Wednesday 18 July 2012

Whether when taxable income is enhanced either under Ss 147 or 263, assessee is liable to pay interest u/s 234B - YES

THE issues before the Bench are - Whether when assessment is made for the first time u/s 147 it is to be construed as a regular assessment and Whether when taxable income is enhanced either under Ss 147 or 263, assessee is liable to pay interest u/s 234B. And the verdict goes against the assessee.
Facts of the case

The assessee filed its return on 1.1.1990 declaring an income of Rs.43,58,142/- u/s 115J of the Act. The said return was processed u/s 143(1)(a) of the Act on 26.2.1990 which resulted into a refund of Rs.1,76,518/-. Thereafter, notice u/s 148 of
the Act was issued to the assessee for the excess deduction claimed u/s 80HHC and 80-I of the Act on 28.9.1990. Notices under Ss 142(1) and 143(2) of the Act were issued on 4.7.1991. The assessment for the first time was completed on 25.8.1992 u/s 143(3)/147 of the Act at a total income of Rs.11,62,739/-. The AO computed the total income as per provisions of Section 115J of the Act at Rs.45,90,182/- and also charged interest u/s 234B of the Act. The CIT(A) partly allowed the appeal on the issue of charging of interest u/s 234B of the Act. The Tribunal upheld the order of the CIT(A) by observing that the assessment completed u/s 147 of the Act was not a regular assessment.

Further, the assessment made by the AO was revised by the department u/s 263 of the Act vide order dated 23.3.1995 and a direction was issued to the AO to withdraw relief granted u/s 80-I of the Act on the receipt of duty drawback relating to the goods exported which were manufactured by the assessee in the industrial undertaking. Accordingly, the AO made assessment u/s 143(3) of the Act on 31.1.1997 and recomputed the assessed income at Rs.68,83,294/- after recomputing deduction u/s 80-I of the Act. The interest u/s 234B of the Act was increased by Rs.9,82,000/- on account of enhancement. Against the said assessment order, the assessee filed an appeal before the CIT(A) who vide order dated 12.8.1997 upheld the quantum addition. On the issue of charging of interest u/s 234B of the Act, the CIT(A) held that the same was not chargeable as the assessment order which had been revised was not a regular assessment. Being dissatisfied, the department approached the Tribunal. The Tribunal vide order dated 3.6.2003 upheld the order of the CIT(A) and dismissed the appeal. Hence, the present appeal by the revenue.

Having heard the matter, the High Court held that,

++ it is not disputed that the earlier return which was filed by the assessee was processed u/s 143(1)(a) of the Act on 26.2.1990 and a refund of Rs.1,76,518/- was made. The assessment was framed in pursuance to the notice u/s 148 of the Act on 25.8.1992. The point for consideration would be whether the assessment which was framed on 25.8.1992 u/s 143(3)/147 of the Act was a regular assessment and, therefore, interest u/s 234B of the Act could be charged by virtue of that order. Explanation 2 to Section 234 of the Act postulates that where an assessment is made for the first time in pursuance to proceedings u/s 147, it shall be regarded as a regular assessment for the purposes of Section 234B of the Act;

++ it would be apposite to refer to the order of the Tribunal dated 28.8.2001 which had affirmed the order of the CIT(A) dated 27.11.1992 deleting the levy of interest u/s 234B of the Act in the order of assessment u/s 143(3)/147 dated 25.8.1992 passed by the AO;

++ the legal position enunciated in the order of the Tribunal dated 28.8.2001 being contrary to statutory provision and settled law as held by the Apex Court in K. Govindan and Sons's case decided on December 1, 2000, the order of the Tribunal would not affect the rights of the revenue as the law declared by the Apex Court was binding under Article 141 of the Constitution of India. Further, it may be noticed that as submitted by the revenue, no appeal u/s 260A of the Act had been filed against the order of the Tribunal dated 28.8.2001 as the tax effect involved was below monetary limit prescribed by the circulars of the CBDT. The order of the Tribunal being contrary to statutory provision and the legal enunciation of the Apex Court would be rendered ineffective in view of law propounded in Director of Settlements, A.P. and others v. M.R. Apparao and another. The Supreme Court following its earlier decision in M/s Shenoy and Co. represented by its partner, Bele Srinivasa Rao Street Bangalore and others v. Commercial Tax Officer and others had held that Article 141 of the Constitution of India empowers the Supreme Court to declare the law and statement of court on matter of facts may not have binding force but the ratio of the decision is binding. It was further observed that the judgment of the High Court or the subordinate court which does not follow the decision of the Apex Court on law would be a nullity. Thus, no indefeasible right would accrue on the basis of order of the Tribunal dated 28.8.2001 in favour of the assessee notwithstanding the fact that no appeal had been filed against the said order;
++ in the facts and circumstances of the present case, the order of the Tribunal dated 28.8.2001 would not come in the way of the revenue to invoke Section 234B of the Act. Once that is so, then the assessment order dated 31.1.1997 passed in pursuance of revisional order dated 23.3.1995 enhancing the assessed income would make the assessee liable to interest u/s 234B(4) of the Act. The CIT(A) and the Tribunal were not right in holding otherwise;

++ this Court in Commissioner of Income Tax v. M/s Upper India Steel Manufacturing and Engineering Co.Ltd. was considering identical issue of levy of interest u/s 234B and 234C of the Act where there was non-payment or short payment due to computation of income on the basis of book profits u/s 115J of the Act. The view of the High Courts of Gauhati, Madhya Pradesh, Madras and Bombay was followed and that of Karnataka High Court in Kwality Biscuits Ltd's case was dissented. It was noted that the provisions of Sections 234A, 234B and 234C of the Act were not penal but compensatory;

++ the alternative contention of the assessee is also rejected as the order of the Apex Court dismissing civil appeal reported as Kwality Biscuits Ltd's case would not come to its rescue in view of the decision of the Bench of three Judges of the Apex Court in Rolta India Ltd's case. Accordingly, the question of law is answered in favour of the revenue and against the assessee.

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