2009 (7) TMI 651 - HC - Income Tax

Court rules in favor of Revenue on assessment, but sides with appellant on interest levy

The court upheld the assessment procedure and ruled in favor of the Revenue for the first four issues. However, concerning the interest levy under ... Advance Tax- The assessee who was carrying on business of running a rice mill and who, it appears, had started the business afresh, had filed his return of income for the assessment year in question and had claimed a loss of Rs.1,70,480, mainly attributable to the deduction due to depreciation on the investment made in the rice mill. On scrutiny the Assessing Officer noticed that there were discrepancies in the capital account and investment made, as claimed by the assessee, before the banks such as State Bank of India, Karnataka State Finance Corporation, State Bank of Mysore, TGMC Dank, Tumkur, etc., and further that the assessee had not reflected the trading activities in sale of rice, for which purpose, it appears, the assessee had been purchasing considerable quantities of rice from a dealer at Manvi, etc. In this context, the assessee had been issued with notices under sections 142(1) and 143(2) of the Act. The assessee gave a letter stating that he was offering a further income of Rs. 10 lakhs, mainly to buy peace with the department and to avoid further scrutiny. Held that- in this situation it cannot be said that assessee had defaulted in payment of installment of advance tax, as the amount of Rs. 10 lakhs was offered by way of income for the first time as per the assessee’s letter, thus the addition of income under section 234A and 234B in the case of the assessee was not necessary and not justified. Issues Involved:1. Jurisdiction for addition based on appellant's consent.2. Legality of income addition without supporting evidence.3. Justification for not reducing the addition amount.4. Leviability of interest under sections 234A and 234B.5. Justification for interest levy due to delay by Revenue authorities.Issue-wise Detailed Analysis:1. Jurisdiction for Addition Based on Appellant's Consent:The court examined whether the Tribunal was correct in law in holding that the appellant's consent conferred jurisdiction for the addition of Rs.10 lakhs. The appellant initially claimed a loss but later volunteered an additional income of Rs.10 lakhs to avoid further scrutiny. The Assessing Officer accepted this offer and concluded the assessment. The court upheld the Tribunal's view that the appellant's voluntary offer could be accepted at face value without further probe, as it was made to avoid further scrutiny.2. Legality of Income Addition Without Supporting Evidence:The court considered whether the Tribunal was justified in holding that the appellant earned an income of Rs.10 lakhs merely based on admission without supporting evidence. The appellant contended that the offer had no basis and should have been verified against the return and books of account. The court found that the appellant's voluntary offer to avoid further scrutiny was sufficient for the Assessing Officer to conclude the assessment without needing additional evidence.3. Justification for Not Reducing the Addition Amount:The appellant argued that the Tribunal should have reduced the addition to Rs.6.24 lakhs instead of Rs.10 lakhs. The court noted that the appellant had voluntarily offered Rs.10 lakhs to avoid further scrutiny and potential harsher consequences. Thus, the court found no error in the Tribunal's decision to uphold the full addition amount.4. Leviability of Interest Under Sections 234A and 234B:The court examined whether the interest under sections 234A and 234B was leviable. The interest was statutory, and the appellate authority and Tribunal upheld its levy. The court noted that the appellant could seek relief from the Chief Commissioner or the Board under section 119 of the Act. However, the court did not find grounds to interfere with the interest levy in this appeal.5. Justification for Interest Levy Due to Delay by Revenue Authorities:The court considered whether interest under sections 234A and 234B was justified for the period of delay attributable to Revenue authorities. The appellant offered Rs.10 lakhs to buy peace and avoid further scrutiny, which the Assessing Officer accepted without further investigation. Given the peculiar facts and circumstances, the court found that the appellant did not default in paying advance tax installments. Consequently, the court directed that the interest under sections 234A and 234B was not justified and answered this question in favor of the appellant.Conclusion:The court upheld the validity of the assessment procedure and found that the first four questions should be answered in favor of the Revenue. However, regarding the fifth question about the interest levy, the court ruled in favor of the appellant, finding it unjustified under the specific circumstances. The appeal was allowed in part, specifically concerning the interest under sections 234A and 234B.