TaxTMI 
TaxTMI 
2009 (7) TMI 858
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....ure can be disallowed ? (2) Whether the assessee is liable to pay interest under section 158BFA(1) of the Act in view of the mandatory provision for belatedly filing the return of income for the block period ?" In IT Appeal No. 281 of 2004 "(1) Whether the Tribunal was correct in holding that no surcharge for the block period 1st April, 1990 to 10th Nov., 2000 i.e., assessment years 1991-92 to 2001-02 could be levied as proviso to section 113 of the Act came into effect from 1st June, 2002 and as the search in the present case had taken place on 10th Nov., 2000 before the proviso was introduced ? (2) Whether the proviso to section 113 of the Act should be read along with the Finance Act for each of the earlier assessment years for the entire block period and surcharge should be levied from the inception of Chapter XIV-B of the Act? (3) Whether the Tribunal was correct in holding that interest under section 158BFA1) of the Act is charged for non-payment of tax by the assessee to the Department ? (4) Whether the mandatory interest under section 158BFA(1) of the Act was correctly levied by the AO on account of the failure of the assessee to file the return of income ....
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.... the AO, which has formed the subject-matter of questions in this appeal, as the finding of the AO was affirmed by the appellate CIT on this aspect, but the Tribunal has reversed it and has allowed the deduction for the block period in question. 6. One another question that arises in respect of the individual assessee for the block period is as to the legality of the levy of interest under section 158BFA(1) of the Act for the period between 15 days after the receipt of notice under section 158BD of the Act and the date of filing of the return, which is at 1 per cent per month on the amount of tax found due on the assessment as determined by the AO pursuant to the return filed by the assessee. 7. In the case of the assessee-company, the search being of the premises of the company and notice having been issued under section 158BC of the Act on 27th Nov., 1997 and the assessee having responded by offering an undisclosed income of Rs. 60 lakhs for the block period in question, and filed a return on 22nd Feb., 1999, it resulted in the assessment order dt. 26th Feb., 1999. 8. Insofar as this assessee and the questions in IT Appeal No. 281 of 2004 are concerned, they are ones rel....
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....sessment and also of the requirement of payment of advance taxes etc. 13. It is submitted in this regard that the Tribunal has on a very erroneous assumption made references to the series of occasions wherein the Supreme Court and High Court had occasion to characterise the levy of interest as compensatory and therefore unless the Revenue had suffered a loss in the sense that certain amount had been quantified and called upon to be paid to the assessee and only on the non-payment of amount within the stipulated time, there can be scope of payment of interest and such line of reasoning is not applicable as the Tribunal has neither examined the validity of the levy nor the question examined on the premise of the circumstances not warranting the levy. It is therefore submitted that the Tribunal is clearly in error in deleting the interest which had been included by the AO and as affirmed in appeal by the appellate authority. 14. Insofar as levy of tax inclusive of surcharge is concerned, it is a question which arises only in the case of company assessment. Submission of Sri Seshachala is that the question is no more res integra and it is covered by the decision of the Supreme Co....
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.... 36(1)(iii) independently in the wake of there being no need to compute the income from the share of the profits of the assessee from the partnership firm but in trying to link it to the taxability of any amount received by the assessee as a partner in a partnership firm in the nature of salary/interest but also the receipt being treated as part of business income of the assessee in terms of section 28(v) of the Act. Submission is that provision of section 28(v) is in no way attracted for regular deduction under section 36(1)(iii) of the Act. There is no occasion for computation of the expenditure in terms of section 36(1)(iii) when only there is no profits attributable to the business and when there is no computation, such exercise having been done earlier under the provisions of section 10(2A) of the Act, the question of computing profit does not arise and so also allowing the deduction does not arise. Therefore it is submitted that the Tribunal is in error in allowing such deduction. 18. In this regard the further submission of Mr. Seshachala for the Revenue is that the Tribunal has also committed an error in applying the ratio of the judgment of the Supreme Court in the case....
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.... extent when neither any factual foundation has been laid by the assessee nor the ratio of the judgment of the Supreme Court in the case of Maharashtra Sugar Mills Ltd. case (supra) applied to the facts of the present case. 20. Countering such submission made on behalf of the Revenue, Sri Kulkarni, learned counsel for the assessee would very vehemently urge that there is absolutely no error of law or of fact committed by the Tribunal that the orders passed by the Tribunal in the case of the individual assessee as well as the company are quite justified and the appeals have been rightly allowed and no interference is called for and the appeals are to be dismissed. 21. Elaborating his submission insofar as the question of levy of interest under section 158BFA(1) which is a question common to both the appeals, Mr. Kulkarni has very vehemently submitted that the very fact that the amount is described as interest is suggestive that it is compensatory in nature and if it has to be compensated in favour of the Revenue it has to be suffering loss of the revenue which is required to be made good. Submission is that loss can be inferred to have occurred to the Revenue only an amount du....
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....so been taken care of to be included within section 140A of the Act for the first time w.e.f. 1st June, 1999 by the very Finance Act of 1999 is also clearly demonstrative of the fact that prior to this period there was no scope or intention to levy interest on the assessed amount even in terms of Chapter XIV-B and therefore the AO as well as the appellate authority are clearly wrong in holding that the assessee was liable to pay interest in terms of section 158BFA(1) of the Act. It is therefore submitted that Tribunal has rightly deleted this levy of interest and no interference is warranted and the questions on this aspect are to be answered against the Revenue. 25. Mr. Kulkarni would draw support from the notes on clauses provided under Finance Bill, 1999 for the purpose of amendment of section 140A of the Act as culled out at p. 141 of the journal section of [1999] 236 ITR (St.) 141 and clause 63, as also a Board circular explaining the scope of the amendment and the effect of amendment on section 140A in terms of the Board circular as contained at p. 187 of [1999] 236 ITR (St.) 141 and [1999] 240 ITR (St.) 36 para 45.1 and has drawn our attention to the Memorandum Explaining....
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....the earlier Division Bench of the very Court rendered, than to apply the ratio as laid down in Suresh N. Gupta's case (supra) though by the Supreme Court but doubted by the Supreme Court itself and the question having been referred to a Larger Bench. 28. We have bestowed our serious consideration to the submissions made at the Bar and perused the records made available to us. 29. We will examine the questions one after one. We first take up the question of the expenditure amount claimed by the individual assessee in his return for the block assessment period for a sum of Rs. 66,000 as an expenditure incurred for paying interest on the investment made in moneylending business. 30. So far as this question is concerned we notice that the assessee in fact had not even laid any factual foundation to indicate that there was some investment made in moneylending business for which purpose the assessee had borrowed commensurate amount. At the outset the assessee had not been paying interest on the investment in the moneylending business. It is not as though a claim of this nature had been made by the assessee earlier but was for the first time in the return filed in response to....
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....nduct and the past transaction had indicated that the dealing by the assessee was inclusive for investment in the partnership firm and the interest paid was on such partnership and it was allowed as deduction in the earlier years. 34. Even the question of allowing the interest amount as part of business, expenditure in terms of section 36(1)(iii) of the Act does not arise in the present case. In fact the question is on an hypothetical basis as the assessee had not established any right for making such claim. Though Mr. Seshachala, learned standing counsel for the Revenue pointed out that the claim under section 36(1)(iii) of the Act cannot be made as the situation never arose in the wake of exemption to section 10(2A) of the Act we are of the opinion that in the present situation even that question may not arise as the assessee never made good the claim for deduction as an interest paid on investment made in moneylending business and therefore the question has to be necessarily answered in the negative and against the assessee. The Tribunal was clearly in error in directing the deletion of this amount as part of the income of the assessee from moneylending business. 35. Insof....
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....notice that even the concept of block assessment is one of an exception to the scheme of the IT Act in bringing to tax the income of the previous year in the corresponding assessment year. 40. We appreciate the fair submission of Sri Kulkarni and as urged by Sri. Seshachala that so far as the block assessment is concerned there is no correlation to a corresponding previous year but the entire block period is taken as one period and assessed to tax at the rate as provided under section 113 of the Act itself. 41. Therefore for levy of interest in terms of section 158BFA(1) is concerned, the only requirement is that a situation as contemplated in this very provision should have occurred. 42. We are emphasising on this aspect for the reason that Sri Kulkarni for the assessee had made a valiant effort to make home his point for levy of interest as compensatory and therefore in turn is linked to the statutory provisions of section 140A of the Act and when section 140A did not provide for the levy by not making a reference to the assessment in terms of section 158BC at any point of time prior to Finance Act of 1999 and was brought on the statute book w.e.f. 1st June, 1999 there w....
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....40A of the Act till payment of tax in terms of the section and even now the provisions of section 158BFA(1) and section 140A operate independently. Therefore the amendment to section 140A is of no consequence so far as determination of interest under section 158BC [sic-158BFA(1)] is concerned and we are of the view that any contrary view by the Tribunal is clearly wrong and is required to be set right. 47. One another argument addressed by Sri Kulkarni, learned counsel for the assessee insofar as the individual assessee's case is concerned on the very question of levy of interest, is that even in terms of provisions of section 158BC levy of interest is justified only in a situation where a notice for filing return is issued in terms of section 158BC of the Act and admittedly notices having been issued to the individual assessee in terms of section 158BD and even here the provisions of section 158BD having undergone an amendment by including section 158BC also within the scope of section 158BD only by way of amendment through Finance Act, 2002 w.e.f. 1st June, 2002, it is suggestive that prior to the amendment so far as a notice issued under section 158BD, provision of sectio....
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....Suresh N. Gupta's case (supra) on the other hand having been followed and applied even in a case decided later to the reference order in the case of Rajiv Bhatara (supra) referred to earlier, we are left with no choice but to apply the law as declared in the decision of the Supreme Court in Suresh N. Gupta's case (supra). Even if it is possible to examine the question on legal principle judicial norms and propriety and the provisions of Article 141 of the Constitution do not allow us the liberty or freedom for this and accordingly this question has to be necessarily answered in favour of the Revenue and against the assessee. 50. In the result both appeals are allowed and the assessment orders as affirmed by the first appellate authority are confirmed and orders of the Tribunal are set aside. Accordingly, the substantial questions of law raised in these appeals are answered as follows : Q.No. Question Answer 1. Whether, the Tribunal was correct in holding that if the assessee has incurred expenditure towards part of the income which is taxable and part of the income which is exempt then the entire expenditure can be disallowed ? In the negative, in favou....