TaxTMI 
TaxTMI 
1995 (2) TMI 128
X X X X Extracts X X X X
X X X X Extracts X X X X
....re a brief reference to the facts of the case and that we do as hereunder. 3. Shri Kanhaiya Lal Doshi is an old IT assessee returning share income from partnership business of M/s. Champa Lal Gordhanlal, Salumber (SLGL) for the last several years. The accounting period, relevant to assessment year 1984-85, which is under consideration ended on 27th April, 1983. 4. During the period between 21st and 23rd of Dec., 1983, a search under section 132 of the Act was carried on at the residential premises of the assessee. In the course of the search proceedings, the assessee was found in possession of cash amounting to Rs. 92,894.75, gold ornaments and jewellery weighing 8365.599 gms., silver bullion, coins, ornaments--weighing 65,855 kg., FDR Rs. 1,500, advancement to debtors to the extent of Rs. 2,61,310 and evidence regarding investment in immovable properties, animals and vehicles. Documents seized and marked as Exs. 1, 9, 13, 14, 15, 16, 17, 18, 19, 20, 21, 24, 33 and 34, etc., in the course of search proceedings disclosed upon the search party that the assessee had been earning income from money-lending business but not disclosing the same to the Department. On a study of such ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; 1,06,584 Less : LIC premium paid 1,28,889 1,720 -------- &nb....
X X X X Extracts X X X X
X X X X Extracts X X X X
....fficer charged interest under section 217 at Rs. 1,18,685. Here it may be mentioned that the assessee had filed the estimate of his current income at Rs. 20,585 on 1st Sept., 1983, and paid advance tax of Rs. 1,604 on 1st Sept., 1983 and 5th Dec., 1983 in instalments of Rs. 802 each. In regard to the charge of interest under section 217 the assessee adopted two courses. In the first place, the assessee prayed for waiver thereof by moving a petition under rule 40 of IT Rules, 1962 (the Rules) before the IAC who did not accept the prayer of the assessee and dismissed his petition. In the second place, the assessee challenged the charge of interest under section 217 before the CIT(A) by raising a ground in the memorandum of appeal filed before the CIT(A) against the assessment order dt. 29th Aug., 1986. While upholding various additions but reducing the assessed income to Rs. 3,62,232 as against Rs. 5,40,437 assessed by the Assessing Officer, the learned CIT(A) vide his order dt. 3rd Aug., 1988 remitted the issue relating to the charge of interest under section 217 to the Assessing Officer with the following observations : " I have considered the facts and pleadings of the learn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t denies his liability of interest under section 217 in toto. The appellant had furnished its statement of advance tax well in time and paid the taxes due thereon and as such no interest under section 217 is leviable. The learned CIT(A) has further erred in law and on facts of the case in sustaining the levy of the ground of depositing lesser tax but for the fault no interest is chargeable under section 217. The levy of interest is, thus, illegal and deserves to be deleted. The appellant prays your honour's indulgence to add, amend or alter any of the ground(s) on or before the date of hearing before your honour. " In Revenue's appeal (ITA 1180/91) : " On the facts and in the circumstances of the case, the CIT(A) has erred in entertaining an appeal against charging of interest under section 217 as no appeal against such levy is provided under section 246(2) of the IT Act, 1961, and the proper course was to seek waiver of interest from Assessing Officer or Dy. CIT. (ii) erred in directing to charge interest under section 217(1A) payable after giving credit for the seized amount of Rs. 92,000 ignoring the fact the said section does not permit calculation of interest in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the same in the first round of appeal. In support of such contentions, reliance was placed on IAC v. Cement Distributors Ltd. [1991] 36 ITD 363 (Delhi), Dun lop India Ltd. v. Asst. CIT [1992] 41 ITD 582 (Cal.), [1981] 129 ITR 825 (sic), Southern Roadways Ltd v. CIT [1981] 130 ITR 545 (Mad.) (FB), Bihar State Road Transport Corpn. v. CIT [1984] 149 ITR 208 (Pat.)(FB), CIT v. Devichand Panmal [1986] 160 ITR 545 (Raj.), Central Provinces Manganese Ore Co. Ltd.'s case, Barmer Disposal Auto Parts v. CIT [1987] 163 ITR 690 (Raj.), Golecha Properties (P.) Ltd. v. CIT [1988] 171 ITR 47 (Raj.) and Taylor Instrument Co. (India) Ltd. v. CIT [1992] 198 ITR 1 (Delhi). 11A. Regarding the proceeding under rule 40 of the Rules taken by the assessee for waiver or reduction of interest, Mr. Ranka submitted that the exercise of such a right by the assessee did not adversely affect his right to challenge the levy of interest in an appeal filed under section 246 before the CIT(A). According to Mr. Ranka, both the rights co-exist together and an assessee may seek both the remedies simultaneously or alternatively. 11B. After having given our thoughtful consideration to the arguments advanced before....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntral Provinces Manganese Ore Co. Ltd. After examining the relevant provisions of section 215 of the Act and rule 40 of the Rules, their Lordships observed that : " It is not correct to refer to the levy of interest as a penalty. The expression "penal interest" has acquired usage, but is in fact an inaccurate description of the levy. Having regard to the reason for the levy and the circumstances in which it is imposed it is clear that interest is levied by way of compensation and not by way of penalty. The IT Act makes a clear distinction between the levy of a penalty and other levied under that statue. Interest is levied under sub-section (8) of section 139 and under section 215 because, by reason of the omission or default mentioned in the relevant provisions the Revenue is deprived of the benefit of the tax for the period during which it has remained unpaid. The very period for which interest is levied under the relevant provision points to the nature of the levy. If that is borne in mind, it will be apparent that the levy of interest is part of the process of assessment. Although section 143 and section 144 do not specifically provide for the levy of interest and the levy is....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is justified. " [Emphasis supplied] 16. It has thus been finally laid down by the Supreme Court that in the cases where the existence of jurisdictional facts cannot be disputed, liability to interest would stand attracted automatically. "Jurisdictional facts" mean those facts, the existence of which confers jurisdiction upon an authority to do an act. If the existence of such facts are not in dispute, no challenge to the jurisdiction of that authority to do that act can be given. A challenge to the mode or manner or extent of the exercise of the jurisdiction may vitiate the act done, but that would not tantamount to a challenge to the very jurisdiction of that authority to do that particular Act. It would be a case of irregular exercise of the jurisdiction and not that of doing that act without jurisdiction. 17. Jurisdictional facts, for the purpose of levy of interest under section 217 of the Act are : (i) not sending a statement of advance tax payable or the estimate in lieu of such statement by a person who is liable to pay advance tax and who has been previously assessed by way of regular assessment, or (ii) not sending an estimate of his current income and the adv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the jurisdictional facts which cannot be disputed are that : (i) the assessee is a person who is liable to pay advance tax and who has been previously assessed by way of regular assessment. (ii) the assessee did send an estimate of his current income at Rs. 20,585 on 1st Sept, 1983, and pay two instalments of advance tax payable thereon of Rs. 1,604 on 1st Sept., 1983, and 5th Dec., 1993. (iii) a search under section 132 was carried out on 23rd-25th Dec., 1993 in the case of the assessee. (iv) in the course of search the assessee was found amongst other assets, in possession of cash amounting to Rs. 92,894.75. (v) that the assessee had been earning income from money-lending business which was not disclosed to the IT Department. (vi) that the assessee did not revise his estimated income and pay advance tax payable by 15th March, 1984. (vii) that the income from money-lending business had not been disclosed to the Department. (viii) that the assessee returned his income for the year under consideration at Rs. 1,27,169 on 13th/15th Sept., 1985 against Rs. 20,585 estimated. 21. The existence of the abovementioned jurisdictional facts which admit of no dispute....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Wvg. Mills Ltd. [1985] 155 ITR 448 (Cal.), CIT v. Golcha Properties (P.) Ltd. [1988] 169 ITR 493 (Raj.), CIT v. Off Shore India Ltd. [1994] 209 ITR 473 (Cal.), it was urged by Mr. Ranka that the assessee entertained a bona fide belief that no interest under section 217 would be leviable in view of the seizure of Rs. 92,000 in the course of search proceedings held on 21st/23rd Dec., 1983, i.e., much before the date of third instalment of paying advance tax on 15th March, 1984. This argument cannot justify the entertainment of appeal under section 246(c) by the learned CIT(A) against the order of charging interest under section 217. Raising the plea of bona fides in the commission of a default would simply suggest an effort on the part of the assessee to satisfy the relevant authority that there existed circumstances calling for a reduction or waiver of the interest charged. By its very nature such a plea can be taken only when the liability to the charge has arisen and has been admitted. Reduction in or waiver of the charge can be pleaded only when the charge itself has come into existence. It means that if an assessee disputes the jurisdictional facts, attracting the levy of intere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion relates (including any penalty levied or interest payable in connection with such assessment or reassessment) and in respect of which he is in default or is deemed to be in default may be recovered out of such assets. (ii) If the assets consist solely of money or partly of money and partly of other assets the ITO may apply such money in the discharge of the liabilities referred to in clause (i) and the assessee shall be discharged of such liability to the extent of the money so applied. (iii) The assets other than money may also be applied for the discharge of any such liability referred to in clause (i) and remains undischarged and for this purpose such assets shall be deemed to be under distraint as if such distraint was effected by the ITO under authorisation from the CIT under sub-section (5) of section 226 and the ITO may recover the amount of such liabilities by the sale of such assets and such sale shall be effected in the manner laid down in the Third Schedule. (2) Nothing contained in sub-section (1) shall preclude the recovery of the amount of liabilities aforesaid by any other mode laid down in this Act. (3) Any assets or proceeds thereof which remain aft....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the seized amount of Rs. 92,000 is not in line with the provisions of section 132B r/w section 132(5)(ii), (iia) and (iii) of the Act for more than one reasons. Firstly, it is an unascertained liability the very levy of which was challenged by the assessee. Secondly, if the liability becomes ascertained, it may or may not attract interest which is again subject to waiver or reduction. Thirdly, a liability to pay interest which is likely to undergo different kinds of challenges before it becomes finally payable and is dependent upon the flexible character of tax liability cannot take precedence for discharge over the past and/or existing tax liabilities which may be quite ascertained. The grievance of Revenue in second ground is, therefore, also correct and consequently the directions of the learned CIT(A) to the Assessing Officer to charge interest under section 217(1A) on the tax payable after giving credit for the seized amount of Rs. 92,000 is hereby vacated. 29. In view of the above discussion, Revenue's appeal has to be allowed. 30. Now coming to assessee's appeal, the grounds of which have already been reproduced above, we may conveniently observe and hold on the basi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the adversary. The point was stressed in the course of arguments only and which we allowed to be raised as the learned Departmental Representative was fair enough to state that he would answer such an argument too. What we expect of the parties is to raise specific grounds in the memorandum of appeal particularly when decision on such grounds may affect the decision of the case. It is necessary to do so to protect the interest of the assessee adversely which might be taken by surprise. Even if a ground has not been raised in the memorandum filed, permission of the Tribunal be sought to raise such a ground. This would facilitate the adversary to prepare itself on the ground raised with the permission of the Tribunal. 34. Be that as it may, the issue in the appeal was in respect of assessee's liability to pay interest under section 217. This issue in various aspects was well within the knowledge of the assessee and he was denying his very liability to such levy, without disputing the existence of the foundational facts attracting such liability. At one stage of the proceedings, he had even sought waiver or reduction of such liability. With such facts coming out from the record,....