2014 (5) TMI 9 - HC - Income Tax

Court rules in favor of petitioner on interest charges, limits Settlement Commission's power, and quashes Assessing Officer's orders.

CM SMITH AND SONS Versus ASSISTANT COMMISSIONER OF INCOME TAX

The High Court upheld the petitioner's challenge to interest charged by the Revenue beyond the specified stage of the Act, clarified the Settlement ... Validity of interest charged beyond the scope of section 245D - order of settlement commission – Held that;- Assessee had all along kept its application to the interest being charged u/s 245D(1) alive - It may be that under mistaken bona fide belief that Settlement Commission has power of rectification, he filed such application before the Commission and such application came to be dismissed - application remained pending before the Commission for long number of years - the Commission has rejected the application on the ground that there was no error in the original order and also that it does not have the power of rectification – the assessee cannot be precluded from questioning the AO’s interpretation and implementation of the Commission's order. The Commission never required the AO to charge interest de-horse the statutory scheme - the assessee had no choice but to question the very base order of the AO misapplying the directions of the Settlement Commission - the assessee all along kept his challenge alive - He cannot be penalised for his application before the Settlement Commission remaining pending nearly for a decade – thus, the order of the AO dated 4.2.2003 giving effect to the orders passed by the Settlement Commission are set aside to the extent order provides for charging interest from the respective petitioners u/s 234B and 234C of the Act beyond the stage of section 245D(1) – Decided in favour of Assessee. Issues:1. Challenge to interest charged by Revenue beyond section 245D(1) of the Act.2. Settlement Commission's power of rectification.3. Validity of Assessing Officer's consequential order.Issue 1: Challenge to Interest Charged Beyond Section 245D(1) of the Act:The petitioner contested the interest charged by the Revenue beyond the stage of section 245D(1) of the Income Tax Act, 1961. The petitioner maintained this challenge from the time the Settlement Commission passed its order under section 245D(4). The Assessing Officer levied interest based on the directions of the Settlement Commission. The petitioner filed a rectification application before the Commission, which remained pending for years. The Supreme Court's judgment in the case of Brij Lal clarified that interest beyond section 245D(1) under sections 234B and 234C cannot be charged. The petitioner's challenge to the Assessing Officer's order was not considered belated, given the circumstances and the petitioner's continuous objection to the interest charged.Issue 2: Settlement Commission's Power of Rectification:The Settlement Commission, in its order dated 17.9.2013, held that it did not have the power to rectify its own order. The Commission also stated that there was no mistake apparent on the record in its order passed on 11.10.2002. The petitioner's application for rectification, which remained pending for years, was rejected by the Commission. The Commission's decision was challenged in the present writ petition.Issue 3: Validity of Assessing Officer's Consequential Order:The Assessing Officer passed a consequential order on 4.2.2003, calculating interest under sections 234B and 234C up to the stage of the Settlement Commission's final order of settlement under section 245D(4). The petitioner challenged this order, arguing that interest could not have been charged beyond section 245D(1) of the Act. The High Court quashed the Assessing Officer's orders to the extent they provided for charging interest beyond section 245D(1) under sections 234B and 234C, thereby allowing the petitions and disposing of them accordingly.In conclusion, the High Court upheld the petitioner's challenge to the interest charged by the Revenue beyond the specified stage of the Act, clarified the Settlement Commission's lack of power of rectification, and quashed the Assessing Officer's consequential orders to the extent they exceeded the statutory provisions.