Income Tax Appeal No. 605 of 2006 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 605 of 2006 Date of decision: 27.4.2011 Davinder Mehra --- Appellant Versus Commissioner of Income Tax (Appeals) II, Amritsar and another --- Respondents CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL --- Present: Ms. Radhika Suri, Advocate for the appellant Mr. Sukant Gupta, Standing Counsel for the respondent. --- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-Tax Act, 1961 (for short “the Act”) has been filed by the assessee against the order dated 20.2.2006 passed by the Income Tax Appellate Tribunal Chandigarh Bench ‘A’, Chandigarh (in short “the Tribunal”) in ITA No. 21/ASR/2005, relating to the block period from 1.4,1989 to 22.7.1999. 2. The following substantial questions of law have been claimed for determination of this Court: “(i) Whether in the facts and circumstances of the case, the amount of tax paid on undisclosed income of Rs. 7.5 lacs can be retained after the assessment has been set aside Income Tax Appeal No. 605 of 2006 2 by the CIT(A) contrary to Article 265 of the Constitution of India? (ii) Whether in the facts and circumstances of the case, learned ITAT Amritsar was correct in law in upholding the order of CIT(Appeals) by declining the refund of tax paid on a sum of Rs. 7.5 lacs on furnishing the return of income pursuant to notice issued under Section 158BC of the Income Tax Act even after the entire block assessment was set aside by the CIT(Appeals) vide order dated 21.9.2004? (iii) Whether in the facts and circumstances of the case, learned ITAT Amritsar was correct in law in holding that the proviso (b) of Section 240 was applicable to the block assessment proceedings which are regulated by a special procedure given in Chapter XIV of the Income Tax Act? (iv) Whether in the facts and circumstances of the case, learned ITAT Amritsar was correct in law in holding that the payment of tax pursuant to filing of return under Section 158BC was not dependent on determination of income by the Assessing Officer? (v) Whether in the facts and circumstances of the case, learned ITAT Amritsar was right in holding that issues regarding charging of interest under Section 158BFA(1) being debatable could not be rectified under Section 154 of the Income Tax Act? Income Tax Appeal No. 605 of 2006 3 (vi) Whether in the facts and circumstances of the case, the order of learned ITAT is contrary to ratio of the Hon’ble Supreme Court in the case of CIT vs. Shelley Products, 261 ITR 367? 3. The facts, in brief, necessary for adjudication as narrated in the appeal, are that the appellant is an individual assessee. On 22.7.1999, a search was conducted at his residential premises. A notice under Section 158BC on 7.2.2000 was thereupon issued to the assessee requiring him to furnish the return for the block period in question within 16 days of the service of the notice. The assessee received the said notice on 14.2.2000 and sought extension of time on 28.2.2000 for furnishing the return for the block period up to 31.3.2000. The assessee filed return on 31.3.2000 declaring undisclosed income of Rs. 7,50,000/-. The writ petition filed by the assessee challenging the notice under Section 158BC and all consequential proceedings taken there-under was dismissed by this Court with the observations that the assessee may raise all such pleas before the appellate authority. 4. The assessing officer thereafter issued notice under Section 143(2) of the Act to the assessee on 4.4.2001 and consequently, vide order dated 27.7.2001, finalized the assessment at the total income of Rs. 1,70,00,000/-. The assessee went in appeal before the Commissioner of Income-tax (Appeals) {in short “the CIT(A)”}. The CIT(A) dismissed the appeal on the ground that since the appellant had not paid tax on the declared income of Rs. 7,50,000/-, the same was not competent. The Tribunal, however, on Income Tax Appeal No. 605 of 2006 4 an appeal being taken by the assessee, set aside the order of the CIT(A) and remanded the matter back to it for adjudication on merits. 5. One of the pleas raised on behalf of the assessee throughout had been that no satisfaction about the search had been recorded by the authorities concerned. According to the assessee, search had in fact been conducted on another group and the assessing officer had not been able to establish any inter-connection between that group and the business activities of the assessee. The CIT(A) vide order dated 21.9.2004 set aside the entire assessment proceedings holding the same to be void ab initio and also barred by time as the return was filed on 31.3.2000 whereas notice under Section 143(2) of the Act was served on the assessee on 4.4.2001. 6. After the assessment was set aside, the assessee sought refund of tax paid on the sum of Rs. 7,50,000/- and also the interest charged thereon. The claim of the assessee was disallowed by the assessing officer on the strength of the provisions of Section 240(b) of the Act. The assessing officer upheld the levy of surcharge and interest under Section 158BFA(1) of the Act, by rejecting application of the assessee filed under Section 154 of the Act, vide order dated 12.1.2005. Aggrieved by the disallowance of refund, the appellant carried appeal before the CIT(A). The appeal was partly allowed inasmuch as the levy of surcharge was set aside by the CIT(A). The Revenue took the matter in appeal before the Tribunal wherein the assessee filed cross-objections voicing his grievance that the CIT(A) was not justified in disallowing the refund on the amount of tax paid on Rs. 7,50,000/- after the assessment for the block period under reference had already been set aside by the CIT(A). Income Tax Appeal No. 605 of 2006 5 7. The Tribunal, vide the order under appeal, upheld the order of the CIT(A) holding that the surcharge was not leviable. The Tribunal held that the assessee was liable to pay tax on undisclosed income, which was not dependent on determination by the assessing officer. The Tribunal also upheld the levy of interest under Section 158BFA(1) of the Act and, as a matter of fact, declined to interfere with the question of levy of interest on the ground that the same was a debatable issue and, thus, could not be rectified under Section 154 of the Act. While disposing of the cross-objections filed by the assessee, the Tribunal made reference to the provisions of Section 240(b) of the Act, which provides that when an assessment is annulled, the refund shall become due only of the amount, if any, of the tax, paid in excess of the tax chargeable on the total income returned by the assessee. 8. This is how, aggrieved by the order of the Tribunal, the assessee is in appeal before us under Section 260A of the Act, 9. We have heard learned counsel for the parties and have perused the record. 10. The two-fold issues that arise in this appeal for consideration of this Court are: (a) Whether the Tribunal was right in holding that the assessee was not entitled to refund of tax on the undisclosed income declared in the return in spite of the fact that the assessment had been annulled by the CIT (A)? Income Tax Appeal No. 605 of 2006 6 (b) Whether charging of interest under Section 158BFA(1) of the Act being debatable could not be rectified under Section 154 of the Act? 11. The Tribunal had recorded in para 9 of the order, as under: “We have heard both the parties and carefully considered the rival submissions with reference to facts and evidence on record. We have also gone through the orders of authorities below. From the facts discussed above, it is obvious that in this case the assessee had declared undisclosed income of Rs. 7.50 lakhs and had also paid the tax due thereon. It is true that such assessment was annulled by the CIT(A). Now sub-section (b) of Section 240 reads as under:- “(b) The Assessment is annulled the refund shall become due only of the amount, if any of the tax paid in excess of the tax chargeable on the total income returned by the assessee.” It is no doubt true that chapter XIV B lays down special procedure for assessments of Search cases. But it does not mean that provisions of other sections are not applicable to completion of block assessments. In fact, Section 158BH of Chapter XIV B specifically reads as under: “Save as otherwise provided in this Chapter, all other provisions of this Act shall apply to assessment made under this Chapter.” Income Tax Appeal No. 605 of 2006 7 No where, chapter XIV B excludes operation of Section 240(b) of the Act to block assessment. Therefore, we are of the opinion that contention of the assessee that section 240(b) is applicable only to regular assessment and not to block assessment is devoid of any merit and hence, rejected. Even otherwise, provisions of Section 140A have been made applicable to tax payable on undisclosed income and, therefore, the assessee was required to pay such tax at the time of filing the return for block assessment. Therefore, there is no question of assessee having made the payment as a result of abundant caution. The assessee was under a statutory duty to make such payment at the time of filing the return. The payment of tax on admitted undisclosed income was not dependent on determination of income by the AO at the time of completing the assessment. Therefore, even the judgment of Supreme Court in the case of CIT vs. Shelly Products, supports the case of the Revenue as assessee was even otherwise required to pay such tax on his own at the time of filing the return. In view of this, we do not find any justification in interfering with the order of CIT(A). The same is upheld and this ground of appeal is rejected.” 12. No perversity could be pointed out by the learned counsel for the assessee in the aforesaid approach of Tribunal. Section 158BH, Chapter XIV-B of the Act provides that all other provisions of the Act would apply to the assessment made under this Chapter and, Income Tax Appeal No. 605 of 2006 8 thus, Section 240(b) was applicable. Further, under the provisions of Section 240(b) of the Act, the assessee was not entitled to the refund of any amount which had been paid on the income declared by the assessee even though the assessment had been annulled. 13. Similar issue arose before the Hon’ble Supreme Court in Commissioner of Income Tax v. Shelly Products, (2003) 261 ITR 367 wherein it was held that the advance tax and self assessment tax paid by the assessee cannot be refunded even where the assessment order is held to be void ab initio. The Supreme Court had analysed various provisions of the Act as under: “Sub-section (2) of S. 4 in terms provides for payment of tax in advance or deduction of tax at source as provided under the Act. For the deduction of tax at source and payment of tax in advance, the relevant provision is S. 190. It provides that notwithstanding that the regular assessment in respect of any income is to be made in a later assessment year, the tax on such income shall be payable by deduction at source or by advance payment, as the case may be, in accordance with the provisions of Chapter XVII. This is without prejudice to the charge of tax on such income under the provisions of sub-section (1) of S. 4. Section 192 enjoins on any person responsible for paying any income chargeable under the head "Salaries" to deduct income-tax on the amount payable at the average rate of income-tax at the time of making payment. Section 199 provides that any deduction made in accordance with the provisions of Ss. Income Tax Appeal No. 605 of 2006 9 192 and 194 and other sections mentioned therein and paid to the Central Government shall be treated as payment of tax on behalf of the person from whose income the deduction was made and credit shall be given to him for the amount so deducted. Section 202 clarifies that the power to levy tax under the aforesaid sections is without prejudice to any other mode of recovery. Under S. 205 where tax is deductible at the source, the assessee shall not be called upon to pay the tax himself to the extent to which tax has been deducted from his income. Under S. 207 tax is payable in advance in accordance with the provisions of Ss. 208 to 219 except in the cases of incomes specified therein. Such advance tax is payable during the financial year in accordance with the provisions of S. 208. Sections 209 and 210 provides for computation of advance tax and for payment of advance tax by the assessee. Section 211 prescribes the instalments of advance tax and the dues dates. The aforesaid provisions, therefore, clearly spell out the scheme of the Act which provides for deduction of tax at source and advance payment of tax. On such deduction or deposit of tax credit is given to the assessee for the amount so deducted or paid as advance tax. Section 139 of the Act mandates every person to furnish a return of the total income during the previous year if the income is chargeable to tax. Section 140-A provides for self-assessment and lays down that any tax Income Tax Appeal No. 605 of 2006 10 payable on the basis of any return required to be furnished under S. 139 or S. 148, after taking into account the amount of tax, if any, already paid, shall be paid by the assessee together with interest payable under any provision of the Act for any delay in furnishing return or for any default or delay in payment of advance tax. Thus an assessee who has defaulted or delayed payment of advance tax or the instalment of advance tax, is liable to pay interest. The provisions of the Act, therefore, cast an obligation on the assessee to pay the advance tax by making the deposits in instalments as required by the provisions of the Act, and after taking into account the tax paid in advance, to pay the balance of the tax and interest, if any payable, while filing the return of income. Similar is the provision with regard to the income-tax deducted at source. It cannot, therefore, be contended that the deposit of advance tax or deduction of income- tax at source is not authorised by law in view of the clear mandatory provisions of the Act. The question is whether the charge itself fails if there is no computation of total income by the assessing officer and whether as a consequence thereof the tax paid as advance tax or self- assessment tax or tax deducted at source, cannot be retained by the department without violating the provisions of Article 265 of the Constitution of India.” 14. It was concluded by the apex Court as under: Income Tax Appeal No. 605 of 2006 11 “We find considerable force in the submission of the revenue and it must be upheld. We have earlier noticed the scheme of the Act. Section 4 of the Act creates the charge and provides inter alia for payment of tax in advance or deduction of tax at source. The Act provides for the manner in which advance tax is to be paid and penalises any assessee who makes a default or delays payment thereof. Similarly the deduction of tax at source is also provided for in the Act and failure to comply with the provisions attracts the penal provisions against the person responsible for making the payment. It is, therefore, quite apparent that the Act itself provides for payment of tax in this manner by the assessee. The Act also enjoins upon the assessee the duty to file a return of income disclosing his true income. On the basis of the income so disclosed, the assessee is required to make a self-assessment and to compute the tax payable on such income and to pay the same in the manner provided by the Act. Thus the filing of return and the payment of tax thereon computed at the prescribed rates amounts to an admission of tax liability which the assessee admits to have incurred in accordance with the provisions of the Finance Act and the Income-tax Act. Both the quantum of tax payable and its mode of recovery are authorised by law. The liability to pay income-tax chargeable under S.4 (1) of the Act thus, does not depend on the assessment being made. As soon as the Finance Act prescribes the Income Tax Appeal No. 605 of 2006 12 rate or rates for any assessment year, the liability to pay the tax arises. The assessee is himself required to compute his total income and pay the income-tax thereon which involves a process of self-assessment. Since all this is done under authority of law, there is no scope for contending that Art. 265 is violated”. Accordingly, the first issue is decided in favour of the Revenue. 15. Adverting to the second issue regarding rectification of order relating to charging of interest under Section 158 BFA (1) of the Act, the Tribunal while considering this issue in para 13 of its order recorded as under: “We have heard both the parties and considered the rival contentions. As per provisions of Section 158 BC(a)(ii) in a case where search took place on or after the Ist day of January, 1997, the AO is required to issue a notice specifying time for not less than 15 days but not more than 45 days for furnishing a return. In this case, search took place after 1.1.1997 and time specified by the AO was for 16 days. However, the return was filed on 45th day i.e. beyond the period given in the notice. Section 158BC does not give any discretion to AO to extend the date for filing the return. Now section 158BFA(1) provides that if return u/s 158BC is furnished after the expiry of the period specified in such notice, the assessee shall be liable to pay simple interest at the rate specified therein. Thus, it is a mandatory on part of A.O. to charge interest in case of default. The submissions before us Income Tax Appeal No. 605 of 2006 13 would be valid for purpose of penalty u/s 158BFA(2). In the case of D.G.P Windosr (India) Ltd. Vs. Dy. CIT (supra), the return was filed within the time allowed by the AO himself. Therefore, the decision of ITAT, Mumbai is not applicable to the facts of the present case. Further in this case, the AO was requested not to charge interest by way of rectification proceedings u/s 154 of the Act. Now the issue, whether interest in such a case should be charged or not is a debatable issue and, therefore, the same falls out side the scope of Section 154 of the Act. Reliance in this regard is placed on the judgment of Apex Court, in the case of Volkari Brothers 82 ITR 50. We are, therefore, of the opinion that Ld. CIT(A) was justified in sustaining the interest under Section 158BFA(1). We confirm his order and reject this ground of C.O.” 16. The Tribunal came to the conclusion that the interest was leviable under the provisions of Section 158BFA(1) of the Act and further the assessing officer was justified in holding that the issue being debatable was outside the scope of Section 154 of the Act. The approach of the Tribunal in that behalf has also not been shown to be perverse in any manner. The issue under discussion is, therefore, decided against the assessee. 17. In view of the above, the appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE Income Tax Appeal No. 605 of 2006 14 (ADARSH KUMAR GOEL) April 27, 2011 JUDGE *rkmalik*