ITA No. 149 of 2003 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 149 of 2003 Date of Decision: 22.7.2010 Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus Arun Kapoor ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. K.K. Mehta, Advocate for the appellant. None for the respondent. ADARSH KUMAR GOEL, J. 1. This order shall dispose of ITA Nos. 149 and 150 of 2003. Facts are said to be identical in both the appeals. Reference is made to facts of ITA No. 149 of 2003. 2. The revenue has preferred this appeal under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order of the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as “the Tribunal”) passed in ITA No. 333 (ASR)/96 on 29.11.2002 for the assessment year 1994-95, proposing to raise the following substantial question of law:- “Whether, on the facts and in the circumstances of the case, the ITAT was justified in upholding the ITA No. 149 of 2003 -2- orders of the CIT (Appeals) in deleting the interest charged u/s 234B & 234C on the ground that the assessee could not be held liable for such interest on the income surrendered u/s 132 (4) during the course of search and seizure operation conducted after the close of the financial year?” 3. The assessee is engaged in the business of trading of cloth and filed return for the assessment year 1994-95 on 28.10.1994 declaring an income of Rs.30,38,920/-. On 29.4.1994, a search was conducted at the residential as well as business premises and on search, the assessee surrendered certain amounts as additional income. The assessment was completed on 23.11.1995 at the total income of Rs.30,63,930/-. The assessee made a request for adjusting the cash amount seized during search on 30.5.1994. The said request of the assessee was not accepted by the Assessing Officer. As the search operation had taken place on 29.4.1994 i.e. after the closing of the financial year, interest under Section 234B and 234C was levied. In September, 1994 part of the seized cash was adjusted towards tax due in different cases for the assessment year 1994-95. As per Section 211 of the Act, the assessee was required to pay advance tax in three installments for the financial year ending on 31.3.1994. The due dates for paying advance tax were 15.9.1993, 15.12.1993 and 15.3.1994. The Assessing Officer held that the assessee was liable to pay tax installment on the surrendered income from the date advance tax was due, i.e. 15.9.1993, 15.12.1993 and 15.3.1994 and charged interest under Section 234B and 234C of the Act accordingly. On appeal, the ITA No. 149 of 2003 -3- CIT (A) and the Tribunal held that the demand of interest was not justified and income surrendered after the close of the financial year could not be foreseen by the assessee for the purpose of payment of advance tax. The finding of the Tribunal is as under:- “After considering the rival submissions and going through the material available on the record, it appears that in the instant cases, the assessees had requested soon after the search that whatever tax was due on the income surrendered be adjusted out of the amounts seized from them. Therefore, while filing the returns, the assessees treated the entire cash seized as tax paid by them. It is not disputed at any stage that the assessees requested the Department on 30.5.1994 after the search and seizure operations to adjust a sum of Rs.42 Lacs seized from this group of cases towards the likely demands arising in view of the surrender made under section 132 (4) of the Act. Admittedly, the assessments were framed in all the cases on 29.11.1995 i.e. after the request of the assessees to adjust the cash seized, made on 30.5.1994. In other words, the assessees had requested soon after the search that whatever tax was due on the income surrendered be adjusted out of the amounts seized from them and the balance be returned to them.” ITA No. 149 of 2003 -4- 4. We have heard learned counsel for the revenue. None appears for the assessee. 5. Learned counsel for the revenue submits that the view taken by the Tribunal in deleting the interest cannot be sustained as payment of interest was mandatory. Mere fact that the assessee could not foresee the interest liability was no ground not to demand interest. The interest was payable on the amount of assessed tax which may be held to be due. Reliance has been placed on Explanation I to Section 234B of the Act added in the year 2001 w.e.f. 1.4.1989 vide Finance Act, 2001. 6. The chargeability of interest under Section 234B of the Act came up for consideration in a recent judgment dated 20.7.2010 passed in ITA No. 851 of 2008 (M/s Jacob Export House v. Commissioner of Income Tax) wherein it was held as under:- “7. The matter is no longer res integra. This Court in Parkash Agro’s case (supra), while considering the effect of amendment to Explanation-I retrospectively w.e.f. 1.4.1989 had held that an assessee is liable to pay interest under Section 234B of the Act on the amount of income assessed under Section 143 (1) or 143(3) of the Act and not on the basis of income declared in the return by the assessee. The relevant observations reads as under:- “9. It is no doubt true that prior to the amendment brought by Finance Act, 2001, which has been ITA No. 149 of 2003 -5- made effective retrospectively from 1.4.1989, the interest under section 234B of the Act was chargeable with reference to the total income as had been declared by the assessee in its return and not on the assessed income. Explanation 1 to section 234B of the Act was amended by Finance Act, 2001. It reads thus:- “Explanation 1. – In this Section, ‘assessed tax’ means the tax on the total income determined under sub-section (1) of section 143 or on regular assessment as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income. (b) in sub-section (3), for the words ‘one and one-half per cent’, the words ‘one and one-fourth per cent’ shall be substituted with effect from 1.6.2001.” 10. The said Explanation was subject-matter of challenge before this Court in Raj Kumar ITA No. 149 of 2003 -6- Singhal’s case (supra) where the Division Bench while upholding the validity of the said provision, interpreted it as under:- “......A comparison of the two provisions shows that under the original provision interest was leviable on the income as declared in the return filed by the assessee. By the amended provision, the interest is leviable on the income as determined by the assessing authority minus the income on which the tax has been paid or deducted. The amendment is only calculated to clarify the ambiguity that was felt in the original provision. It is not arbitrary or unreasonable..... (p.562)”. 7. Section 234C of the Act provides for interest for deferment of advance tax. Section 234C (1)(b) is relevant in the present case as it applies in case of assessees other than company. According to the aforesaid provision, the assessee is liable to pay interest on the returned income at the rate specified therein for the period for which advance tax has been deferred. 8. In view of the above, though the assessee was entitled to benefit of payment out of the seized cash from the date of his application but the assessee was liable to pay interest under Section 234B of the Act on the tax liability determined on the income assessed ITA No. 149 of 2003 -7- by the Assessing Officer. 9. Similarly the assessee is liable to pay interest under Section 234C of the Act in terms thereof and shall be entitled to benefit of payment out of seized cash from the date of making application for adjustment of seized cash towards tax liability.View to the contrary taken by the Tribunal cannot be sustained. 10. Accordingly, the substantial question of law is answered in favour of the revenue and the appeal is allowed in these terms. (ADARSH KUMAR GOEL) JUDGE July 22, 2010 (AJAY KUMAR MITTAL) gbs JUDGE ITA No. 149 of 2003 -8- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 150 of 2003 Date of Decision: 22.7.2010 Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus Ravi Kumar, Prop. M/s Shree Ganesh Textiles ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. K.K. Mehta, Advocate for the appellant. ADARSH KUMAR GOEL, J. For orders, see ITA No. 149 of 2003 (Commissioner of Income Tax (Central), Ludhiana v. Arun Kapoor). (ADARSH KUMAR GOEL) JUDGE July 22, 2010 (AJAY KUMAR MITTAL) gbs JUDGE