Court rules no interest on advance tax, grants interest on refundable amount per Settlement Commission orders. Petitioner awarded costs.

The court held in favor of the petitioner, ruling that interest could not be charged under various sections of the Income Tax Act as the advance tax could have been adjusted from the amount deposited with the Department. The court also determined that the petitioner is entitled to interest on the refundable amount as per the Settlement Commission's orders and relevant provisions of the Act. The writ petition was allowed, and the petitioner was granted costs of Rs.10,000.

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Issues Involved:
1. Whether interest under Sections 234A, 234B, 234C, and 220(2) of the Income Tax Act could be charged when sufficient amount was lying deposited with the Department.
2. From which date the petitioner is entitled to interest on the amount refundable after giving effect to the orders passed by the Income Tax Settlement Commission.

Issue-Wise Detailed Analysis:

Issue No. 1:
The petitioner argued that no interest could be charged for non-payment of advance tax since a sufficient amount was already lying with the Department. The Department contended that the amount belonged to M/s. Foto Traders, assessed as an unregistered partnership, not the petitioner's sole proprietorship. The Department relied on the petitioner's statement during the search, asserting the material seized belonged to M/s. Foto Traders. The petitioner later claimed M/s. Foto Traders was his sole proprietorship, and a protective assessment order was passed in the status of a firm, confirmed by CIT (A) on 17.03.1999. Adjustments from the P.D. Account of M/s. Foto Traders began from 31.03.1999. The Department argued that the dispute about the ownership of the amounts was settled by the Income Tax Settlement Commission's order on 07.07.2003, and no amount was available for adjustment of demands raised in the petitioner's case until then.

Under Section 234B, interest is payable for default in payment of advance tax, and under Section 234C, for deferment of advance tax. If tax payable is not deposited within 30 days of the notice of demand under Section 156, the assessee is deemed in default, attracting interest under Section 220(2). The Department levied interest as the petitioner did not deposit advance tax for the Assessment Years 1999-2000 to 2003-04. The petitioner argued that his request for adjusting the advance tax from the amount lying with the Department was legitimate, given that Rs.4.2 Crores were lying with the Department. The Department's refusal was based on the premise that the amount belonged to M/s. Foto Traders.

The court found this plea by the Department misconceived. The petitioner claimed M/s. Foto Traders was his sole proprietorship and submitted proofs. The Department's erroneous non-acceptance of this plea cannot be used to its advantage. The Settlement Commission's order vindicated the petitioner, confirming M/s. Foto Traders as his sole proprietorship. The court held that the petitioner's request to adjust the advance tax from the amount deposited was justified and should not have been denied by the Department. Hence, the respondent was not justified in levying interest as the advance tax could have been adjusted from the amount lying with the Department.

Issue No. 2:
The petitioner is entitled to interest on the refundable amount after the Settlement Commission's orders under Section 132D(4) of the Act. This provision mandates the Central Government to pay simple interest @ 1.5% per month on the amount by which the credit money seized under Section 132 exceeds the tax due. Interest runs from the date immediately following the expiry of 120 days from the date of the last authorization for search under Section 132 or requisition under Section 132A to the date of assessment completion.

In this case, even after the Settlement Commission's orders, the excess amount was not refunded to the petitioner, entitling him to interest under Section 132A. The petitioner is also entitled to interest under Section 244A from the date the amount was transferred into the AO's account from the PD account after adjusting Rs.49,86,500/-, which was the tax due/payable. The amount shall be calculated accordingly.

Conclusion:
The writ petition is allowed in the aforesaid terms. The petitioner is entitled to cost quantified at Rs.10,000/-.

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