
the appeal memo, the purpose of appeal can be
judged.
"9. Where a return has been Appeal preferred
filed by appellant for the is against the
assessment year in connection charging of
with which the appeal is interest u/s
preferred, whether tax due on 158-BFA (1)
the income returned has been
paid in full (if the answer is
in the affirmative, give details
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of date of payment and amount
paid)"
. The grounds of appeal are specifically
reproduced because the only issue under
consideration, for its adjudication, may require a
reference as to the nature of challenge raised by
the assessee in the appeal before CIT (Appeals).
5. Section 246-A is the provision relevant
providing a remedy of appeals against orders.
Advocate Shri Gangapurwala for all the assessees
has placed reliance upon clauses (k) and (l) of
sub-section (1) of the said section. We may
usefully reproduce the part of said Section 246-A,
which we feel necessary to be referred for the
purpose of adjudication of these appeals:
"246-A - Appealable orders before
Commissioner (Appeals) :
(1) Any assessee aggrieved by any of the
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following orders (whether made before or
after the appointed day) may appeal to the
Commissioner (Appeals) against -
(a) an order against the assessee where the
assessee denies his liability to be
assessed under this Act or an intimation
under sub-section (1) or sub-section 1B of
Section 143, where the assessee objects to
the making of adjustment, or any order of
assessment under sub-section (3) of Section
143 or Section 144, to the income assessed
or to the amount of tax determined or to
the amount of loss computed, or to the
status under which he is assessed. ......
(k) an order of assessment made by an
Assessing Officer under clause (c) of
Section 158-BC in respect of search
initiated u/s 132 or books of account,
other documents or any assets requisitioned
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u/s 132-A on or after the 1st day of
January, 1997;
(l) an order imposing a penalty under
sub-section (2) of Section 158-BFA."
. As is done by the adjudicating authorities
of the department, learned Assistant Solicitor
General has placed reliance upon the text of
Section 246-A to the extent reproduced hereinabove
and has submitted that clause (a) provides an
appeal against an order of assessment where the
assessee denies his liability to be assessed,
clause (k) is specific provision where an assessee
can challenge an assessment u/s 158-BC (c) carried
out after search initiated u/s 132. Thus, clause
(k) enables a person, who is charged by the
department of being guilty of undisclosed income
and tax payable on such undisclosed income is
assessed by the department u/s 158-BC (c) of the
Act to prefer an appeal against such assessment.
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Clause (l) provides an appeal in case penalty as
u/s 158-BFA(2) is imposed while doing the
assessment u/s 158-BC (c) about undisclosed income
of an assessee. Learned Assistant Solicitor
General emphasised that there is no clause, which
provides an appeal against the order levying
interest as empowered by Section 158-BFA (1).
. In order to meet this challenge, learned
counsel for the appellants has placed reliance
upon couple of judicial pronouncements.
DATE: 15.3.2007
. AIR 1987 Supreme Court, 438 - Central
Provinces Manganese Ore Co. Ltd. V/s C.I.T. was
relied upon by Advocate Shri Gangapurwala for dual
purpose. He advanced two propositions on the basis
of observations of the Hon’ble Apex Court within
the reported judgment. He propounded that levy of
interest is a process of assessment and, therefore,
if an appeal is provided against assessment, by
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virtue of Section 246-A of the Act, it must be said
that appeal is also provided against part of
assessment i.e. levy of interest. As a second
line of argument, he submitted that only as against
levy of interest, appeal is available, although the
scope of such appeal is restricted to the denial of
liability as laid down by the Hon’ble Apex Court.
. In para 8 of the said judgment, the Hon’ble
Apex Court observed thus:
"At the very outset, it is necessary to
consider the nature of the levy of interest
under sub-s.(8) of S.139 and under S.215.
It is not correct to refer to the levy of
such interest as a penalty. The expression
"penal interest" has acquired usage, but is
in fact an inaccurate description of the
levy. Having regard to the reason for the
levy and the circumstances in which it is
imposed it is clear that interest is levied
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by way of compensation and not by way of
penalty. The Income-tax Act makes a clear
distinction between the levy of a penalty
and other levies under that statute.
Interest is levied under sub-s.(8) of S.139
and under S.215 because by reason of the
omission or default mentioned in the
relevant provision the Revenue is deprived
of the benefit of the tax for the period
during which it has remained unpaid. The
very period for which interest is levied
under the relevant provision points to the
nature of the levy. If that is borne in
mind, it will be apparent that the levy of
interest is part of the process of
assessment."
. In view of the terminal part of the
observations quoted hereinabove, it is the
submission of Advocate Shri Gangapurwala that if
interest is part and parcel of the assessment,
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Section 246-A(1) Clause (k), which allows an order
of assessment passed by the Assessing Officer under
Clause (c) of Section 158-BC to be appealed
against, also enables the assessee to prefer an
appeal against the order of levy of interest. We
feel that observations of the Supreme Court in para
9, which we are reproducing hereinbelow partly
reply the argument advanced by Advocate Shri
Gangapurwala:
"Now the question is whether orders levying
interest under sub-s.(8) of S.139 and under
S.215 are appealable under S.246 of the
Income-tax Act, Cl.(c) of S.246 provides an
appeal against an order where the assessee
denies his liability to be assessed under
the Act or against any assessment order
under sub-s.(3) of S.143 or S.144, where
the assessee objects to the amount of
income assessed or to the amount of tax
determined or to the amount of loss
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computed or to the status under which he is
assessed. Inasmuch as the levy of interest
is a part of the process of assessment, it
is open to an assessee to dispute the levy
in appeal provided he limits himself to the
ground that he is not liable to the levy at
all."
. We read the observations in two parts.
There need be no controversy that Clause (c) of
Section 246 provides an appeal against an order
where the assessee denies his liability to be
assessed, for any of the reasons stated in those
observations. We are of a considered view that the
clause underlined for the purpose of emphasis i.e.
"to dispute the levy in appeal" would be required
to be read as disputing the levy of interest in an
appeal challenging the assessment (original
assessment and not only assessment of interest) on
the ground that assessee is not liable to be
assessed. If the original assessment itself is
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challenged, in the said appeal, the assessee can
certainly challenge the levy of interest. However,
according to Advocate Shri Gangapurwala, the
terminal part of this quotation hereinabove
indicates that levy of interest only can be
challenged, although to a limited extent that he is
not liable to the levy at all. If the clause "to
dispute levy in appeal" is read as understood by us
and described hereinabove, in that case, the
challenge to the levy of interest, although raised
within the appeal against entire assessment would
be limited. But it is the submission of Advocate
Shri Gangapurwala that by virtue of the portions
underlined for the purpose of emphasis in the two
quotations hereinabove, enables the assessee to
prefer an appeal challenging the levy of interest,
without challenging the assessment, although to a
limited extent i.e. he is not liable to levy of
interest.
. In second sub-paragraph of para 9 of the
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judgment, the Hon’ble Supreme Court reproduced
observations of Karnataka High Court in the matter
of National Products V/s Commissioner of
Income-tax, Mysore - (1977) 108 ITR, 935, which
read thus:
"All decided cases except one have
uniformly taken the view that levy of
interest under section 18A (6) or section
18A (8) of the 1922 Act or levy of interest
under section 215 of the Act is not
appealable but in the appeal against a
regular assessment, it is open to the
assessee to take every contention which, if
accepted, must result in the Income-tax
Officer holding that there was no liability
to pay advance tax and, therefore, there
was no liability to pay penal interest."
. We feel that these observations of
Karnataka High Court reproduced with approval by
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the Hon’ble Apex Court support our interpretation
of the observations in the first sub-paragraph of
para 9 of the judgment. The appeal as against levy
of interest is within the womb of appeal as against
entire assessment. The observations that levy of
interest is part of the process of assessment, we
feel, are, therefore, required to be read also in
the light of these further observations of the
Supreme Court. Second sub-paragraph of para 9 is
concluded thus;
"......... but if the assessee does not
dispute the amount of advance tax
determined as payable by the Income-tax
Officer, he merely cannot object to the
levy of penal interest or question its
quantum."
. These observations again support our
understanding of the observations of the Supreme
Court in earlier para 8 and earlier part of para 9
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that appeal available as against levy of interest,
as expressed by the Apex Court, is an appeal within
the womb of an appeal against total assessment. We
shall be fortified by further observations in third
sub-para of para 9 and we quote:
"The levy of penal interest under section
139 or section 215 is made in the regular
assessment order; the demand issued
pursuant to the assessment order is for the
total amount of liability imposed inclusive
of tax and interest. ..... ..... ......
...........................................
It is, therefore, clear that levy of
penal interest under sections 139
and 215 is part of the assessment.
When such penal interest is levied
the assessee is "assessed", meaning
thereby, he is subjected to the
procedure for ascertaining and
imposing liability on him. If the
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assessee denies his liability to be
assessed under the Act, he has a
right of appeal to the Appellate
Assistant Commissioner against the
order of assessment. Where penal
interest is levied under section 215
by the order of assessment, the
assessee may altogether deny his
liability to pay such interest on
the ground that he was not liable to
pay advance tax at all or that the
amount of advance tax determined by
the Income-tax Officer as payable
ought to be reduced. In either case
he denies his liability, wholly or
partially, to be assessed.
Similarly, where interest is levied
under section 139 of the Act, the
assessee may deny his liability to
pay such interest on the ground that
the return was not belated or that
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the penal provision was not
attracted at all to his case. In
such a case also he denies his
liability to be assessed to
interest." (emphasis added)
. After considering the decision of Gujarat
High Court in the matter of Bhikhoobhai N. Shah
V/s Commissioner of Income-tax, Gujarat V - (1978)
114 ITR, 197, which is also relied upon by Advocate
Shri Gangapurwala, the Supreme Court concluded its
observations thus:
"But we have no hesitation in endorsing the
legal position which has commonly found
favour with the two High Courts. We hold
that the question whether a case is made
out for waiver or reduction of the interest
levied under sub-s.(8) of S.139 or under
S.215 cannot be the subject of an appeal
under clause (c) of S.246 of the Income-tax
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Act."
. These observations clearly distinguish that
refusal to reduce or waive the penal interest is
not part and parcel of the assessment and,
therefore, is not at all assailable by an appeal.
In the matter at hands, we are not concerned with
such a situation, because it is not the case of
assessee that he had prayed for reduction or waiver
of the interest levied and such a prayer was
rejected by the authorities.
6. In the case of Bhikhoobhai, a Division
Bench of Gujarat High Court observed thus;
"No appeal lies against an order levying
penal interest either under section 139 or
section 215 or under section 217 if in the
appeal the assessee merely challenges the
quantum of penal interest or failure on the
part of the Income-tax Officer to waive
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penal interest or to reduce penal interest.
If, however, the assessee denies his
liability to pay penal interest at all (a)
on the ground that he was not liable to pay
advance tax at all in the case of levy of
penal interest under section 215 or section
217, or (b) contends that the conditions
for the exercise of the power to levy penal
interest under section 139 did not exist in
his case, it would be open to him to
challenge the order levying penal interest
because in such an eventuality he would be
challenging his liability to be assessed
and would be denying his liability to be
assessed at all to penal interest."
. It must be said that observations of
Gujarat High Court do support the submission
advanced by Advocate Shri Gangapurwala. The
Division Bench of Gujarat High Court has expressed
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in unambiguous words that appeal against levy of
interest is available, although to a limited extent
i.e. denying a liability to be assessed for levy
of interest and that too by demonstrating that the
conditions for exercise of the power to levy
interest did not exist.
7. In fact, both the propositions advanced by
Advocate Shri Gangapurwala that levy of interest is
part and parcel of assessment and that appeal
against levy of interest is available, although
scope of such appeal may be limited to denial of
liability to be assessed, stand supported by the
case law relied upon by him. However, before
applying those observations to the matter at hands,
we are required to take into consideration as to
whether the provisions under which appellants are
assessed for penal interest are peri materia with
the provisions regarding which the observations in
the reported judgment are recorded.
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. The cases relied upon interpret the
provisions of Sections 139, 215 and 246 of the Act.
The interest is chargeable u/s 215 of the Act when
the advance tax self assessed by the assessee and
paid is less than 75% of the advance tax as may be
assessed by the Assessing Officer. Provision
regarding interest, so far as Section 139 of the
Act is concerned, is contained in sub-section (8)
(a) of the said provision. The interest is levied
u/s 139 (8) (a) for default in filing return on or
before specified date. Hence, it must be said that
Section 139 (8) (a) is more closer to Section
158-BFA. This is because the interest leviable
under both these provisions is on account of
default on the part of assessee to submit the
return before specified date and before the time
prescribed in the notice.
. However, we must keep in mind that Section
139 and Sections 158-BFA r/w 158-BC are placed in
two different chapters of the Act. Section 139 is
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comprised in Chapter XIV titled as "Process for
Assessment", whereas Sections 158-BFA and 158-BC
are included in Chapter XIV-B inserted by Act
22 of 1995 with effect from 1.7.1995. This
chapter is titled as "Special Procedure for
Assessment of Search Cases". While taking into
consideration any provisions levying either tax or
interest or penalty from the two chapters, we must
bear in mind that the assessee covered by the two
chapters do not stand on the same footing. The
assessee covered under Chapter XIV is an ordinary
assessee, whereas the assessee as covered under
Chapter IXV-B is one, who is charged by the
Department of being guilty of suppressing his
income of having undisclosed income, which is
required to be unearthed by search and seizure. It
may not be out of place to say that the assessee of
the second category is bound to be dealt with
stringent law.
. On reference to Section 139 (8)(a) and more
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particularly reference to the proviso to the said
sub-section, it is evident that the Assessing
Officer in such cases and under such circumstances,
as may be prescribed, is empowered to reduce or
waive the interest payable by any assessee under
the said sub-section i.e. interest charged for
default in submitting return before specified date.
Although we have abandoned comparison of Section
215 with Section 158-BFA r/w 158-BC, because
interest levied under the said provision is for
reason different than default in submitting return
within time limit, it may usefully be pointed out
that sub-section (4) of Section 215 empowers the
Assessing Officer to either reduce or waive the
interest levied. On reference to Section
158-BFA(1), such discretion in favour of the
Assessing Officer is conspicuously absent. Section
158-BFA(2) is regarding levying of penalty and it
is evident from the text of said sub-section (2)
that imposition of penalty is not mandatory and the
said sub-section again contains a proviso laying
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down the circumstances when no order imposing such
penalty shall be made. Within sub-section (1) of
Section 158-BFA, there is no provision empowering
the Assessing Officer either to reduce the interest
or to waive it or to come to a conclusion that it
need not be levied. The ;provision is couched in
the words "The assessee shall be liable to pay
simple interest....." Thus, there is no option or
escape from interest leviable u/s 158-BFA (1) to an
assessee, who is being assessed only after raid and
search u/s 132 of the Act.
. For the purpose of emphasis, we may refer
to Section 158-BC (a) (ii), which is pertaining to
the notice period and the same reads:
"(ii) in respect of search initiated or
books of account or other documents or any
assets requisitioned on or after the 1st
day of January, 1997, serve a notice to
such person requiring him to furnish within
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such time not being less than fifteen days
but not more than forty-five days,
as may be specified in the notice, a return
in the prescribed form ........."
. The provision does not seem to keep any
room enabling the Assessing Officer to grant time
extension beyond forty-five days.
. The learned Commissioner of Income-tax
(Appeals), therefore, appears to be justified in
recording observations in para 9 that the language
of Section 158-BC (a) (ii) does not indicate that
the Assessing Officer had any discretion to grant
time extension.
. For the reasons discussed hereinabove and
in the light of distinction between the scheme of
assessment of income, the tax payable, interest and
penalty leviable against two types of assessees, we
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must say that whether observations in the cases
relied upon apply to the case of present appellants
itself is doubtful. However, we shall revert to
this aspect a little later.
8. Even if the ratio relied upon by learned
counsel Shri Gangapurwala from the judgment of
Bhikhoobhai (supra) is to be held applicable to the
case of present appellants, in that case, the
appeal challenging levy of interest as u/s 158-BFA
r/w Section 158-BC, would have a limited scope.
The appellant will have to prefer an appeal by
contending that the interest is not leviable. The
assessee will be able to deny the liability of
interest on only two grounds. This is because the
levy of interest is founded on two pillars.
Firstly, that assessee has undisclosed income,
which is unearthed by search, and secondly, he has
not submitted return within the time prescribed by
the notice u/s 158-BC (a) served upon the assessee
after such search. Naturally, the assessee will be
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able to deny the liability towards levy of interest
only by contending that he has no undisclosed
income or that he has submitted return within the
time prescribed by the notice. It is not the case
of present appellants that they have no undisclosed
income (It is for the purpose of discussion of
these reasons that we have reproduced grounds of
appeal raised by appellants before the
Commissioner, I.T. (Appeals) in para 4 of this
judgment). They have come with a case that
interest levied by Assessing Officer is just
mechanical. They have not come with a case that
they are not liable for levy of interest, because
they have submitted return within the time limit
prescribed by the notice. In the absence of any
such grounds in the appeal before the Commissioner,
even if we are to accept entire interpretation of
the word "assessment" as tried to be derived by
Advocate Shri Gangapurwala from the two reported
judgments relied upon, the appeal was unsustainable
since it did not challenge the levy of interest on
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the ground that appellants were not liable for such
levy (because they had submitted the return within
prescribed period).
. In the matter at hands, the grievance of
the appellants is mainly based on the fact that
they could get the copies of the documents seized
only on 1.11.1999 and they had been pursuing for
the same by communications dated 9.10.1998;
3.3.1999; 6.4.1999 and 5.7.1999. Unfortunately,
for the appellants, admittedly they submitted the
returns only in August, 2000, which is not within
forty-five days since the date of supply of copies
of documents. However, as described hereinabove,
unfortunately for the appellants, the Assessing
Officer has no discretion either to reduce or to
waive the interest and reduction of interest can
only be by reduction of period. The grounds as to
why return was submitted late, therefore, may not
present a sustainable appeal as contemplated by the
observations in the reported judgments, relied upon
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by Advocate Shri Gangapurwala. The appellants may
feel that they are pitted against a harsh
legislation, but that is what it is.
09. In the matter at hands, the search u/s 132
was effected on 24.9.1998. Notice u/s 158-BC(a)
was issued on 20.9.1999 granting 16 days time.
Time extension, if any, granted by the Assessing
Officer would be illegal if it was beyond
forty-five days, because the statute does not
permit him to grant a period exceeding forty-five
days for directing the assessee to submit the
return. It was open for the appellants to
challenge the entire assessment and challenge the
levy of interest within the womb of it. It was
open for the appellants to challenge the levy of
interest, if for the sake of arguments, the
observations in Bhikhoobhai’s case are available to
them, on the limited ground that they are not
liable for levy of interest because the conditions
for the exercise of the power to levy penal
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interest as contemplated by Section 158-BFA did not
exist i.e. he submitted the return within the
period prescribed or that he has no undisclosed
income. The grounds of appeal are not to this
effect and, therefore, on the facts, the appeals of
the appellants are not sustainable even if they are
considered entirely supported by the observations
in the two reported judgments.
. That time extension beyond forty-five days
shall have no effect, because grant of such
extension will be against the legal provision.
Even if we are to refer to Section 139 (a),. we
find words inserted in the said provision
indicating that time extension, if any, granted by
the Assessing Officer is inconsequential so far as
the issue of levy of interest because of default in
submitting the return within prescribed limit. The
clause inserted is "whether or not the Assessing
Officer has extended the date for furnishing the
return under sub-section (1) or sub-section (2),
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the assessee shall be liable to pay simple
interest".
10. The learned Members of ITAT in para 11 of
the judgment have referred to observations of the
Full Bench of this High Court in the matter of CIT
V/s Daimler Benz A.G. (1977) 108 ITR 961 to the
effect that unless the concerned enactment provides
for an appeal, the litigant would have no right of
appeal. Taking a clue from these observations, it
was submitted by learned Assistant Solicitor
General by referring to Section 246-A and more
particularly Clauses (k) and (l) that the said
provision provides an appeal against assessment as
made u/s 158-BC. It provides appeal against an
order imposing penalty under sub-section (2) of
Section 158-BFA. But it does not provide an appeal
against levying of interest u/s 158-BFA (1). In
fact, we find that these Clauses (k) and (l) are
also inserted in Section 246 as Clauses (d-a) and
(d-b) by Act 14 of 1997 with effect from 1.1.1997
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thereby making an appeal before Deputy Commissioner
available, which formerly was available only before
Commissioner (Appeals). The learned Members of
ITAT felt that observations of the Supreme Court in
the matter of Central Provinces Manganese Ore
Co.Ltd. (supra) were not applicable to the cases
of appellants, because no particular section of the
Income-tax Act was specifically mentioned in
relation to the word "assessment" and, therefore,
the said word was given wide meaning by the Supreme
Court so as to include the levy of interest.
(These observations in para 24 of the impugned
judgment have a reference to the observations in
para 8 of the reported judgment). On the other
hand, word "assessment" as mentioned in Clause (k)
of Section 246-A(1) is with reference to specific
Clause (c) of Section 158-BC wherein the word
"assessment’ refers only to the assessment of
undisclosed income and determination of tax payable
therein.
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. Here we intend to come back to the issue,
which we left incomplete in para 8. We have taken
into consideration other distinguishing features as
between Section 139 and Section 158-BFA in the said
para and the crucial distinction, which makes the
observations of the Supreme Court unavailable to
the appellants, can be discussed as under.
. As already stated, Sections 139 and 158-BFA
are placed in different chapters of the Act,
Section 139 is pertaining to return of income,
Section 142 is pertaining to inquiry before the
assessment and Section 143 is regarding
"assessment" as under Chapter XIV. We intend to
quote opening part of Section 143:
"143. Assessment :
(1) where a return has been made under
Section 139, or in response to a notice
under sub-section (1) of Section 142 :-
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(i) if any tax or interest is found due on
the basis of such return ....... "
. We feel that the opening part of Clause (i)
indicates that assessment as contemplated by
Section 143 as contained in Chapter XIV includes
assessment of leviable interest. As against this,
Section 158-BC, which is the provision for
procedure for block assessment and more
particularly Clauses (b) and (c), it is evident
that procedure for block assessment of an assessee,
who is being assessed after search u/s 132 does not
include within its fold assessment of leviable
interest. By virtue of Clause (b), the Assessing
Officer is required to proceed to determine the
undisclosed income of the block period in the
manner laid down by Section 158-BB. By Clause (c),
the Assessing Officer on determination of
undisclosed income of the block period is required
to pass an order of assessment and determine the
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tax payable by the assessee on the basis of such
assessment. IT is evident that determination of
interest that can be levied for default in
submitting return within prescribed limit is not
the part and parcel of the assessment u/s 158-BC as
in the case of assessment u/s 143.
. Thus, even if the word "assessment" for the
purpose of Section 139 may include within its fold
the interest levied as observed by the Supreme
Court in the reported judgment, we are afraid the
same analogy may not be applicable to the interest
levied u/s 158-BFA, because such levy of interest
is not part and parcel of "assessment" as u/s
158-BC. In fact, separate section is carved out as
158-BFA for levying interest and imposing penalty.
We are, therefore, of a considered view that the
judgments relied upon do not help the appellants to
persuade us and believe that levy of interest as
u/s 158-BFA is part of assessment and, therefore,
appeal as contemplated by Clause (k) of Section
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- 46 -
246-A(1) would enable the assessee to challenge
levy of interest independently.
. We are, therefore, in agreement with the
view taken by ITAT that levy of interest u/s
158-BFA (1) is not appealable u/s 246-A. We may
hasten to add that the levy of interest can be
appealed with full force and all possible
contentions, provided such a challenge is together
with challenge to assessment as u/s 158-BC.
11. For the reasons discussed hereinabove, we
are inclined to confirm that the appeals filed by
the appellants before the Commissioner (Appeals)
were not maintainable as such remedy of appeal
against levy of interest only is not provided by
the statute. All the appeals, therefore, are
dismissed.
(M.G. Gaikwad, J.) (N.V. Dabholkar, J.)
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ndk/c143072
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
BENCH AT AURANGABAD
TAX APPEAL NOS.37/2005 TO 41/2005 AND 43/2005 TO
50/2005
TAX APPEAL NO.37/2005
Sk.Muneer Sk.Mannu Choudhary,
age 65 yrs., occu.business,
r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3(1), Aurangabad.
..Respondent..
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
TAX APPEAL NO.38/2005
Master Oil Company,
Through its Proprietor,
Sk.Muneer Sk.Mannu Choudhary,
age 65 yrs., occu.business,
r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
::: Downloaded on - 02/06/2024 02:51:18 :::
- 2 -
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
TAX APPEAL NO.39/2005
Sk.Khalil Sk.Mannu Choudhary,
age 50 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through General Power of Attorney
Sk.Muneer Ssk.Mannu Choudhary,
age 65 yrs., occu.business
r/o Jinsi, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
TAX APPEAL NO.40/2005
M/s Choudhary & Sons,
a proprietary concern of
Sk.Fattu Sk.Mannu Choudhary,
age 50 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through General Power of Attorney
Sk.Muneer Sk.Mannu Choudhary,
age 65 yrs., occu.business,
r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3(1), Aurangabad.
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- 3 -
..Respondent..
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
TAX APPEAL NO.41/2005
Sk.Aziz Sk.Munir Choudhary,
age 60 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
Attorney Sk.Muneer Sk.Mannu
Choudhary, age 65 yrs., occu.
business r/o Old Mondha,
Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3(1), Aurangabad.
..Respondent..
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
TAX APPEAL NO.43/2005
M/s K.C. & Company,
Through its proprietor
Sk.Muneer Sk.Mannu Choudhary,
age 65 yrs., occu.business,
r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
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- 4 -
TAX APPEAL NO.44/2005
Sk.Nazir Sk.Kasim Choudhary,
age 27 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
Attorney Sk.Muneer Sk.Mannu
Choudhary, age 65 yrs., occu.business,
r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3(1), Aurangabad.
..Respondent..
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
TAX APPEAL NO.45/2005
Sk.Azim Sk.Fattu Choudhary,
age yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
Attorney Sk.Muneer Sk.Mannu
Choudhary, age yrs., occu.
business r/o Old Mondha,
Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
TAX APPEAL NO.46/2005
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- 5 -
Ashok Brothers,
through its General Power of Attorney,
Sk.Muner Sk.Mannu Choudhary,
age 65 yrs., occu.business,
r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
TAX APPEAL NO.47/2005
Sk.Nazim Sk.Fattu Choudhary,
age 27 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
Attorney Sk.Muneer Sk.Mannu
Choudhary, age 65 yrs., occu.
business r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3(1), Aurangabad.
..Respondent..
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
TAX APPEAL NO.48/2005
Sk.Kasim Sk.Mannu Choudhary,
age 50 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
::: Downloaded on - 02/06/2024 02:51:19 :::
- 6 -
Attorney Sk.Muneer Sk.Mannu
Choudhary, age 65 yrs., occu.
business r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3(1), Aurangabad.
..Respondent..
TAX APPEAL NO.49/2005
Sk.Saieed Sk.Munir Choudhary,
age 30 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
Attorney Sk.Muneer Sk.Mannu
Choudhary, age 65 yrs., occu.
business r/o Old Mondha, Aurangabad.
..Appellant..
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
TAX APPEAL NO.50/2005
Amir Khan Mohd.Khan Pathan,
age 55 yrs., occu.business,
r/o Old Mondha, Aurangabad.
Through his General Power of
::: Downloaded on - 02/06/2024 02:51:19 :::
- 7 -
Attorney Sk.Muneer Sk.Mannu
Choudhary, age 65 yrs., occu.
business r/o Old Mondha, Aurangabad.
..Appellant.
Versus
Deputy Commissioner of Income Tax,
Circle 3 (1), Aurangabad.
..Respondent..
=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=
.....
Shri S.V. Gangapurwala, Advocate for appellants.
Shri Alok Sharma, Assistant Solicitor General for
respondent.
.....
CORAM: N.V. DABHOLKAR &
M.G. GAIKWAD, JJ.
DATE: 14/15.3.2007
ORAL JUDGMENT (Per Dabholkar, J.) :
1. All these are appeals u/s 260-A of the
Income Tax Act, 1961, and since the facts are
absolutely similar / identical and the same
question of law is raised in all the appeals, those
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are being considered for disposal by this common
judgment. (Henceforth we shall refer the appellant
as "assessee" for the sake of brevity and the
respondent as "department").
2. A search was conducted by the authorities
of the department in accordance with the provisions
of Section 132 of the Income Tax Act, 1961
(henceforth referred to as the Act for the sake of
brevity) in the premises of the appellants on
24.9.1998. Certain assets, cash, documents and
books of accounts were seized from the premises of
all the appellants. On 9.10.1998, the appellants
requested Assistant Director of the Income Tax
(Investigation) for inspection of the seized
documents and xerox copies of some of those.
Similar prayer was repeated on 3.3.1999 and
6.4.1999. On 5.7.1999, Assessing Officer directed
the appellants to pay requisite copying charges for
obtaining xerox copies of the seized documents.
The assessee submitted copy of the challen
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regarding deposit of copying charges and requested
for the copies of seized documents on 30.7.1999.
On 11.10.1999, the Assessing Officer directed the
assessee to arrange for a xerox machine for the
purpose of getting the documents xeroxed.
Ultimately, copies of the seized documents were
furnished to the appellants on 1.11.1999.
. In the meanwhile, on 28.2.1999, the
Assessing Officer issued a notice u/s 158-BC (a) of
the Act asking the assessee to file the return
within 16 days from the date of notice. It is the
claim of the appellants that taking into
consideration the time required for furnishing the
copies, the Assessing Officer had extended the
time for the purpose of filing the return and the
time was extended till 24.2.2000 (In fact, on
referring to the documents, it appears that it was
only on 17.3.2000, the Assessing Officer refused to
extend the time for filing return in response to
notice u/s 158-BC(a) of the Act).
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. Deputy Commissioner of Income Tax, Circle
3(1), Aurangabad, on 29.9.2000 passed an order u/s
158-BC (c), undisclosed income of the appellants
was determined and these amounts are different in
case of each appellant. Levy of interest u/s
158-BFA(1) of the Act was ordered because of delay
in filing the return. (It is the contention of the
appellants that they filed the return some time in
August, 2000). Penalty u/s 158-BFA (2) was
directed to be considered by initiating separate
penalty proceedings.
. This order was challenged by the appellants
before Commissioner of Income Tax (Appeals)-II,
Aurangabad. The appeals were dismissed by judgment
and order dated 11.3.2002. The learned
Commissioner concluded the order thus:
".........In my opinion, therefore, even on
merits, the appellant does not have a
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strong case.
10. However, as there is no provision for
appeal against charging of interest, I
decline to interfere with the order of AO."
. On going through the order, it is evident
that the reasons for delayed filing of return were
pleaded before the learned Commissioner (Appeals),
which did not find favour with him and, therefore,
he has recorded a conclusion saying that even on
merits, the appellants do not have a strong case.
However, mainly the appeal is dismissed as
unavailable remedy.
. The assessees carried the matter before
Income Tax Appellate Tribunal, Pune Bench, Pune,
which authority also considered all 14 appeals
together on one common issue i.e. levy of interest
u/s 158-BFA (1) of the Act. After considering the
rival contentions and the judicial precedents
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placed before them, learned Members of ITAT
dismissed the appeals and the conclusion can be
read in para 33 thus:
"In view of the discussions in the above
paragraphs, we hold that u/s 246-A of the
Act, an appeal is not provided against levy
of interest u/s 158-BFA(1). Since the
appeal filed by assessee has been held as
not maintainable, the other grounds
relating to the quantum of interest have
become infructuous. The order of CIT (A)
is, therefore, upheld."
. Thus, the decision of Commissioner of
Income Tax (Appeals) that remedy of appeal was not
available to the assessees is upheld by the ITAT
and the appellants are before us challenging the
said decision.
3. Heard respective counsel.
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4. We may state here itself the grounds of
appeal those were pleaded by the assessees before
Commissioner of Income Tax (Appeals):
"The order of the AO is arbitrary, contrary
to the fact and bad in law.
The interest levied by the AO is just
mechanical __________ and hence the same
should be cancelled."
. On reference to Column 9 in Form No.35 of
the appeal memo, the purpose of appeal can be
judged.
"9. Where a return has been Appeal preferred
filed by appellant for the is against the
assessment year in connection charging of
with which the appeal is interest u/s
preferred, whether tax due on 158-BFA (1)
the income returned has been
paid in full (if the answer is
in the affirmative, give details
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of date of payment and amount
paid)"
. The grounds of appeal are specifically
reproduced because the only issue under
consideration, for its adjudication, may require a
reference as to the nature of challenge raised by
the assessee in the appeal before CIT (Appeals).
5. Section 246-A is the provision relevant
providing a remedy of appeals against orders.
Advocate Shri Gangapurwala for all the assessees
has placed reliance upon clauses (k) and (l) of
sub-section (1) of the said section. We may
usefully reproduce the part of said Section 246-A,
which we feel necessary to be referred for the
purpose of adjudication of these appeals:
"246-A - Appealable orders before
Commissioner (Appeals) :
(1) Any assessee aggrieved by any of the
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following orders (whether made before or
after the appointed day) may appeal to the
Commissioner (Appeals) against -
(a) an order against the assessee where the
assessee denies his liability to be
assessed under this Act or an intimation
under sub-section (1) or sub-section 1B of
Section 143, where the assessee objects to
the making of adjustment, or any order of
assessment under sub-section (3) of Section
143 or Section 144, to the income assessed
or to the amount of tax determined or to
the amount of loss computed, or to the
status under which he is assessed. ......
(k) an order of assessment made by an
Assessing Officer under clause (c) of
Section 158-BC in respect of search
initiated u/s 132 or books of account,
other documents or any assets requisitioned
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u/s 132-A on or after the 1st day of
January, 1997;
(l) an order imposing a penalty under
sub-section (2) of Section 158-BFA."
. As is done by the adjudicating authorities
of the department, learned Assistant Solicitor
General has placed reliance upon the text of
Section 246-A to the extent reproduced hereinabove
and has submitted that clause (a) provides an
appeal against an order of assessment where the
assessee denies his liability to be assessed,
clause (k) is specific provision where an assessee
can challenge an assessment u/s 158-BC (c) carried
out after search initiated u/s 132. Thus, clause
(k) enables a person, who is charged by the
department of being guilty of undisclosed income
and tax payable on such undisclosed income is
assessed by the department u/s 158-BC (c) of the
Act to prefer an appeal against such assessment.
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Clause (l) provides an appeal in case penalty as
u/s 158-BFA(2) is imposed while doing the
assessment u/s 158-BC (c) about undisclosed income
of an assessee. Learned Assistant Solicitor
General emphasised that there is no clause, which
provides an appeal against the order levying
interest as empowered by Section 158-BFA (1).
. In order to meet this challenge, learned
counsel for the appellants has placed reliance
upon couple of judicial pronouncements.
DATE: 15.3.2007
. AIR 1987 Supreme Court, 438 - Central
Provinces Manganese Ore Co. Ltd. V/s C.I.T. was
relied upon by Advocate Shri Gangapurwala for dual
purpose. He advanced two propositions on the basis
of observations of the Hon’ble Apex Court within
the reported judgment. He propounded that levy of
interest is a process of assessment and, therefore,
if an appeal is provided against assessment, by
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virtue of Section 246-A of the Act, it must be said
that appeal is also provided against part of
assessment i.e. levy of interest. As a second
line of argument, he submitted that only as against
levy of interest, appeal is available, although the
scope of such appeal is restricted to the denial of
liability as laid down by the Hon’ble Apex Court.
. In para 8 of the said judgment, the Hon’ble
Apex Court observed thus:
"At the very outset, it is necessary to
consider the nature of the levy of interest
under sub-s.(8) of S.139 and under S.215.
It is not correct to refer to the levy of
such interest as a penalty. The expression
"penal interest" has acquired usage, but is
in fact an inaccurate description of the
levy. Having regard to the reason for the
levy and the circumstances in which it is
imposed it is clear that interest is levied
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by way of compensation and not by way of
penalty. The Income-tax Act makes a clear
distinction between the levy of a penalty
and other levies under that statute.
Interest is levied under sub-s.(8) of S.139
and under S.215 because by reason of the
omission or default mentioned in the
relevant provision the Revenue is deprived
of the benefit of the tax for the period
during which it has remained unpaid. The
very period for which interest is levied
under the relevant provision points to the
nature of the levy. If that is borne in
mind, it will be apparent that the levy of
interest is part of the process of
assessment."
. In view of the terminal part of the
observations quoted hereinabove, it is the
submission of Advocate Shri Gangapurwala that if
interest is part and parcel of the assessment,
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Section 246-A(1) Clause (k), which allows an order
of assessment passed by the Assessing Officer under
Clause (c) of Section 158-BC to be appealed
against, also enables the assessee to prefer an
appeal against the order of levy of interest. We
feel that observations of the Supreme Court in para
9, which we are reproducing hereinbelow partly
reply the argument advanced by Advocate Shri
Gangapurwala:
"Now the question is whether orders levying
interest under sub-s.(8) of S.139 and under
S.215 are appealable under S.246 of the
Income-tax Act, Cl.(c) of S.246 provides an
appeal against an order where the assessee
denies his liability to be assessed under
the Act or against any assessment order
under sub-s.(3) of S.143 or S.144, where
the assessee objects to the amount of
income assessed or to the amount of tax
determined or to the amount of loss
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computed or to the status under which he is
assessed. Inasmuch as the levy of interest
is a part of the process of assessment, it
is open to an assessee to dispute the levy
in appeal provided he limits himself to the
ground that he is not liable to the levy at
all."
. We read the observations in two parts.
There need be no controversy that Clause (c) of
Section 246 provides an appeal against an order
where the assessee denies his liability to be
assessed, for any of the reasons stated in those
observations. We are of a considered view that the
clause underlined for the purpose of emphasis i.e.
"to dispute the levy in appeal" would be required
to be read as disputing the levy of interest in an
appeal challenging the assessment (original
assessment and not only assessment of interest) on
the ground that assessee is not liable to be
assessed. If the original assessment itself is
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challenged, in the said appeal, the assessee can
certainly challenge the levy of interest. However,
according to Advocate Shri Gangapurwala, the
terminal part of this quotation hereinabove
indicates that levy of interest only can be
challenged, although to a limited extent that he is
not liable to the levy at all. If the clause "to
dispute levy in appeal" is read as understood by us
and described hereinabove, in that case, the
challenge to the levy of interest, although raised
within the appeal against entire assessment would
be limited. But it is the submission of Advocate
Shri Gangapurwala that by virtue of the portions
underlined for the purpose of emphasis in the two
quotations hereinabove, enables the assessee to
prefer an appeal challenging the levy of interest,
without challenging the assessment, although to a
limited extent i.e. he is not liable to levy of
interest.
. In second sub-paragraph of para 9 of the
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judgment, the Hon’ble Supreme Court reproduced
observations of Karnataka High Court in the matter
of National Products V/s Commissioner of
Income-tax, Mysore - (1977) 108 ITR, 935, which
read thus:
"All decided cases except one have
uniformly taken the view that levy of
interest under section 18A (6) or section
18A (8) of the 1922 Act or levy of interest
under section 215 of the Act is not
appealable but in the appeal against a
regular assessment, it is open to the
assessee to take every contention which, if
accepted, must result in the Income-tax
Officer holding that there was no liability
to pay advance tax and, therefore, there
was no liability to pay penal interest."
. We feel that these observations of
Karnataka High Court reproduced with approval by
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the Hon’ble Apex Court support our interpretation
of the observations in the first sub-paragraph of
para 9 of the judgment. The appeal as against levy
of interest is within the womb of appeal as against
entire assessment. The observations that levy of
interest is part of the process of assessment, we
feel, are, therefore, required to be read also in
the light of these further observations of the
Supreme Court. Second sub-paragraph of para 9 is
concluded thus;
"......... but if the assessee does not
dispute the amount of advance tax
determined as payable by the Income-tax
Officer, he merely cannot object to the
levy of penal interest or question its
quantum."
. These observations again support our
understanding of the observations of the Supreme
Court in earlier para 8 and earlier part of para 9
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that appeal available as against levy of interest,
as expressed by the Apex Court, is an appeal within
the womb of an appeal against total assessment. We
shall be fortified by further observations in third
sub-para of para 9 and we quote:
"The levy of penal interest under section
139 or section 215 is made in the regular
assessment order; the demand issued
pursuant to the assessment order is for the
total amount of liability imposed inclusive
of tax and interest. ..... ..... ......
...........................................
It is, therefore, clear that levy of
penal interest under sections 139
and 215 is part of the assessment.
When such penal interest is levied
the assessee is "assessed", meaning
thereby, he is subjected to the
procedure for ascertaining and
imposing liability on him. If the
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assessee denies his liability to be
assessed under the Act, he has a
right of appeal to the Appellate
Assistant Commissioner against the
order of assessment. Where penal
interest is levied under section 215
by the order of assessment, the
assessee may altogether deny his
liability to pay such interest on
the ground that he was not liable to
pay advance tax at all or that the
amount of advance tax determined by
the Income-tax Officer as payable
ought to be reduced. In either case
he denies his liability, wholly or
partially, to be assessed.
Similarly, where interest is levied
under section 139 of the Act, the
assessee may deny his liability to
pay such interest on the ground that
the return was not belated or that
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the penal provision was not
attracted at all to his case. In
such a case also he denies his
liability to be assessed to
interest." (emphasis added)
. After considering the decision of Gujarat
High Court in the matter of Bhikhoobhai N. Shah
V/s Commissioner of Income-tax, Gujarat V - (1978)
114 ITR, 197, which is also relied upon by Advocate
Shri Gangapurwala, the Supreme Court concluded its
observations thus:
"But we have no hesitation in endorsing the
legal position which has commonly found
favour with the two High Courts. We hold
that the question whether a case is made
out for waiver or reduction of the interest
levied under sub-s.(8) of S.139 or under
S.215 cannot be the subject of an appeal
under clause (c) of S.246 of the Income-tax
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Act."
. These observations clearly distinguish that
refusal to reduce or waive the penal interest is
not part and parcel of the assessment and,
therefore, is not at all assailable by an appeal.
In the matter at hands, we are not concerned with
such a situation, because it is not the case of
assessee that he had prayed for reduction or waiver
of the interest levied and such a prayer was
rejected by the authorities.
6. In the case of Bhikhoobhai, a Division
Bench of Gujarat High Court observed thus;
"No appeal lies against an order levying
penal interest either under section 139 or
section 215 or under section 217 if in the
appeal the assessee merely challenges the
quantum of penal interest or failure on the
part of the Income-tax Officer to waive
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penal interest or to reduce penal interest.
If, however, the assessee denies his
liability to pay penal interest at all (a)
on the ground that he was not liable to pay
advance tax at all in the case of levy of
penal interest under section 215 or section
217, or (b) contends that the conditions
for the exercise of the power to levy penal
interest under section 139 did not exist in
his case, it would be open to him to
challenge the order levying penal interest
because in such an eventuality he would be
challenging his liability to be assessed
and would be denying his liability to be
assessed at all to penal interest."
. It must be said that observations of
Gujarat High Court do support the submission
advanced by Advocate Shri Gangapurwala. The
Division Bench of Gujarat High Court has expressed
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in unambiguous words that appeal against levy of
interest is available, although to a limited extent
i.e. denying a liability to be assessed for levy
of interest and that too by demonstrating that the
conditions for exercise of the power to levy
interest did not exist.
7. In fact, both the propositions advanced by
Advocate Shri Gangapurwala that levy of interest is
part and parcel of assessment and that appeal
against levy of interest is available, although
scope of such appeal may be limited to denial of
liability to be assessed, stand supported by the
case law relied upon by him. However, before
applying those observations to the matter at hands,
we are required to take into consideration as to
whether the provisions under which appellants are
assessed for penal interest are peri materia with
the provisions regarding which the observations in
the reported judgment are recorded.
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. The cases relied upon interpret the
provisions of Sections 139, 215 and 246 of the Act.
The interest is chargeable u/s 215 of the Act when
the advance tax self assessed by the assessee and
paid is less than 75% of the advance tax as may be
assessed by the Assessing Officer. Provision
regarding interest, so far as Section 139 of the
Act is concerned, is contained in sub-section (8)
(a) of the said provision. The interest is levied
u/s 139 (8) (a) for default in filing return on or
before specified date. Hence, it must be said that
Section 139 (8) (a) is more closer to Section
158-BFA. This is because the interest leviable
under both these provisions is on account of
default on the part of assessee to submit the
return before specified date and before the time
prescribed in the notice.
. However, we must keep in mind that Section
139 and Sections 158-BFA r/w 158-BC are placed in
two different chapters of the Act. Section 139 is
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comprised in Chapter XIV titled as "Process for
Assessment", whereas Sections 158-BFA and 158-BC
are included in Chapter XIV-B inserted by Act
22 of 1995 with effect from 1.7.1995. This
chapter is titled as "Special Procedure for
Assessment of Search Cases". While taking into
consideration any provisions levying either tax or
interest or penalty from the two chapters, we must
bear in mind that the assessee covered by the two
chapters do not stand on the same footing. The
assessee covered under Chapter XIV is an ordinary
assessee, whereas the assessee as covered under
Chapter IXV-B is one, who is charged by the
Department of being guilty of suppressing his
income of having undisclosed income, which is
required to be unearthed by search and seizure. It
may not be out of place to say that the assessee of
the second category is bound to be dealt with
stringent law.
. On reference to Section 139 (8)(a) and more
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particularly reference to the proviso to the said
sub-section, it is evident that the Assessing
Officer in such cases and under such circumstances,
as may be prescribed, is empowered to reduce or
waive the interest payable by any assessee under
the said sub-section i.e. interest charged for
default in submitting return before specified date.
Although we have abandoned comparison of Section
215 with Section 158-BFA r/w 158-BC, because
interest levied under the said provision is for
reason different than default in submitting return
within time limit, it may usefully be pointed out
that sub-section (4) of Section 215 empowers the
Assessing Officer to either reduce or waive the
interest levied. On reference to Section
158-BFA(1), such discretion in favour of the
Assessing Officer is conspicuously absent. Section
158-BFA(2) is regarding levying of penalty and it
is evident from the text of said sub-section (2)
that imposition of penalty is not mandatory and the
said sub-section again contains a proviso laying
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down the circumstances when no order imposing such
penalty shall be made. Within sub-section (1) of
Section 158-BFA, there is no provision empowering
the Assessing Officer either to reduce the interest
or to waive it or to come to a conclusion that it
need not be levied. The ;provision is couched in
the words "The assessee shall be liable to pay
simple interest....." Thus, there is no option or
escape from interest leviable u/s 158-BFA (1) to an
assessee, who is being assessed only after raid and
search u/s 132 of the Act.
. For the purpose of emphasis, we may refer
to Section 158-BC (a) (ii), which is pertaining to
the notice period and the same reads:
"(ii) in respect of search initiated or
books of account or other documents or any
assets requisitioned on or after the 1st
day of January, 1997, serve a notice to
such person requiring him to furnish within
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such time not being less than fifteen days
but not more than forty-five days,
as may be specified in the notice, a return
in the prescribed form ........."
. The provision does not seem to keep any
room enabling the Assessing Officer to grant time
extension beyond forty-five days.
. The learned Commissioner of Income-tax
(Appeals), therefore, appears to be justified in
recording observations in para 9 that the language
of Section 158-BC (a) (ii) does not indicate that
the Assessing Officer had any discretion to grant
time extension.
. For the reasons discussed hereinabove and
in the light of distinction between the scheme of
assessment of income, the tax payable, interest and
penalty leviable against two types of assessees, we
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must say that whether observations in the cases
relied upon apply to the case of present appellants
itself is doubtful. However, we shall revert to
this aspect a little later.
8. Even if the ratio relied upon by learned
counsel Shri Gangapurwala from the judgment of
Bhikhoobhai (supra) is to be held applicable to the
case of present appellants, in that case, the
appeal challenging levy of interest as u/s 158-BFA
r/w Section 158-BC, would have a limited scope.
The appellant will have to prefer an appeal by
contending that the interest is not leviable. The
assessee will be able to deny the liability of
interest on only two grounds. This is because the
levy of interest is founded on two pillars.
Firstly, that assessee has undisclosed income,
which is unearthed by search, and secondly, he has
not submitted return within the time prescribed by
the notice u/s 158-BC (a) served upon the assessee
after such search. Naturally, the assessee will be
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able to deny the liability towards levy of interest
only by contending that he has no undisclosed
income or that he has submitted return within the
time prescribed by the notice. It is not the case
of present appellants that they have no undisclosed
income (It is for the purpose of discussion of
these reasons that we have reproduced grounds of
appeal raised by appellants before the
Commissioner, I.T. (Appeals) in para 4 of this
judgment). They have come with a case that
interest levied by Assessing Officer is just
mechanical. They have not come with a case that
they are not liable for levy of interest, because
they have submitted return within the time limit
prescribed by the notice. In the absence of any
such grounds in the appeal before the Commissioner,
even if we are to accept entire interpretation of
the word "assessment" as tried to be derived by
Advocate Shri Gangapurwala from the two reported
judgments relied upon, the appeal was unsustainable
since it did not challenge the levy of interest on
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the ground that appellants were not liable for such
levy (because they had submitted the return within
prescribed period).
. In the matter at hands, the grievance of
the appellants is mainly based on the fact that
they could get the copies of the documents seized
only on 1.11.1999 and they had been pursuing for
the same by communications dated 9.10.1998;
3.3.1999; 6.4.1999 and 5.7.1999. Unfortunately,
for the appellants, admittedly they submitted the
returns only in August, 2000, which is not within
forty-five days since the date of supply of copies
of documents. However, as described hereinabove,
unfortunately for the appellants, the Assessing
Officer has no discretion either to reduce or to
waive the interest and reduction of interest can
only be by reduction of period. The grounds as to
why return was submitted late, therefore, may not
present a sustainable appeal as contemplated by the
observations in the reported judgments, relied upon
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by Advocate Shri Gangapurwala. The appellants may
feel that they are pitted against a harsh
legislation, but that is what it is.
09. In the matter at hands, the search u/s 132
was effected on 24.9.1998. Notice u/s 158-BC(a)
was issued on 20.9.1999 granting 16 days time.
Time extension, if any, granted by the Assessing
Officer would be illegal if it was beyond
forty-five days, because the statute does not
permit him to grant a period exceeding forty-five
days for directing the assessee to submit the
return. It was open for the appellants to
challenge the entire assessment and challenge the
levy of interest within the womb of it. It was
open for the appellants to challenge the levy of
interest, if for the sake of arguments, the
observations in Bhikhoobhai’s case are available to
them, on the limited ground that they are not
liable for levy of interest because the conditions
for the exercise of the power to levy penal
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interest as contemplated by Section 158-BFA did not
exist i.e. he submitted the return within the
period prescribed or that he has no undisclosed
income. The grounds of appeal are not to this
effect and, therefore, on the facts, the appeals of
the appellants are not sustainable even if they are
considered entirely supported by the observations
in the two reported judgments.
. That time extension beyond forty-five days
shall have no effect, because grant of such
extension will be against the legal provision.
Even if we are to refer to Section 139 (a),. we
find words inserted in the said provision
indicating that time extension, if any, granted by
the Assessing Officer is inconsequential so far as
the issue of levy of interest because of default in
submitting the return within prescribed limit. The
clause inserted is "whether or not the Assessing
Officer has extended the date for furnishing the
return under sub-section (1) or sub-section (2),
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the assessee shall be liable to pay simple
interest".
10. The learned Members of ITAT in para 11 of
the judgment have referred to observations of the
Full Bench of this High Court in the matter of CIT
V/s Daimler Benz A.G. (1977) 108 ITR 961 to the
effect that unless the concerned enactment provides
for an appeal, the litigant would have no right of
appeal. Taking a clue from these observations, it
was submitted by learned Assistant Solicitor
General by referring to Section 246-A and more
particularly Clauses (k) and (l) that the said
provision provides an appeal against assessment as
made u/s 158-BC. It provides appeal against an
order imposing penalty under sub-section (2) of
Section 158-BFA. But it does not provide an appeal
against levying of interest u/s 158-BFA (1). In
fact, we find that these Clauses (k) and (l) are
also inserted in Section 246 as Clauses (d-a) and
(d-b) by Act 14 of 1997 with effect from 1.1.1997
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thereby making an appeal before Deputy Commissioner
available, which formerly was available only before
Commissioner (Appeals). The learned Members of
ITAT felt that observations of the Supreme Court in
the matter of Central Provinces Manganese Ore
Co.Ltd. (supra) were not applicable to the cases
of appellants, because no particular section of the
Income-tax Act was specifically mentioned in
relation to the word "assessment" and, therefore,
the said word was given wide meaning by the Supreme
Court so as to include the levy of interest.
(These observations in para 24 of the impugned
judgment have a reference to the observations in
para 8 of the reported judgment). On the other
hand, word "assessment" as mentioned in Clause (k)
of Section 246-A(1) is with reference to specific
Clause (c) of Section 158-BC wherein the word
"assessment’ refers only to the assessment of
undisclosed income and determination of tax payable
therein.
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. Here we intend to come back to the issue,
which we left incomplete in para 8. We have taken
into consideration other distinguishing features as
between Section 139 and Section 158-BFA in the said
para and the crucial distinction, which makes the
observations of the Supreme Court unavailable to
the appellants, can be discussed as under.
. As already stated, Sections 139 and 158-BFA
are placed in different chapters of the Act,
Section 139 is pertaining to return of income,
Section 142 is pertaining to inquiry before the
assessment and Section 143 is regarding
"assessment" as under Chapter XIV. We intend to
quote opening part of Section 143:
"143. Assessment :
(1) where a return has been made under
Section 139, or in response to a notice
under sub-section (1) of Section 142 :-
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(i) if any tax or interest is found due on
the basis of such return ....... "
. We feel that the opening part of Clause (i)
indicates that assessment as contemplated by
Section 143 as contained in Chapter XIV includes
assessment of leviable interest. As against this,
Section 158-BC, which is the provision for
procedure for block assessment and more
particularly Clauses (b) and (c), it is evident
that procedure for block assessment of an assessee,
who is being assessed after search u/s 132 does not
include within its fold assessment of leviable
interest. By virtue of Clause (b), the Assessing
Officer is required to proceed to determine the
undisclosed income of the block period in the
manner laid down by Section 158-BB. By Clause (c),
the Assessing Officer on determination of
undisclosed income of the block period is required
to pass an order of assessment and determine the
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tax payable by the assessee on the basis of such
assessment. IT is evident that determination of
interest that can be levied for default in
submitting return within prescribed limit is not
the part and parcel of the assessment u/s 158-BC as
in the case of assessment u/s 143.
. Thus, even if the word "assessment" for the
purpose of Section 139 may include within its fold
the interest levied as observed by the Supreme
Court in the reported judgment, we are afraid the
same analogy may not be applicable to the interest
levied u/s 158-BFA, because such levy of interest
is not part and parcel of "assessment" as u/s
158-BC. In fact, separate section is carved out as
158-BFA for levying interest and imposing penalty.
We are, therefore, of a considered view that the
judgments relied upon do not help the appellants to
persuade us and believe that levy of interest as
u/s 158-BFA is part of assessment and, therefore,
appeal as contemplated by Clause (k) of Section
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246-A(1) would enable the assessee to challenge
levy of interest independently.
. We are, therefore, in agreement with the
view taken by ITAT that levy of interest u/s
158-BFA (1) is not appealable u/s 246-A. We may
hasten to add that the levy of interest can be
appealed with full force and all possible
contentions, provided such a challenge is together
with challenge to assessment as u/s 158-BC.
11. For the reasons discussed hereinabove, we
are inclined to confirm that the appeals filed by
the appellants before the Commissioner (Appeals)
were not maintainable as such remedy of appeal
against levy of interest only is not provided by
the statute. All the appeals, therefore, are
dismissed.
(M.G. Gaikwad, J.) (N.V. Dabholkar, J.)
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ndk/c143072
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