TaxTMI 
TaxTMI 
2023 (1) TMI 584
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....lant is an individual and Director Partner in Khoday Group of Company concerns. A search under Section 132 was conducted in the residential premises of the family members of Khoday Group and the warrant was issued in the name of M/s. Khoday India Limited. The appellant was served with the notice under Section 158BD to file the return of income for the block period of 01.04.1986 to 13.02.1997. The appellant filed return for the block period in response to notice under Section 158BD by including the undisclosed income of Rs.45,00,000/for the block period. The Assessing Officer levied interest under Section 158BFA(1) for the period from 18.01.1998 to 19.01.1999 at the rate of 2% per month for 13 months and levied interest of Rs.7,12,296/on the tax amount of Rs.27,49,600/. 4.2 The appellant being aggrieved by the order of the Assessing Officer filed an appeal before the learned CIT (A). It was the case on behalf of assessee that levy of interest under Section 158BFA(1) was not justified. The learned CIT (A) held that Section 158BFA provides for levy of interest for late filing of return of block assessment in response to the notice under Section 158BC similar to the provisions of Sect....
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....n 158BC, there shall not be any levy of interest under Section 158BFA(1) on the submission that prior to the amendment by including Section 158BC within the scope of Section 158BD by Finance Act, 2002 w.e.f. 01.06.2002. So far as a notice under Section 158BD, provision of Section 158BFA(1) was not attracted. The High Court has observed and held that levy of provisions of Section 158BD prior to the amendment in terms of Finance Act, 2002 i.e. before adding the words "under Section 158BC", section itself indicates the procedure that was required to be followed by the Assessing Officer, is only in terms of the very provisions of Chapter XIVB of the Act and therefore Section 158BC as well as 158BFA(1) are even otherwise attracted and just because the Legislature thought it fit to add or to mention Section 158BC by way of amendment through Finance Act, 2002, it would not make any difference to the earlier provision of Section 158BD which even otherwise envisages within itself the provisions and applicability of Section 158BD and 158BFA(1). Consequently, the High Court has answered the questions of law in favour of the revenue and against the assessee and consequently allowed the said ap....
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....nance Act, 2002, introducing the requirement of issuing notice under Section 158BC to the "other person", applied even to pending proceedings is erroneous and against the Constitution Bench decision of this Court in the case of Commissioner of Income Tax (Central)I, New Delhi Vs. Vatika Township Private Limited - 2015 (1) SCC 1 (Para 28), wherein the Constitution Bench has clearly laid down that the presumption is that every amendment is prospective and the amendment applies from the assessment year in which it is introduced. 6.4 It is further submitted that in any event, consequence of the said argument will be that the entire block assessment (not just levy of interest) would be rendered nonest inasmuch as this Court in the aforesaid decision has laid down that where a section requires issuance of notice such notice is a jurisdictional prerequisite and in the absence of such notice, the entire proceedings are liable to be quashed. Reliance is placed on the decision of this Court in the case of Assistant Commissioner of Income Tax and Anr. Vs. Hotel Blue Moon, (2010) 3 SCC 259 (Para 22). It is submitted that in other words if the amendment applied retrospectively, then issuance o....
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....other person", the Assessing Officer was not justified in levying the interest under Section 158BFA. 6.7 Now, so far as the levy of surcharge under proviso to Section 113 of Income Tax Act is concerned, it is vehemently submitted that as such the said question is now covered in favour of the assessee by the Constitution Bench decision of this Court in the case of Vatika Township Private Limited (supra) (Para 37 to 40). It is submitted that the decision of this Court in the case of Suresh N. Gupta (supra) that has been relied upon by the High Court in the impugned judgment has been specifically overruled by the Constitution Bench in Vatika Township Private Limited (supra). 6.8 Now, so far as chargeability of interest under Section 158BFA prior to 01.06.1999 in the case of persons issued notice under Section 158BC is concerned, it is submitted that interest only follows the principal. In this case the principal being the tax payable. It is submitted that in other words the liability to pay interest cannot arise if there was no liability to pay the tax itself along with the return, at the relevant point of time. It is submitted that interest only being an element to compensate the r....
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.... is submitted that the interest under Section 158BFA(1) of the Act is levied to compensate the government for delay in filing or nonfiling of return by the assessee pursuant to determination under Section 158BC / 158BD of the Act. 7.3 It is further submitted that subsequently, Section 140A (1) of the Income Tax Act was amended by the Finance Act, 1999, w.e.f. 01.06.1999 incorporating Section 158BC making the assessee liable to pay tax before furnishing return under Section 158BC and also file the proof of payment along with return. By insertion of Section 158BC in Section 140A, the Legislature casts an additional onus on the assessee to pay selfassessment tax under Section 140A (1) of the Income Tax Act when the return of income was filed in response to the notice under Section 158BC. It is submitted that therefore it is very clear that when the return was filed by the assessee for the block period under Section 158BC, there was no requirement to pay tax under Section 140A (1) of the Income Tax Act and the entire liability was limited to period of delay and not be delayed in payment of tax. 7.4 It is submitted that Chapter XIVB of the Income Tax is a special provision with respec....
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....rit. Relying upon Notes of Clauses appended to Clause 64 of the Finance Bill, 2002, whereby said words "under Section 158BC" was inserted it is submitted that the words "under Section 158BC" in Section 158BD has been inserted so as to clarify that Assessing Officer shall proceed against such "other person" under Section 158BC. It is further submitted that Chapter XIVB prescribes a special procedure for computation of income for the block period in search and seizure cases. Section 158BD indicates the procedure that was required to be followed by Assessing Officer when any person other than a person with respect to whom search was made. It is submitted that even bereft of clarificatory amendment brought in vide Finance Act, 2002, Section 158BD provided that provision of ChapterXIVB of the Act would apply accordingly and therefore the provision of Section 158BC and 158BFA was attracted. It is submitted that insertion of "under Section 158BC" only makes it clear what was always existing under Section 158BD. 7.8 It is submitted that if the contention of the assessee that Section 158BFA would not be attracted unless notice under Section 158BC is provided then for the period prior to th....
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....elling them to pay selfassessment tax. It is submitted that therefore if the Legislature wanted to apply the provisions of Section 140A, they would have expressly stated so. The very fact that there is no provision in Chapter XIVB for applying provision of Section 140A, clearly shows that Legislature never intended to apply the provisions of Section 140A before 01.06.1999. This was also made clear in the memorandum explaining the Finance Bill, 1999, by saying that there is no corresponding provision in Chapter XIVB for payment of selfassessment tax at the time of filing the return. It is submitted that therefore interest under Section 158BFA is leviable on standalone basis for nonfiling of return which ceases on the day return is filed. It is submitted that said provision is similar to Section 234A. 7.10 It is submitted that in the impugned judgment and order the High Court has explained the rationale behind introduction of Section 158BC in Section 140A and has specifically held that "the liability of payment of interest does not stop merely on filing of return but it is attracted in terms of Section 140A in payment of tax in terms of Section and even now the provision of Section ....
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....apply a particular rate of surcharge as they were not clear as to which Finance Act, prescribing such rates, was applicable. It is a matter of common knowledge and is also pointed out that the surcharge varies from year to year. However, the assessing officers were indeterminative about the date with reference to which rates provided for in the Finance Act were to be made applicable. They had four dates before them viz.: (Suresh N. Gupta case [CIT v. Suresh N. Gupta, (2008) 4 SCC 362], SCC p. 379, para 35) (i) Whether surcharge was leviable with reference to the rates provided for in the Finance Act of the year in which the search was initiated; or (ii) the year in which the search was concluded; or (iii) the year in which the block assessment proceedings under Section 158BC of the Act were initiated; or (iv) the year in which block assessment order was passed. 39.1. The position which prevailed before amending Section 113 of the Act was that some assessing officers were not levying any surcharge and others who had a view that surcharge is payable were adopting different dates for the application of a particular Finance Act, which resulted in different rates of surch....
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....e legislative scheme defining any of those components of the levy will be fatal to its validity." It is clear from the above that the rate at which the tax is to be imposed is an essential component of tax and where the rate is not stipulated or it cannot be applied with precision, it would be difficult to tax a person. This very conceptualisation of tax was rephrased in CIT v. B.C. Srinivasa Setty [(1981) 2 SCC 460 : 1981 SCC (Tax) 119 : (1981) 128 ITR 294], in the following manner: (SCC p. 465, para 10) "10. ... The character of computation of provisions in each case bears a relationship to the nature of the charge. Thus the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section." 39.3. In absence of certainty about the rate, because of uncertainty about the date with reference to which the rate is to be applied, it cannot be said that surcharge as per the existing provision was leviable on block assessment qua undisclosed income. Therefore, it cannot be said that the proviso add....
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....t the rate applicable to the assessment year relevant to the financial year in which the search was concluded." The Chief Commissioners accepted the position, in no uncertain terms, that as per the language of Section 113, as it existed, it was difficult to justify levy of surcharge. It was also acknowledged that even if Section 113 empowered to levy surcharge, since block assessment tax is levied on the undisclosed income of the block period, absence of specific assessment year in the block assessment would render the levy suspect. XXXXXXXXXXXX 44. The Finance Act, 2003, again makes the position clear that surcharge in respect of block assessment of undisclosed income was made prospective. Such a stipulation is contained in the second proviso to subsection (3) of Section 2 of the Finance Act, 2003. This proviso reads as under: "Provided further that the amount of income tax computed in accordance with the provisions of Section 113 shall be increased by a surcharge for purposes of the Union as provided in Paras A, B, C, D or E, as the case may be, of Part III of the First Schedule of the Finance Act of the year in which the search is initiated under Section 132 or requi....
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....the reason for adding Chapter XIVB for the block assessment is required to be considered. The reason, object and purpose of Chapter XIVB has been adequately dealt with and considered by this Court in the case of Vatika Township Private Limited (supra). It is observed and held that Chapter XIVB which deals with block assessment lays down a special procedure for searched cases. The main reason for adding the said provisions in the Act was to curb tax evasion and expedite as well as simplify the assessment in such searched cases. It is observed and held that the essence of the new procedure under Chapter XIVB is a separate single assessment of the "undisclosed income", detected as a result of search and this separate assessment has to be in addition to the normal assessment covering the said period. Therefore, a separate return covering the years of the block period is a prerequisite for making block assessment. It is observed and held that Chapter XIVB is a complete code in itself providing for selfcontained machinery for assessment of undisclosed income for the block period of 10 years or 6 years as the case may be. In paragraphs 22 to 25, it is observed and held as under: "Scheme....
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....ncome is chargeable to tax at the rate of 60%. 24. From the above, it becomes manifest that Chapter XIVB comprehensively takes care of all the aspects relating to the block assessment relating to undisclosed income, which includes Section 156BA( 2) as the charging section and even the rate at which such income is to be taxed is mentioned in Section 113 of the Act. No doubt, Section 4 of the Act is also a charging section which is made applicable on "total income of previous year". As per Section 2(45), "total income" means the total amount of income referred to in Section 5, computed in the manner laid down in the Act. Section 5 of the Act enumerates the scope of total income and prescribes, inter alia, that it would include all income which is received or is deemed to be received in India in any previous year by or on behalf of a person who is a resident. No doubt, undisclosed income referred to in Chapter XIVB is also an income which was received but not disclosed, therefore, in the first blush, the argument of the Department that undisclosed income referred to in Chapter XIVB is also a part of total income and consequently Section 4 becomes the charging section in respect ther....
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....iod prior to 01.06.1999 in view of insertion of the words "Section 158BC" in Section 140A w.e.f. 01.06.1999, shall not be chargeable, cannot be accepted. At this stage, it is required to be noted that it is the case on behalf of the assessee that the interest only follows the principal and in this case the principal being the tax payable, there was no liability to pay the tax along with the return prior to 01.06.1999 which came to be introduced by insertion of the words "Section 158BC" in Section 140A and therefore the liability to pay interest cannot arise if there was no liability to pay the tax itself along with the return at the relevant time, has no substance. At this stage, it requires to be noted that neither Section 158BC nor Section 158BFA required the assessee to pay tax along with the return. Liability to deposit the tax along with return arises only under Section 140A. However, at the relevant point of time Section 140A did not apply to Section 158BC and hence there was no liability to deposit tax along with the return. The said lacunae was noticed by the Parliament and by the Finance Act, 1999, the words "Section 158BC" have been inserted in Section 140A w.e.f. 01.06.1....
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....ting to block assessment of search cases." 10.3 Thus, on conjoint reading of the above Notes on Clauses and Memorandum, it is very clear that the Legislature originally intended to make the assessee liable to pay taxes and interest when the return was filed under Section 139 or under Section 142 or Section 148. By virtue of the amendment, the Legislature thus proposed to make those assessees who are filing the return under Section 158BC also liable to pay tax and interest under Section 140A. The memorandum explaining the provisions of the Finance Bill further makes it clear that the existing provisions of Section 140A were not applicable to Chapter XIVB relating to assessment of income of the block period in search and seizure cases. It further recognizes that the admitted tax declared in the return cannot be collected till the assessment is completed. Therefore, the Legislature intended to amend Section 140A by incorporating Section 158BC so as to make liable those persons who are filing return under Section 158BC also. Thus, by virtue of the amendment, a new class of assessee was brought onto the statutebook whose income are subject to be assessed under Chapter XIVB, in section....
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.... 2002." The Notes on Clauses appended to Clause 64 of the Finance Bill 2002 states the following: " It is proposed to insert the words "under section 158BC" after the words "that Assessing Officer shall proceed" so as to clarify that the Assessing Officer shall proceed against such other person under section 158BC". 10.6 At this stage, it is required to be noted that as observed by this Court in the case of Vatika Township Private Limited (supra), Chapter XIVB prescribes a special procedure for computation of income for the block period in search and seizure cases. Section 158BD shall be applicable in case of any person other than a person with respect to whom search was made. As observed Chapter XIVB is a complete code in itself providing for selfcontained machinery for assessment of undisclosed income for the block period. Therefore, in case of the person other than searched person the notice under Section 158BD would be required/sufficient and in case of late filing of the return under Section 158BC, the interest will be leviable under Section 158BFA. Any other interpretation would lead to Section 158BD nugatory. It can be seen that by inserting the words "under Section 158....