Delhi High Court

Iqbal Chand Khurana vs Deputy Commissioner Of Income Tax on 26 March, 1999

Equivalent citations: (2001) 70 TTJ Del 16

ORDER

B. R. Jain, A.M.

This appeal has been preferred by the assessee against the order of the learned Commissioner (Appeals)-V, New Delhi for assessment year 1984-85.

2. In various grounds the assessee has disputed the additional demand of Rs. 3,07,312 being the interest recalculated under section 217 of the Income Tax Act, 1961, by virtue of rectification under section 154 of the Act and not adjusting seized amount of Rs. 8 lakhs as well as a sum of Rs. 1,97,140 being the TDS on winning of lotteries before calculating interest under section 217 of the Act. The assessee in the alternative claimed interest from 2-5-1985 to 12-2-1987, on the amount utilised by the department.

3. The facts of the case are that during the course of search an amount of Rs. 8 lakhs in cash was seized on 2-5-1985. The assessment in this case was originally completed on 28-11-1986, at an income of Rs. 1,03,39,966. By virtue of an appeal affect under section 250 on dated 26-2-1988, the income was reduced to Rs. 91,50,470. Interest under section 217 has been charged in the original assessment at Rs. 24,94,702. The assessee was not allowed credit for TDS of Rs. 1,97,140 on winning of lotteries in the original assessment. The assessing officer in his order under section 154, dated 21-3-1988, accepted the claim of the appellant. Credit of TDS for Rs. 1,97,140 was given as per calculation in the computation form in ITNS 150, dated 22-3-1988, placed at paper book pp 22 and 23. The assessing officer also adjusted Rs. 8 lakhs from the demands so worked out of Rs. 56,91,155 and the balance payable has been worked out at Rs. 48,91,155. Interest under section 217 has been charged at Rs. 18,12,623. The assessing officer, however, issued show-cause notice on dated 5-7-1989, and pointed out that there has been short charge of interest under section 217 by an amount of Rs. 3,07,312. A copy of show-cause notice is placed at paper book pp- 24 and 25. Another notice, dated 26/29-3-1990, has also been given. In this notice it was clearly mentioned that the interest under section 217 was charged after deducting Rs. 8 lakhs from Rs. 56,91,155. This sum of Rs. 8 lakhs should not be deducted. As a result the interest charged under section 217 amounted to Rs. 18,12,623 instead of Rs. 21,19,934 actually chargeable. In this year, the assessment year mentioned was 1985-86 which was requested to be quashed by the assessee. On 30-3-1990, the assessee has filed a reply for assessment year 1984-85 which is the relevant year under appeal, in order to meet the query raised by the assessing officer. In this reply the assessee has stated that the department has adjusted the seized amount of Rs. 8 lakhs without intimating the assessee, as the amount remained in the possession of the department and since the assessee could not utilise the same. It was, therefore, requested that interest under section 217 charged by the department should not be disturbed and no order under section 154 should be passed. This request of the assessee did not find favour of the assessing officer and order under section 154 of the Act was passed on 30-4-1990, thereby creating a demand of Rs. 3,07,112, as per calculations at paper book pp. 32 and 33 filed by the appellant.

4. The learned authorised representative has contended that there is no justification in the order of the learned Commissioner (Appeals) in upholding the action of the assessing officer in creating an additional demand of Rs. 3,07,312 on account of interest under section 217. A rectification application placed at paper book p. 36 shows that there has been an error in calculating the interest under section 217 to the extent of Rs. 1,79,984 has also not been disposed of by the assessing officer whereas the learned Commissioner (Appeals) has exceeded his jurisdiction by making enhancement and not allowing credit of tax deduction at source at Rs. 1,97,140. The action of the assessing officer is beyond the scope of rectification under section 154. The scope of power of the learned Commissioner (Appeals) is limited under section 251. He was not dealing with the order of assessment but only with the order of rectification. This case was not like any other case as provided in section 251(c) of the Act. There is no jurisdiction to make the enhancement while dealing with the order under section 154 which was a subject-matter of appeal before the learned Commissioner (Appeals). The earlier assessing officer had taken a view in regard to adjustment for assessment year 1984-85 in respect of seized amount of cash as well as for allowing credit of tax deducted at source. There was no occasion to the assessing officer to make further rectification, such a rectification is not open to the successor officer and the law does not permit to take a different view. The request of the assessee as per paper book p. 28 has also not been considered. The order of the learned Commissioner (Appeals) in upholding the rectification order for creating demand of Rs. 3,07,312 is erroneous and any enhancement made on account of TDS of Rs. 1,97,140 for which credit has not been given for the purpose of charging of interest under section 217 is beyond the scope of powers vested in him. It was thus contended that the issues were debatable and no rectification could also have been done and as such the order of the authorities below needs to be quashed. The assessee has placed reliance on the following decisions :

(1) Vinod Poddar & Anr. v. CIT (1994) 208 ITR 722 (Pat);

(2) CIT v. Shri Mahinder Singh (1985) 156 ITR 882 (Del);

(3) CIT v. M. S. J. Engg & Co. (1993) 203 ITR 1 (All);

(4) CIT v. Gordhanbhai Jethabhai (1994) 205 ITR 279 (Guj);

(5) Mohd. Kunhi v. Add. ITO (1967) 66 ITR 250 (Ker);

(6) CIT v. Bangalore Animal Food Corporation (1992) 194 ITR 242 (Karn);

(7) CIT v. Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC);

(8) CIT v. Rai Bahadur Hardutt Roy Motilal Chamaria (1967) 66 ITR 443 (SC);

(9) Kalyan Kumar Ray v. CIT (1991) 191 ITR 634 (SC);

(10) CIT v. Bihar Journals Ltd. (1992) 111 Taxation 171 (Pat);

(11) CIT v. GEX of India Ltd. (1978) 112 ITR 246 (Cal);

(12) CIT v. Sarju Prasad (1984) 148 ITR 718 (All);

(13) Bihar State Road Transport Corporation v. CIT (1986) 162 ITR 114 (Pat);

(14) Income Tax Act, 1961 (1997);

(15) CWT v. K.S. N. Bhatt (1984) 145 ITR 1 (SC); and

(16) Sat Paul D. Agarwala (HUF) v. Assistant CIT (1998) 8 DTC 734 (Mum-Trib) : (1998) 62 TTJ (Mum-Trib) 98.

5. On the other hand, the learned Departmental Representative has contended that show-cause notice was issued to the assessee as per provisions of law. The assessing officer could make rectification of mistake in calculations. An opportunity was also given to the assessee and a valid order was passed. If the earlier assessing officer has given credit wrongly the only onus on the assessing officer was to give an opportunity to the assessee. This has been done by the assessing officer. Demand has rightly been increased.

The order is also a speaking order. The demand is clear and unambiguous. The assessee is entitled under section 132B of the Act for interest for which separate provisions are there. As order under section 132(5) is a summary order. It does not create any demand. Order under section 154 is also a separate order and the assessing officer could rectify the said mistake as the same was a mistake apparent from the record. There is no provision in the Act to allow credit of the seized amount as advance tax. It is wrong to say that this issue is a debatable issue and no rectification could have been made. The decisions relied upon by the learned authorised representative are not applicable on the facts of rectification under section 154 as the same is a separate matter. Section 215(5) of the Act defines assessed tax which also excludes tax deducted at source under section 194B from its ambit. The learned Commissioner (Appeals) has acted in accordance with law. It is only with respect to calculations but not with respect to rates that the learned Commissioner (Appeals) has given direction in not including the amount of TDS for the purpose of levy of interest under section 217. This has also been done after giving due opportunity to the assessee. Accordingly, there is no merit in the arguments advanced by the learned authorised representative and the appeal of the assessee needs to be dismissed.

6. In rejoinder the learned authorised representative has replied that different assessing officers dealing with the same point and coming to different conclusions itself shows that the issue is debatable. The issue for assessment year 1985-86 has also been decided in ITA No. 4354/Del/91 and if the Bench is of the different view the matter can be referred to a larger Bench. However, (sic) income.

7. Rival submissions have been heard. Material on record and precedents relied upon have also been considered carefully. The assessee's contention is that the Tribunal has already decided the issue for assessment year 1985-86 in ITA No. 4354/Del/91 does not have any force as the point in dispute in that year was charging of interest under section 139(8) of the Act where the contention of the assessee was with reference to the decision that interest cannot be charged for less than 30 days. On this point cleavage of judicial opinions existed. It is in that context that the Tribunal has decided the issue for assessment year 1985-86 by holding that the matter being debatable, rectification could not have been made. The facts of the case before us are different and as such the contention of the assessee that the issue for assessment year 1985-86 has already been finalised carries no weight.

8. Another contention of the assessee is that the learned Commissioner (Appeals) could not have passed any order of enhancement has also been considered. Section 251(1)(c) of the Act empowers him to pass such orders in appeal as he thinks fit. In the case of the assessee, the learned Commissioner (Appeals) has also given reasonable opportunity of showing cause for enhancing the amount of interest under section 217 of the Act. In our considered opinion the action of the learned Commissioner (Appeals) was well within the scope of powers vested in him by virtue of section 251(1) of the Income Tax Act, 1961.

9. Another contention of the assessee is that the learned Commissioner (Appeals) is not justified in enhancing the levy of interest under section 217 of the Act on account of tax deducted at source. The tax at source was deducted on account of winning of lotteries. The deduction has been made under section 194B of the Act by the payee. However, the income of the assessee from such revenue has also been assessed as income from business. The learned Commissioner (Appeals) directed enhancement of interest under section 217 because the amount of TDS deducted under section 194B cannot be taken in working out the assessed tax as defined under section 215(5) of the Act. The method of computation of advance tax has been prescribed under section 209 of the Act. These provisions have been amended with effect from 1-4-1988, and from the amount of income-tax calculated under section 209, the amount of tax deductible or collectible at source from any income has to be the reduced and the balance shall be advance tax payable. Provisions of section 199 include deduction made in accordance with section 194B of the Act and the same is to be treated as payment of income-tax on behalf of all the persons from whose income the deduction was made. The Hon'ble Apex Court in the case of Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) has held that for the purpose of allowing interest under section 244(1A) of the Act, the amount of advance payment of tax and the amount of tax deducted at source must be treated as the payment of income-tax pursuant to an order of assessment from the date of assessment order. From this order of the Honble Apex Court it is clear that the assessee is entitled to interest on the amount of tax deducted at source also. If the income on which tax deducted at source has been deducted is chosen to be assessed under the head 'income from business' on the principle of equity also it will be unjust not to allow credit on the amount of tax deducted at source as the same is also the amount of tax paid during the previous year. It is also well settled that interest is compensatory in character and it is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. Essentially amount of interest under section 217 is compensatory which has to be charged only to the extent on delay in paying the tax on the due date. In a case where tax at source has been deducted on the income which has been subjected to advance tax, it shall be unjust not to allow any credit of the amount of tax deducted at source and charge interest thereon from the assessee. In such a case if the interest is allowed to be charged that will amount to unjust enrichment of the state. This is not the purpose and intent of the provisions enacted for collection of advance tax. The case of the appellant in its entirety is the same where tax at source has been deducted but no credit is being given for determining the amount of tax payable under section 209 and the learned Commissioner (Appeals) has called upon to enhance the charging of interest under section 217 of the Act. Respectfully following the ratio of the decision in the case of Modi Industries Ltd. (supra) that interest has to be paid on the amount of refund arising on account of tax deducted at source, on the same principle we hold that no interest is chargeable from the assessee under section 217 of the Act on the amount of tax deducted at source, the income of which has been included for the purpose of computation of advance tax. We, therefore, direct the assessing officer not to charge any interest under section 217 on the said amount of Rs. 1,97,140 as directed by the learned Commissioner (Appeals).

10. The assessee has also agitated that no credit has been given for an amount of Rs. 8 lakhs seized in cash on dated 2-5-1985. The money was seized and appropriated towards tax. It should have been treated at par as advance tax. This has not been done. It has also been contended that the issue is a debatable one and it being an arguable point and there was no scope of making any rectification.

11. After careful consideration of the material available on record, we find that the amount of cash seized on 2-5-1985, which fall in the assessment year 1986-87 but the same has been appropriated after the completion of assessment for assessment year 1984-85 against the amount of tax determined on its regular assessment. No credit was given to the assessee in the original assessment. However, while making rectification under section 154 in respect of credit for tax deducted at source of Rs. 1,97,140 the assessing officer also adjusted the said seized sum of Rs. 8 lakhs and interest thereon under section 217 was not calculated; This has been rectified by the assessing officer. It is also admitted that the assessee has not authorised the department to adjust the said seized amount of Rs. 8 lakhs towards payment of taxes. The adjustment has been made only after the amount of liability has been determined in respect of period falling upto the date of seizure. The provisions of the Income Tax Act are clear that any assets or proceeds thereof which remain after the liabilities referred to in clause (i) of sub-section (1) of section 132B are discharged shall be forthwith made over or paid to the persons from whose custody the assets were seized. Under such statutory provisions, the assessee could have claimed a refund in case no liability was found payable and he would have been entitled to interest as per provisions of section 132B(4) of the Act. As such, there was (sic) the department to make a suo motu adjustment prior to determination of liability on completion of regular assessment or reassessment for all the assessment years or any existing liability falling within that period upto the date of search. However, the department could act according to the direction of the assessee in adjusting the seized amount towards any of the taxes payable by him during the previous year only when the assessee has waived his right to claim the refund of the amount of assets so seized. This has not been done by the assessee. The case laws also referred to by the assessee in respect of point that the issue is debatable are different from the facts and circumstances of the case and no ratio thereof could be applied in the present case before us. We, therefore, do not find any infirmity in the order of the learned Commissioner (Appeals) in not entertaining the claim of the appellant but in the interest of justice we direct the assessing officer to allow credit of the amount of Rs. 8 lakhs so seized from the date on which regular assessment has been completed in this year.

12. The assessee's claim that interest under section 132B may be allowed or that at least interest for the period from 2-5-1985, to 12-2-1987 should be allowed also because the money was retained and utilised by the department does not appear to be tenable as the assessee has not been in a position to draw our attention to any of the provisions of the Act which could permit allowing of interest to the assessee on the amounts so retained and utilised by the department during the intervening period being the period from the date of seizure to the date of regular assessment when the liability was determined on completion of regular assessment or any existing liability was found payable. The assessee has also not given any working to show that the cash so seized remained with the department after the liabilities were fully satisfied upto the date of seizure. In the absence of which we do not find any force in the ground raised by the assessee and the same is accordingly dismissed.

13. In the result, the appeal of the assessee is partly allowed.