Consolidated Industrial Fund Ltd. vs Commissioner of Income Tax and Another

Bhaskar Bhattacharya, J.—This appeal u/s 260A of the Income Tax Act is at the instance of an Assessee and is directed against a consolidated order passed by the Income tax Appellate Tribunal, ''C'' Bench, Calcutta, in ITA No. 25 (Kol) of 2002 dated 20th February, 2004 for the assessment year 1997-98.

Although strictly speaking, two separate appeals ought to have been filed by the Assessee, on an undertaking by Dr. Pal, the learned Counsel appearing on behalf of the Appellant, that his client will pay additional court-fees for two appeals, we have overlooked the aforesaid technical objection raised by the Revenue and propose dispose of this appeal.

It appears from record that a Division Bench of this Court by order dated 30th November, 2004 admitted these appeals on the following substantial questions of law:

I) Whether in view of the fact that the Assessing Officer having issued the notice u/s 143(2) of the Act on 30th June, 1998 and started proceedings for regular assessment, he had no jurisdiction or competence or authority to issue the intimation on the same day and this point having been raised before the Tribunal and having been recorded also in the order of the Tribunal, the Tribunal acted illegally and improperly by not deciding the said question which affected the jurisdiction of the Assessing Officer to issue the intimation u/s 143(1)(a) of the Act?

II) Whether in any event in issuing the intimation by the Assessing Officer disallowing the claim of Rs. 1,46,37,744/- against the interest income assessed under the head ''other sources'', the Tribunal should have cancelled and/or set aside the said disallowance made by the Assessing Officer when the question involves as to whether the interest income is to be allowed on the facts and in the circumstances of the case is a debatable one on which not only there are two views but also which involves the investigation of facts and as such the said adjustments cannot be made under the proviso to Section 143(1)(a) of the Act and whether the Tribunal should have decided the said question when the said question has already been raised before the Tribunal and recorded in its appellate order?

III) Whether in sustaining the additional tax u/s 143(1)(a) the Tribunal should have held that the levy of additional tax u/s 143(1)(a) is an imprint of penalty and as such no such imposition of additional tax u/s 143(1)(a) could be levied without giving the Assessee an opportunity of being heard and without coming to a finding that there was any deliberate intention or means rea in avoiding the tax liability?

IV) Whether the learned Tribunal was justified in law in not considering the grounds specifically urged by the Assessee before the Learned Tribunal in respect of levy of interest u/s 201(1A) which has been imposed in the intimation issued u/s 143(1)(a) and which is also a part of the said intimation and in not setting aside the order of the Commissioner of Income tax (Appeals) in regard to the above issue?

The facts giving rise to filing of these appeals may be summed up thus:

a) In the first appeal, the Assessee has come against order made u/s 143(1)(a) of the Income Tax Act and the other appeal relates to the assessment u/s 143(3) of the Act. Both the appeals relate to the assessment year 1997-98.

b) The Assessee filed its return of income on 28th November, 1997 for the assessment year 1997-98 along with tax audit report and audited statement of account. In computation of total income filed along with the return of income, the Assessee offered for taxation income under the heads business, capital gains and other sources separately to arrive at the total income as required.

c) In the books of account, the Assessee debited total interest of Rs. 6,08,19,588/-. A part of the aforesaid amount being a sum of Rs. 1,46,37,744/- related to money lent, which had fetched the interest income of Rs. 1,50,90,457/- and the same was offered for taxation under the head income from other sources. In order to charge expenses against the particular head of income for which it was incurred, the Assessee in his return of income was required to eliminate from the computation of business income, the interest expenditure relatable to earning interest income under the head other sources. The Assessee, it appears from record, reduced the income under the head other sources by a sum of Rs. 1,46,37,744/- being interest relatable to earning interest income. The Assessing Officer by intimation made u/s 143(1)(a) dated 30th June, 1998 changed the computation by not allowing the interest claimed amounting to Rs. 1,46,37,744/- as deduction from interest income offered under the head other sources and levied additional tax u/s 143(1)(a) of the Act amounting to Rs. 12,58,846/-. The Assessing Officer also levied interest u/s 201(1A) of the Act amounting to Rs. 3,90,599/- in the intimation order dated 30th June, 1998 made u/s 143(1)(a) of the Act on the ground of delayed payment of tax deducted at source.

d) The Assessee preferred an appeal before the Commissioner of income tax(Appeal) against the intimation made u/s 143(1)(a) dated 30th June, 1998 and challenged the action of the Assessing Officer in disallowing the deduction of interest paid relatable for earning the interest income offered for taxation under the head other sources. Further grounds were taken against the imposition additional tax u/s 143(1A) of the Act and the levy of interest u/s 201(1A) of the Act.

e) On the date of issue of the aforesaid intimation order u/s 143(1)(a) of the Act, i.e. 30th June 1998, a further notice u/s 143(2) of the Act was issued for regular assessment calling upon the Assessee to produce the books of accounts and other documents. It appears from record that the Assessee filed a revised computation under the cover of its letter dated 18th February, 2002 by admitting the mistake that instead of deducting from business the loss a sum of Rs. 1,46,37,744/-, he added the same to the business loss as a result of which the business loss was increased instead of the same being reduced. It appears that the business loss was shown at Rs. 14,16,12,679/- instead of Rs. 11,23,37,191/-.

f) The Assessing Officer accepted the revised computation of the total income filed on 18th February, 2002 during the course of assessment proceeding and completed the assessment u/s 143(3) of the Act vide his order dated 20th February, 2000.

g) In the appeal preferred by the Assessee before the Commissioner of Income Tax (Appeal) against intimation order dated 30th June, 1998, the case of the Assessee was that the Assessing Officer was not correct in disallowing the claim of deduction of interest paid on money borrowed for the purpose of granting loans and advances which had fetched the interest income and offered for taxation under the head other sources on the facts of the case. The other ground was in respect of the imposition of additional tax u/s 143(1A) of the Act and the levy of interest u/s 201(1A) of the Act.

h) The Commissioner of Income Tax (Appeal), however, did not accept the Assessor''s contention and remanded the matter to the Assessing Officer and directed him to compute the total income u/s 143(1)(a) of the Act once again and to enhance the amount of additional tax u/s 143(1A) on the basis of revised computation of income filed by the Assessee on 18th February, 2000.

i) As regards the levy of interest amounting to Rs. 3,90,599/- u/s 201(1A), the Commissioner of Income Tax (Appeals) held that the levy of interest u/s 201(1A) was not appeal able u/s 246A of the Act.

Being dissatisfied, the Assessee preferred further two appeals before the Income Tax Appellate Tribunal and by the order impugned in these appeals, the said Appellate Tribunal has dismissed both the appeals by overruling the submissions of the Appellants.

Being dissatisfied, the present two appeals have been filed.

Dr. Pal, the learned senior counsel appearing on behalf of the Appellants, has, at the first instance, submitted before us that the Assessing Officer having issued a notice u/s 143(2) of the Act on 30th June, 1998 and having started proceeding for regular assessment, acted without jurisdiction in issuing the intimation order and thus, the order of intimation passed u/s 143(1)(a) of the Act was liable to be quashed.

After going through the order-sheet, we find that the order u/s 143(1)(a) of the Act was passed first on 30th June, 1998 and from the order-sheet it appears that the next order was for issue of notice u/s 143(2) of the Act although both were issued on the same date. Therefore, it is apparent on the face of record that the intimation order was first made u/s 143(1)(a) of the Act and thereafter, the Assessing Officer decided to issue a notice u/s 143(2) of the Act.

In our opinion, if it appeared to the Assessing Officer that there was a prima facie mistake apparent on the face of return filed by the Assessee there cannot be any doubt that the Assessing Officer was vested with jurisdiction to pass necessary order in terms of Section 143(1)(a) of the Act which the Assessing Officer has passed in this case on 30th June, 1998.

After passing of such order making rectification of the mistake apparent on the face of return, the law does not prohibit the Assessing Officer from issuing notice u/s 143(2) of the Act for regular assessment and in this case, the Assessing Officer has done so. Therefore, we do not find any substance in the first contention of Dr. Pal that the order u/s 143(1)(a) of the Act was passed after issue of notice u/s 143(2) of the Act which is contrary to the materials on record.

Dr. Pal next contends that the imposition of additional tax u/s 143(1A) of the Act is an imprint of penalty and according to him no such imposition of additional tax u/s 143(1A) could be levied without giving the Assessee an opportunity of being heard and without coming to a finding that there was any deliberate intention or men''s rea in avoiding the tax liability.

In order to appreciate the aforesaid question the provision contained in Section 143(1A) of the Act as it stood at the relevant time is quoted below:

(1A)(a) Where as a result of the adjustments made under the first proviso to Clause (a) of Sub-section (1) -

i) the income declared by any person in the return is increased; or

ii) the loss declared by such person in the return is reduced or is converted into income,

the Assessing Officer shall, -

A) in a case where the increase in income under Sub-clause (i) of this clause has increased the total income of such person, further increase the amount of tax payable under Sub-section (1) by an additional income tax calculated at the rate of twenty per cent on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income been reduced by the amount of adjustments and specify the additional income tax in the intimation to be sent under Sub-clause (1) of Clause (a) of Sub-section (1);

B) in a case where the loss so declared is reduced under Sub-clause (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate a sum (hereinafter referred to as additional income tax) equal to twenty per cent of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income tax so calculated in the intimation to be sent under Sub-clause (i) of Clause (a) of Sub-section (1);

C) where any refund is due under Sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income of such refund by an amount equivalent to the additional income tax calculated under sub Clause (A) or Sub-clause (B) as the case may be;

b) Where as a result of an order under Sub-section (3) of this section or Section 154 or Section 250 or Section 254 or Section 260 or Section 262 or Section 263 or Section 264, the amount on which additional income tax is payable under Clause (a) has been increased or reduced, as the case may be, the additional income tax shall be increased or reduced accordingly and -

i) in a case where the additional income tax is increased, the Assessing Officer shall serve on the Assessee a notice of demand u/s 156;

ii) in a case where the additional income tax is reduced, the excess amount paid, if any, shall be refunded.

A plain reading of the aforesaid section makes it clear that if the loss declared by an Assessee had been reduced by reason of adjustments made under Sub-section (1)(a), the provisions of Sub-section (1A) would apply mandatory at the rate indicated therein and thus, there was no mistake in imposition of the additional tax. We find no substance in the contention of Dr. Pal that the additional penalty under Sub-section (1A) bore the imprint of a penalty and no penalty could be levied because no opportunity of hearing was given to his client. The decision of the Supreme Court in the case of Commissioner of Income Tax Vs. Hindustan Electro Graphites Ltd., relied upon by Dr. Pal was not only explained but its correctness was also doubted by a larger Bench of the Supreme Court in the case of Assistant Commissioner of Income Tax Vs. J.K. Synthetics Ltd., . The following observations of the Apex Court in the case of J. K. Synthetics Ltd would make the position clear:

Learned Counsel for the Assessee, however, relied upon the judgment of a Bench of two learned Judges of this Court in CIT v. Hindustan Elector Graphite''s Ltd. This was a case in which the return that the Assessee had filed was correct by reason of the law as it stood when the return was filed. A retrospective amendment of Section 28 of the Act rendered that return incorrect. An adjustment in the return was made under Sub-section (1) of Section 143 and, therefore, the provisions of Sub-section (1-A) were sought to be invoked. This was challenged and the High Court upheld the challenge, as did this Court. It took the view that the additional penalty under Sub-section (1-A) bore the imprint of a penalty and no penalty could be levied because the return filed by the Assessee was correct when it was filed.

This judgment has no application to the facts of the present case for the reason that it is nobody''s case that a retrospective amendment has rendered a correct return filed by the Assessee incorrect. The question here is only whether a loss which is reduced by reason of the application of provisions of Sub-section (1) (a) falls within the ambit of Sub-section (1-A).

We should add that we have reservations about the correctness of the judgment in Hindustan Elector Graphite''s Ltd. case principally because the Assessee in that case had not challenged the provisions of Sub-section (1-A).

We, therefore, propose to follow the aforesaid larger Bench decision in the case of J. K. Synthetics (supra) and find no substance in the aforesaid contention of Mr. Pal.

Dr. Pal lastly contended that the levy of interest u/s 201(1A) which has been imposed in the intimation issued u/s 143(1)(a) should be set aside. We find no justification in the aforesaid contention as the said provision is also mandatory when all the conditions mentioned therein is fulfilled.

We, therefore, find no substance in any of the aforesaid contentions of Dr. Pal.

This appeal is, thus, dismissed by answering the first three questions in the negative and the fourth one in the affirmative, all against the Assessee.

In the facts and circumstances, there will be, however, no order as to costs.

Sambuddha Chakrabarti, J.

I agree.