Mahavir Manakchand Bhansali vs The Commissioner Of Incometax ...
2017 Latest Caselaw 3734 Bom

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      IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                          NAGPUR BENCH : NAGPUR

                 INCOME TAX APPEAL No.42 OF 2007
                               ...


Shri Mahavir Manakchand Bhansali,
Aged about 47 years, Businessman
Dealing in gold and silver jewellery,
articles etc. at Pratap Chowk, Sarafa
Bazar, Amravati, Tah. & Dist.
Amravati, State of Maharashtra                    ..             APPELLANT


                               .. Versus ..

The Commissioner of Income Tax
Central Circle, Nagpur Aaykar Bhawan,
Telankhedi Road, Nagpur, Tah. &
Dist. Nagpur, State of Maharashtra, ..                        RESPONDENT


Mr. C.J. Thakar Advocate for Appellant.
Mr. Bhushan N. Mohta, Advocate for Respondent.

                               ....


CORAM                               : M.S. Sanklecha & Manish Pitale, JJ.
RESERVED ON                         : 16th JUNE, 2017.
PRONOUNCED ON                       : 29th JUNE, 2017.



JUDGMENT (per M.S. Sanklecha, J.)

1. This appeal under Section 260A of the Income Tax

Act, 1961 (Act) impeaches the order dated 16.06.2016 passed

by the Income Tax Appellate Tribunal, Nagpur (Tribunal). The

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impugned order relates to assessment for block period

01.04.1990 to 04.08.2000.

2. This appeal was admitted on 23.10.2007 on the

following substantial question of law:-

"Was the Tribunal justified in law in confirming charging of interest for the period of delay attributable to the revenue in supplying copies of accounts and relevant record and statements?"

3. Briefly, the facts leading to this appeal are as

follows:-

(a) On 04.08.2000 there were search and seizure

operations under Section 132 of the Act at the premises of

the appellant. During the course of the search, books of

account, documents and cash of Rs.25,00,000/- were

seized. At that time statements of the assessee and his

various family members were also recorded.

(b) On 17.04.2001 a notice was issued (served on

27.04.2001) to the appellant under Section 158-BC of the

Act. The above notice dated 17.04.2001 called upon the

appellant to file his return for undisclosed income of the

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block period i.e. 01.04.1990 to 04.08.2000 on or before

26.05.2001.

(c) On 09.05.2001 the appellant sought copies of the

statement recorded during the search as well as xerox

copies of the entire seized documents as recorded in the

panchanama. However, as the same was not furnished, the

appellant by another letter dated 24.05.2001, once again

requested the xerox copies of the documents seized and

statements recorded so as to enable him to file his return of

income. The appellant also sought inspection of the record

as early as possible to enable him to prepare his return of

income.

(d) Inspite of the aforesaid request, no copies of the

documents seized and/or statements recorded were

furnished to the appellant. However, on 03.01.2002 partial

inspection of the documents seized, i.e. account books,

record and statements was given to the appellant.

(e) Thereafter on 26.02.2002 the appellant filed his

return of income in the status of an individual. In the return

as filed, the appellant declared an income of Rs.15,00,000/-

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(Rs.14,99,850/-) on an estimate basis determining the tax

payable at Rs.9,00,000/-. In the return of income, the

appellant had appended a note that the tax payable of

Rs.9,00,000/- may be adjusted out of the seized cash.

Moreover it was also pointed out that inspection was

granted only on 03.01.2002 resulting in delay in filing the

return of income.

(f) On 29.08.2002 the Assessing Officer completed

the assessment for the block period 01.04.1990 to

04.08.2000 under Section 158BC read with Section 143(3)

of the Act determining the total undisclosed income at

Rs.15,00,000/- The tax thereon was determined at

Rs.9,90,000/- and interest payable for the delayed filing of

the return of income under Section 158BFA(1) was

Rs.1,23,750/-. The demand was adjusted against the seized

cash.

(g) Being aggrieved with the order dated 29.08.2002

of the Assessing Officer to the extent it charged interest at

Rs.1,23,750/-, the appellant filed an appeal to the

Commissioner of Income Tax (Appeals) (CIT(A)). The order

dated 29.08.2002 of the CIT(A) does record the fact that the

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total demand payable by the appellant and his brother was

approximately Rs.17,34,000/- and the amount lying with the

department was Rs.25,00,000/-. Nevertheless by the order

dated 29.08.2002 the CIT(A) dismissed the appellant-

assessee's appeal. This on the ground that in terms of

Sections 158BFA(1) of the Act, there is no discretion with

the authorities to waive the interest payable.

(h) Being aggrieved, the Appellant-Assessee carried

the issue of the payment of interest in appeal to the

Tribunal. By the impugned order dated 16.06.2006, the

Tribunal held that charging of interest was compensatory in

nature. However, in the present facts, the impugned order

holds that the delay in filing the return of income could not

be attributed to the revenue for the reason that the return

was filed on 26.02.2002 on an estimated basis disclosing

undisclosed income at Rs.15,00,000/- I.e. before copies of

the documents seized were made available to the appellant.

This indicated capacity to file a return even in the absence

of the seized records. Therefore, the explanation offered

was not found acceptable. Further the impugned order

holds that the charging of interest under Section 158-BFA(1)

of the Act is mandatory and there is no discretion available

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with the Assessing Officer not to charge interest. Thus, the

impugned order dated 16.06.2006 dismissed the appeal of

the appellant-assessee.

4. Being aggrieved, the appellant-assessee is in appeal

before us.

5. Before dealing with the rival submissions, we may

usefully reproduce Section 158-BFA (1) of the Act as in force

during the relevant time:-

"158BFA(1) - Where the return of total income including undisclosed income for the block period, in respect of search initiated under Section 132 or books of account, other documents or any assets requisitioned under Section 132A on or after the 1st day of January, 1997, as required by a notice under clause(a) of section 158BC, is furnished after the expiry of the period specified in such notice, or is not furnished, the assessee shall be liable to pay simple interest at the rate of one percent of the tax on undisclosed income, determined under clause (c) of Section 158BC, for every month or part of a month comprised in the period commencing on the day immediately following the expiry of the time specified in the notice, and-

(a) Where the return is furnished after the expiry of the time aforesaid, ending on the date of furnishing the return; or

(b) Where no return has been furnished on the date of completion of assessment under clause (c) of section 158BC".

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6.            Mr.     Thakar,         learned      counsel    appearing            for      the

appellant, in support of the appeal submits as under:-

(a) The interest under Section 158BFA of the Act is

charged for delay in filing the return of income consequent

to a notice under Section 158BC of the Act. In this case,

the delay in filing of the return was entirely attributable to

the Revenue, inasmuch as it failed to supply copies of the

seized record and account books, which were necessary for

the purposes of preparing the return of income. Further

the inspection of the record was also granted only on

03.01.2002. Therefore, the period from 26.05.2001 to

03.01.2002 is excludable while computing interest;

(b) The finding of the Tribunal that as the appellant had

filed the return of income on estimate basis even before

receiving copies of the documents as sought for, would

indicate that there was no requirement of obtaining the

documents before filing the return of income. This finding

of the Tribunal is perverse, as the return of income was

filed only after grant of inspection on 03.01.2002.

     Consequently               the    interest     payable     from       the      period





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     26.05.2001                (when the return had to be filed) till

03.01.2002 (when filed) ought to be excluded.

(c) In any case the amount of Rs.25,00,000/- had been

seized by the Revenue and was in their possession from

the date of search i.e. 04.08.2000. The tax determined

upon the appellant and his brother collectively was less

than Rs.25,00,000/-, which were seized. Consequently as

there was no delayed payment of the tax, the occasion to

charge interest would not arise, considering the fact that

the impugned order of the Tribunal itself holds that the

interest under Section 158- BFA of the Act is compensatory

in nature.

7. As against the above, Mr. Mohta, learned counsel

appearing for the Revenue submits in support of the impugned

order as under:-

A. The requirement to pay interest under Section 158-

BFA of the Act is mandatory. There is no discretion

available with the Assessing Officer to waive interest;

      B.      The amount of Rs.25,00,000/- which was seized





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cannot be adjusted against the tax determined for the

purposes of non levy of interest. This is so as the tax was

determined only on passing of the Assessment order and

prior thereto the seized amount is with the Revenue only in

trust. In the above view, it was submitted that the appeal

may be dismissed.

8. We have considered the rival submissions. Section

158-BFA(1) of the Act clearly provides that where the return of

undisclosed income for the block period consequent to a

search is not furnished within the time specified in the notice

issued under Section 158BC of the Act, the assessee is liable to

pay simple interest on the tax determined under Section

158BC(c) of the Act on the undisclosed income. This simple

interest is charged at one percent for every month

commencing from the period of the expiry of the time to file a

return as specified in Section 158BC notice till the date of filing

of the return.

9. Thus, the tax on the undisclosed income is

determined only on an assessment order being passed under

Section 158BC(c) of the Act. Therefore, any amount which may

have been seized prior thereto, cannot be adjusted against a

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demand to be ascertained on a subsequent date. The

submission on behalf of the appellant-assessee, is that the

impugned order holds that the Section 158BFA(1) of the Act is

compensatory in nature. Therefore, where the amounts

determined as tax subsequently was already with the Revenue,

no loss was caused to it. Therefore, the Revenue cannot seek

compensatory interest under Section 158BFA(1) of the Act.

This submission overlooks the fact, that prior to determination

of the tax payable on the undisclosed income, the amount

seized does not belong to the Revenue. The right to adjust the

seized cash can only be post determination of tax payable.

This has been so held by the Madras High Court in Ashok

Kumar Sethi Vs DCIT, 387 ITR 375, with which we

respectfully agree. Thus the submission that there was no

delay in paying the tax on the undisclosed income as the

amount of Rs.25,00,000/- has already been seized by the

Revenue, cannot be sustained. Moreover in the facts of the

present case the offer to adjust the amount of Rs.25,00,000/-

which had been seized with the tax which would be ultimately

determined, was only made along with the filing of the return.

Therefore, for the delay post filing of the return, it could be

argued that no interest is payable, but prior thereto there is

not even an offer made to adjust the amount. Section

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158BFA(1) of the Act seeks to recover interest only till the date

of filing of the return of income after the expiry of the period

stipulated in Section 158BC notice. Therefore, no occasion to

examine the levy of interest post the filing of return arises.

10. It was next contended that the delay in filing the

return of income is completely attributable to the revenue for

non-furnishing of copies of the documents and not giving

inspection of the documents seized, within a reasonable time

after making the demand. The notice dated 17.04.2001 under

Section 158BC of the Act called upon the appellant to file his

return of income for undisclosed income for the subject block

period on or before 26.05.2001. On 09.05.2001 and on

24.05.2001, the appellant requested the revenue to furnish him

the copies of the entire seized documents as recorded in the

panchanama including the statements made at the time of the

search. Further inspection of the seized record was also sought

so as to enable the appellant to file his return of income. In

spite of the aforesaid request, no copies of the documents

seized and/or statements recorded were furnished to the

appellant. However, on 03.01.2002 an inspection of the seized

documents was given to the appellant. Immediately thereafter

on 26.02.2002 the appellant filed his return of income. It is an

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accepted position as recorded in the impugned order that the

return of income was on an estimated basis. It was in the

aforesaid circumstances that the appellant submits that no

interest should be charged under Section 158BFA(1) of the Act,

as the delay in filing the return was entirely due to the

respondent. However, the impugned order disbelieves the

aforesaid explanation for the delay offered by the appellant on

the ground that the same is not acceptable as the return of

income has been filed even though the copies of the

documents and account books and statements which were

seized, were never furnished to the appellant, till the date he

filed his return of income. However, this finding to our mind,

overlooks the fact that the return was filed after inspection was

given to the appellant-assessee on 03.01.2002. Therefore, it is

on the basis of the inspection given to the appellant that the

return of income was filed. Thus even though no document

was furnished, the inspection given was sufficient compliance

of the requisition made by the appellant, as he had occasion

to examine his record which was seized by the revenue and file

his return of income. In these circumstances, the finding

arrived at by the impugned order that the reason for the delay

in filing the return of income made out by the appellant was

not believable, cannot be sustained. The delay is certainly

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attributable to the late giving of inspection of the seized

documents on the part of the revenue.

11. This now takes us to the final issue viz. is it open

under the provisions of Section 158-BFA(1) of the Act to the

Assessing Officer to waive interest imposable thereunder even

in the absence of any discretion provided to waive interest

under Section 158-BFA(1) of the Act. There can be no dispute

that bare reading of the section does not provide for any

discretion to waive and/or reduce the interest imposable on

account of the late filing of the return of income. It is a settled

position in law that a fiscal statute has to be strictly

interpreted, particularly when there is no ambiguity in the

statute. The normal rule of interpreting a fiscal statute is the

literal rule of interpretation. However, when the Parliament

makes a law, it proceeds on the basis that the Executive i.e.

the State will act fairly and not cause unjustified burden upon

the subject. The provisions of Section 158BFA(1) of the Act

proceeds on the above premise and it was expected of the

State to grant copies of the documents seized and/or

inspection of the record as expeditiously as possible, so as to

enable the appellant to file his return of income. This

particularly so, as to delay in filing of return, leads to levy of

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interest. This not having been done, as was expected under

the Statute, the subject cannot be made to pay for the

negligence of the Officers of the State. Therefore, in a case like

this where strict construction may result in injustice, an

equitable construction may be preferred. As observed by the

Apex Court in CIT .vs. J.H. Gotla- (1985) 4 SCC 343 :-

"Where the plain literal interpretation of a statutory provision produces a manifestly unjust result which could never have been intended by the Legislature, the Court might modify the language used by the Legislature so as to achieve the intention of the Legislature......................................................... ............................................. Though equity and taxation are often strangers, attempts should be made that these do not remain always so and if a construction results in equity rather than in injustice, then such construction should be preferred to the literal construction."

Therefore, where law and equity can both be reconciled to

achieve justice , then the same should be attempted and

achieved For after all they are not enemies.

12. In fact Mr. Thakar, learned counsel for the appellant

placed reliance upon the decision of the Delhi High Court in

Commissioner of Income-tax .vs. Mesco Airlines Ltd. -

(2010) 327 ITR 554 (Delhi) and decision of the Karnataka

High Court in Commissioner of Income Tax and another

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.vs. B. Nagendra Baliga- (2014) 363 ITR 0410 (Karn),

where both the Courts have taken a view that where there is a

delay in filing the return of income which is attributable to the

revenue in not having supplied documents sought for, then the

period attributable to that delay ought to be excluded. In both

the aforesaid cases, the Assessing Officer had delayed to

furnish necessary documents seized during the course of the

search and sought for the by the assessee. This resulted in

delay in filing the return of income. The only distinction which

exists in the facts of the above two cases with that which

arises before us, is that the return of income in both the cases

were filed on the revenue supplying the assessee with the

copies of the seized documents. In this case the return has

been filed even before the seized documents were supplied.

However, this distinction is of no consequence as the basis for

filing the return of income was the inspection of the documents

given to the appellant on 03.01.2002. Therefore, the period

between 26.02.2001 till 03.01.2002 has to be excluded for the

purposes of computing the period on which interest can be

levied under Section 158BFA(1) of the Act. However, Mr.

Mohta, learned counsel appearing for the revenue sought to

rely upon the decision of the Karnataka High Court in

Commissioner of Income Tax .vs. K.L. Srihari -

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(2011)335 ITR 215 (Karnataka) and Commissioner of

Income-tax Central Circle .vs. B. Suresh Baliga - (2014)

364 ITR 560 (Karnataka). In both the aforesaid decisions,

the Karnataka High Court has taken a view that the provisions

of Section 158BFA(1) of the Act are mandatory in nature and

interest would have to be levied in terms thereof irrespective

of the reason for delay. In both the aforesaid cases, the

reason for the delay was not attributable to the revenue as in

the case before us. From the facts stated in both the cases, it

does not come out that the delay in filing the return of income

was on account of the revenue in not furnishing copies and/or

not giving inspection of the seized documents to the assessee,

which would form the basis for filing the return of income of

undisclosed income. Therefore, the aforesaid two decisions

relied upon by the Revenue are completely distinguishable on

facts, as the delay in those cases was not held to be

attributable to the revenue, for the purposes of waiving of

interest.

13. In the above view, the decision of the Delhi High

Court in Mesco Airlines Ltd. (supra) and of the Karnataka

High Court in B. Nagendra Baliga (supra) appeals to us in

the present facts. We wish to make it clear that after the

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introduction of Section 158BFA of the Act in Section 119(2)(a)

of the Act, the waiver of interest, if any, would have to be in

terms and/or in accord with the directions laid down by the

Central Board of Direct Taxes (C.B.D.T.). At the relevant time

when the assessment orders were passed under the Act,

Section 158BFA of the Act was not a part of Section 119(2)(a)

of the Act which empowered C.B.D.T. to set guidelines for

waiver of interest. Therefore, from the date Section 158BFA of

the Act has been incorporated in Section 119(2)(a) of the Act

i.e. with effect from 01.06.2002, the proper remedy would be

to apply the circulars/instructions issued by the Board relaxing

the circumstances in which the interest payable under the said

section could be relaxed. However, in the present case we are

concerned for the period prior to June 2002, as the return of

income was filed on 26.02.2002. At that time Section 158BFA

of the Act was not a part of Section 119(2)(a) of the Act.

Therefore, no occasion for the C.B.D.T. to give instructions to

liberalise the rigour of Section 158BFA of the Act in respect of

interest could arise.

14. In these circumstances the question of law posed for

our consideration is answered in the negative i.e. in favour of

the appellant-assessee and against the revenue. Although the

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question as admitted questions the justifiability of the Tribunal

in charging interest for the delay attributable in not supplying

the copies of accounts and relevant record and statements, the

words "copies of account and relevant record and statements"

would also include within it, giving inspection of the accounts

and relevant record and statements. Therefore, the interest for

the delay in filing the return of income in this case has to be

computed after excluding the period from the date the

inspection was asked for i.e. 24.05.2001 till the inspection was

given i.e. 03.01.2002. The Assessing Officer to work out the

exact demand for interest in the above terms.

15. Appeal allowed in above terms. No order as to costs.

(Manish Pitale, J. ) (M.S. Sanklecha, J.) ...

halwai/p.s.