Supreme Court: Interest under Income Tax Act applies for late filing without notice. Surcharge proviso not retrospective.

The Supreme Court held that interest under Section 158BFA(1) of the Income Tax Act is applicable for late filing of returns even without a notice under Section 158BC and prior to 01.06.1999. The Court ruled that the proviso to Section 113, regarding the levy of surcharge, is prospective and not applicable retrospectively, overturning the High Court's decision.

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Issues Involved:
1. Levy of interest under Section 158BFA(1) of the Income Tax Act for late filing of the return for the block period in absence of any notice under Section 158BC.
2. Levy of surcharge under proviso to Section 113 of the Income Tax Act.

Detailed Analysis:

1. Levy of Interest under Section 158BFA(1):

Background and Arguments:
- The appellant, an individual and Director Partner in Khoday Group, was issued a notice under Section 158BD to file the return for the block period. The appellant filed the return including undisclosed income and was levied interest under Section 158BFA(1) for late filing.
- The appellant contended that interest under Section 158BFA(1) could not be levied in absence of a notice under Section 158BC, arguing that Section 158BD was amended to include Section 158BC only from 01.06.2002, making the interest levy invalid for notices issued prior to this date.
- The High Court ruled that Section 158BFA(1) was applicable even before the amendment, holding that Chapter XIVB's provisions were self-contained and did not require a notice under Section 158BC for levying interest.

Supreme Court's Analysis:
- The Supreme Court noted that Chapter XIVB, dealing with block assessment, is a complete code in itself, providing for self-contained machinery for assessment of undisclosed income.
- It was observed that the liability to pay interest under Section 158BFA(1) arises due to late filing of the return under Section 158BC, irrespective of the amendment in Section 158BD.
- The Court held that the insertion of the words "under Section 158BC" in Section 158BD by the Finance Act, 2002, was clarificatory in nature and did not change the applicability of Section 158BFA(1).
- The Court concluded that the assessee is liable to pay interest under Section 158BFA(1) for late filing of the return even in the absence of a notice under Section 158BC and for the period prior to 01.06.1999.

2. Levy of Surcharge under Proviso to Section 113:

Background and Arguments:
- The High Court had upheld the levy of surcharge under Section 113, relying on the decision in Commissioner of Income Tax vs. Suresh N. Gupta.
- The appellant argued that the decision in Suresh N. Gupta was overruled by the Constitution Bench in Vatika Township Private Limited, which held that the proviso to Section 113 is prospective.

Supreme Court's Analysis:
- The Supreme Court referred to the decision in Vatika Township Private Limited, which clarified that the proviso to Section 113 is prospective and not applicable retrospectively.
- The Court noted that the High Court's reliance on the overruled decision in Suresh N. Gupta was incorrect.
- It was held that the assessee is not liable to pay the surcharge under the proviso to Section 113 as the amendment is prospective.

Conclusion:
- The Supreme Court ruled in favor of the revenue regarding the levy of interest under Section 158BFA(1), affirming that interest is applicable for late filing of returns even without a notice under Section 158BC and prior to 01.06.1999.
- The Court ruled in favor of the assessee regarding the levy of surcharge under the proviso to Section 113, holding that the surcharge is not applicable retrospectively and quashed the High Court's judgment to that extent.

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