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Steel Trading Corpn. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1985)13ITD410(Kol.)
AppellantSteel Trading Corpn.
Respondentincome-tax Officer
Excerpt:
.....high court sustained the action under section 154 made by the ito in charging interest from the assessee-firm, treating the assessee as an unregistered firm. of course, in that case, the assessee did not object to the rectification made under section 154, but a challenge was made on the basis that no notice was issued by the ito before the rectification was made.18. the commissioner (appeals), in our opinion, has correctly pointed out that in the case of fomra bros. (supra), the hon'ble madras high court did not deal with the special provision of explanation 2 to section 139(8), which is presently involved.19. the hon'ble calcutta high court in the case of indian aluminium co.ltd. v. cit [1983] 141 itr 258 has held that in order to determine whether section 154 is attracted to the.....
Judgment:
1. This is an appeal by the assessee, challenging the order of the Commissioner (Appeals) by which he has sustained the order of the ITO passed under Section 154 of the Income-tax Act, 1961 ('the Act').

2. Briefly speaking, the ITO in his order noted that action under Section 154 was initiated as charging of interest, through oversight while giving effect to the order of the Commissioner (Appeals), was not made. He pointed out that interest under Section 139(8) of the Act was duly charged in the regular assessment made under Section 143(3) of the Act. He inferred that non-charging of interest in his order passed under Section 251 of the Act was a mistake apparent from the record.

The assessee complied with the notice and contended in a written submission dated 10-1-1983 that as the assessment resulted in a refund, no interest was to be charged. It was also claimed that in the case of a registered firm, charging of interest under Section 139(8), treating it as an unregistered firm, is debatable and highly controversial, relying on the decisions of the different High Courts.

3. The ITO did not accept the submissions made on behalf of the assessee. He pointed out that the interest was duly charged while making the assessment originally under Section 143(3) and there was no objection on the part of the assessee in so charging of interest. He mentioned that the law is specific with regard to charging of interest in the case of a registered firm. He pointed out that tax, for the purpose of charging interest under Section 139(8), is to be calculated as that of an unregistered firm. He pointed out that in the present case, the tax as an unregistered firm, after setting off the tax deducted at source, advance tax, being more, interest under Section 139(8), has to be charged. He, therefore, concluded that interest was clearly chargeable amounting to Rs. 3,199.

4. The assessee took up the matter before the Commissioner (Appeals) stating that there was a delay of 7 months in the filing of the return.

It was, however, pointed out to the Commissioner (Appeals) that charging of interest under Section 139(8), treating a registered firm as an unregistered one, was a debatable issue. Reference was made to the decisions in the cases of Addl. CIT v. Mahadeshwara Lorry Service [1980] 4 Taxman 481 (Kar.) (DB), Chhotalal & Co. v. ITO [1976] 105 ITR 230 (Guj.), Jiwanmal Hospital v. ITO [1979] 119 ITR 439 (MP) and Hindustan Steel Forgings v. CIT [1980] 121 ITR 793 (Punj. & Har.). It was pleaded before the Commissioner (Appeals) that the provision for levying interest on a registered firm in the status of an unregistered firm being unconstitutional was struck down by the different High Courts. It was also pleaded that in view of this controversy and that the point involved was debatable, action under Section 154 would not lie, relying on the decision of the Hon'ble Supreme Court in the case of T.S. Balaram, ITO v. Volkart Bros. [1971] 82 ITR 50.

5. It was also pleaded that in a case where tax was not payable in terms of the regular assessment, as a registered firm, penalty under Section 271(1)(a) of the Act should not be levied as held by the Madras High Court in the case of CIT v. Fomra Bros. [1980] 122 ITR 312. It was also contended that the revision order dated 26-3-1982 passed by the ITO under Sections 251/143(3), did not incorporate an order levying interest under Section 139(8) and, consequently, interest could not be levied later on under Section 154, as there was no order as mentioned by the ITO to that effect, relying on the decision of the Hon'ble Calcutta High Court in the case of Monohar Gidwany v. CIT [1983] 139 ITR 498. The assessee also contended that the net tax payable by the registered firm would be reduced to nil after giving effect to the appellate order and after taking into account the advance tax paid. It was pointed out that in fact, a sum of Rs. 19,976 stood refundable to the assessee as a result of the order of the ITO under Section 251. It was, therefore, submitted that the interest levied by the ITO was wrong.

6. The Commissioner (Appeals) considered the order of the ITO and the contentions made by the assessee. He took into account the decisions cited before him. He noted that there was another decision as rendered by the Hon'ble Karnataka High Court in the case of Mahadeshwara Lorry Service (supra) in which it was held that this provision was discriminatory in nature. The Commissioner (Appeals) observed that in the abovementioned case, as in the cases of other decisions cited on behalf of the assessee, the decision related to the provision incorporated in Sub-clause (a) of Clause (iii) of the proviso to Sub-section (1) of Section 139, as it stood before it was amended by the Taxation Laws (Amendment) Act, 1970. According to him, the provision of Section 139(8) was clearly mandatory and there was no scope for any discretion on the part of the ITO. He was also of the opinion that Explanation 2 to Section 139(8) clearly stipulates and enjoins on the ITO that where the assessee is a registered firm or an unregistered firm which has been assessed under Clause (b) of Section 183 of the Act, the tax payable on the total income shall be the amount of tax which would have been payable if the firm had been assessed as an unregistered firm. The Commissioner (Appeals) was of the view that the decisions relied on by the assessee related to the law and the provisions as they stood at the relevant time. He also expressed the view that the Income-tax authorities and the Tribunal have no jurisdiction on the legality or the constitutionality of the provisions of the Act. He referred to the case laws as reported in K.S.Venkataraman & Co. (P.) Ltd. v. State of Madras(SC), Beharilal Shyamsunder v. Sales Tax Officer(SC) and C.T. Senthilnathan Chettiar v. State of Madras [1968] 67 ITR 102 (SC) at p. 105. He was also of the view that on the facts of the case, the assessee wrongly placed reliance on the decision in the case of Volkart Bros. (supra).

7. He noted the finding of the ITO in the assessment order to the effect that interest under Section 139(8) was levied and order to that effect was incorporated in the last paragraph of the assessment order.

He pointed out that in his order giving effect to the appellate order under Section 251, the ITO failed to charge interest and did not incorporate his direction to that effect. The Commissioner (Appeals) was of the view that it was, therefore, not the intention of the ITO not to charge interest and it was clearly a case of oversight. He, therefore, did not agree with the assessee on this point and was of the opinion that the decision in the case of Monohar Gidwany (supra) would not be applicable to the facts of the case.

8. The Commissioner (Appeals) took into account the contention of the assessee that the net tax payable would be nil after giving effect to the first appellate order and after adjusting the advance tax, etc. He pointed out that the tax determined to be payable in consequence of the revision order under Section 251, was to the tune of Rs. 32,948. The assessee paid advance tax of Rs. 52,900 and the tax deducted at source was of the order of Rs. 24. He mentioned that the net sum of Rs. 19,976 was stated to be refundable to the assessee. Accordingly, he expressed the opinion that in the circumstances, the net demand payable, on the basis of which interest could be charged under Section 139(8), would appear to be a negative figure. He referred to the decision in the case of Fomra Bros. (supra). He, however, pointed out that in that Madras High Court's decision, there was no occasion to consider the special provision incorporated in the Explanation 2 to Section 139(8) as indicated above. He was of the opinion that in the present case, the ITO had no choice but to clearly follow the statutory provision of the above section. He, therefore, declined to interfere with the order of the ITO. Hence, this appeal by the assessee.

9. It is submitted on behalf of the assessee that the Commissioner (Appeals) misdirected himself in not taking into account the point that charging of interest under Section 139(8), treating a registered firm as an unregistered one, has been held to be unconstitutional and was struck down by the different High Courts, on the plea that the tax authorities could not question such validity of any provision of the Act. It is also the appeal of the assessee that the Commissioner (Appeals) erred in not appreciating the fact that accepting the decision of the High Court and acting in accordance with the same, did not amount to questioning the vires or constitutional validity of the provisions of the Act. It is also the appeal of the assessee that the Commissioner (Appeals) erred in upholding the charging of interest by the ITO under Section 154, when there was no tax payable by the assessee. It is submitted by the assessee's learned Counsel that on the facts of the case, the Commissioner (Appeals) should have cancelled the order passed by the ITO under Section 154, as there was no mistake apparent from the record. It is argued that at any rate, the charging of interest as mentioned, being a highly debatable issue involving arguments, the Commissioner (Appeals) erred in upholding the legal validity of the order under Section 154. It is also submitted that the ITO did not charge interest under Section 139(8) while giving effect to the appellate order in the quantum appeal and, therefore, the ITO was not legally entitled to charge interest by taking resort to Section 154. It is urged that on the facts of the case, the appeal of the assessee may be allowed and the orders of the authorities below may be cancelled. Reference is made to the following case laws as to support the case of the assessee: Mohanlal Soni v. Union of India [1983] 143 ITR 436 (Cal.), Mahadeshwam Lorry Service's case (supra), Chemmeens v.ITO [1984] 149 ITR 233 (Ker.), Volkart Bros'. case (supra) and Monohar Gidwany's case (supra).

10. It is also submitted by the assessee's learned Counsel that the Special Bench of the Tribunal, Jaipur, has decided the point in similar circumstances in favour of the assessee in the case of ITO v.Lachmandas Raghunath Das Parihar [1983] 6 ITD 474. It is, therefore, submitted that in view of the decisions of the different authorities cited on behalf of the assessee, the order of the Commissioner (Appeals) cannot be sustained.

11. The learned departmental representative supports the orders of the authorities below, contending that in the original assessment made under Section 143(3), the ITO did charge interest under Section 139(8) and the necessary direction for the same was given in the order itself.

It is also submitted that the assessee did not challenge the validity of interest under Section 139 in its appeal before the first appellate authority relating to the quantum, as in fact, the appeal was against the levy of interest only under Sections 217 and 218 of the Act. It is argued that that position indicates that the assessee, right from the beginning, accepted the levy of interest under Section 139(8). It is submitted that it is not correct for the assessee to say that the ITO took recourse to Section 154, as a result of audit objection. According to the learned departmental representative, there was no objection from audit as such, as the record would show that the calculation was checked by audit and no objection was pointed out. It is submitted that the ITO himself suo motu initiated proceedings under Section 154, particularly when interest was charged when passing the assessment order originally under Section 143(3), which was also found by the Commissioner (Appeals) to be due to oversight, when the ITO did not charge interest under Section 139(8), while giving effect to the order of the first appellate authority in the quantum appeal.

12. It is also submitted on behalf of the revenue that the assessee being treated as an unregistered firm in the present context, has not agitated earlier before the appellate authority. According to the learned departmental representative, it is wrong to contend that two views were possible, as in fact, there is only one view, in the present facts of the case. It is pointed out that in Lachmandas Raghunath Das Parihar's case (supra), the Special Bench of the Tribunal, Jaipur, dealt with a completely different situation, in which the interest under Section 139(8) was not charged originally while passing the order of the assessment under Section 143(3) and, therefore, that decision would have no application to the facts of the case before us. In short, it is urged that the appeal of the assessee having no merit or substance may be rejected.

13. We have heard both the sides at length and we have gone through the orders of the authorities below for our consideration. We have also perused the assessee's written submission made before the ITO against the action proposed to be taken by the ITO under Section 154.

14. It has been pointed out before us on behalf of the revenue that the ITO levied interest under Section 139(8) in his original order passed under Section 143(3), but while giving effect to the order of. the first appellate authority under Section 251, the ITO did not charge such interest. In this connection, it may be not out of place to refer to the decision of the Hon'ble Calcutta High Court in the case of Chloride India Ltd. v. CIT [1977] 106 ITR 38 in which on the facts of that case it was held, inter alia, that an order made by the ITO to give effect to the order of the AAC is an order of assessment under Section 143(3). Although the background of the case of Chloride India Ltd. (supra) was different, the ratio enunciated by the Hon'ble High Court is quite clear. If that is the position, then, in our view, it is not correct to contend that since the ITO did not charge interest or gave a direction to that effect in his order under Section 251 giving effect to the appellate order, the ITO cannot order levy of interest by resorting to Section 154, particularly when the ITO did levy interest under Section 139(8) in his order of assessment under Section 143(3).

15. The assessee's claim is also that the point at issue is highly debatable as the different High Courts have held that the provision treating a registered firm as an unregistered one for the purpose of charging interest under Section 139(8) being unconstitutional, action under Section 154 cannot be taken. In this connection, it may be useful to refer to another decision of the Hon'ble Calcutta High Court in the case of CIT v. Priya Gopal Bishoyee [1981] 127 ITR 778 in which, on the facts of the case, it was held that the payment of the assessed tax on the basis of a registered firm would not exonerate the assessee from the imposition of penalty under Section 271(1)(a) on the basis that it was an unregistered firm. Of course, in the case of Priya Gopal Bishoyee (supra), the decision was given with reference to the provisions of Section 271(1)(a).

16. The Commissioner (Appeals) in the impugned order has narrated the stand taken by the assessee and his finding that there are other decisions also. The stand taken by the assessee before us is, therefore, that when two views are possible and the issue being highly debatable, action under Section 154 cannot be resorted to. It is pertinent at this stage to refer to another decision of the Hon'ble Calcutta High Court in the case of V.R. Sonti v. CIT [1979] 117 ITR 838 in which it was, inter alia, held that the Income-tax authorities as well as the appellate authorities, when dealing with rectification matters, should not look only at the decisions of the particular High Court under whose advisory jurisdiction it acts in order to find out whether that High Court has taken different views on the question of law before it. They must consider the decisions of all the High Courts and if there is a divergence of judicial opinion on the question of law or two conceivable opinions are possible on it, they must hold that the mistake is not apparent from the record. In other words, when the different High Courts have expressed different judicial opinions, action under Section 154 would not be warranted by the ITO or by the appellate authorities under the Act. It was also held in that case that as the Hon'ble Supreme Court has decided that goodwill is a capital asset of a business, it cannot be contended that there is any longer a divergence of judicial opinion on the point. This is the view taken by the Hon'ble High Court. Accordingly, in the present case before us, we have to refer to the decision of the Hon'ble Supreme Court in the case of Jain Bros. v. Union of India [1970] 77 ITR 107 in which a similar issue in an identical background had arisen. In that case, a challenge to Section 297(2)(g) of the Act was made on the ground of contravention of article 14 of the Constitution of India. It was noted that according to that provision, when a person liable to penalty is a registered firm then, notwithstanding anything contained in the other provisions of the Act, the penalty imposable shall be the same amount as would be imposable on that firm, if that firm were an unregistered firm. It was decided on the facts of that case that if a firm got itself registered, the partners were entitled to certain benefits and advantages and that it was, however, open to the Legislature to say that once a registered firm committed a default attracting penalty, it should be deemed or considered to be an unregistered firm for the purpose of its imposition and no question of discrimination under article 14 would arise in such a situation. Of course, the decision in the case of Jain Bros, (supra) was given on a different context, which related to the imposition of penalty under Section 271. But the ratio, in our opinion, is equally applicable to charging of interest under Section 139(8) in the case of a registered firm, which could be treated as an unregistered firm as per Explanation 2 referred to earlier. Having regard to the decision in the case of Jain Bros. (supra), it cannot be said that there is still a divergence of judicial opinion on that question, as opined by the Hon'ble High Court in the case of V.R. Sonti (supra).

17. The Commissioner (Appeals) took into account the decision of the Hon'ble Calcutta High Court in the case of Monohar Gidwany (supra). It was noted in that case that unless the order of assessment itself incorporated an order for the payment of interest, the assessee cannot be asked, by means of a simple demand notice, to pay penal interest under Section 139 or under Section 217. The facts of the present case before us, as stated earlier, are that the ITO incorporated an order for the payment of interest in the assessment order itself made under Section 143(3). In another context, in the case of Sundardas Thackersay & Bros. v. CIT [1984] 147 ITR 524 the Hon'ble Calcutta High Court sustained the action under Section 154 made by the ITO in charging interest from the assessee-firm, treating the assessee as an unregistered firm. Of course, in that case, the assessee did not object to the rectification made under Section 154, but a challenge was made on the basis that no notice was issued by the ITO before the rectification was made.

18. The Commissioner (Appeals), in our opinion, has correctly pointed out that in the case of Fomra Bros. (supra), the Hon'ble Madras High Court did not deal with the special provision of Explanation 2 to Section 139(8), which is presently involved.

19. The Hon'ble Calcutta High Court in the case of Indian Aluminium Co.

Ltd. v. CIT [1983] 141 ITR 258 has held that in order to determine whether Section 154 is attracted to the facts and circumstances of a case, it has to be found out whether there was any mistake at all, and that apart, whether such mistake was apparent from the record, and a debatable point of law is not a mistake apparent from the record. In the present case before us, it is seen that the ITO levied interest under Section 139(8) in his original assessment order made under Section 143(3), which he omitted to direct while giving effect to the order of the appellate authority under Section 251. In our opinion, non-charging of interest while giving effect to the appellate order on the facts of the present case, was a mistake and this mistake was very much apparent from the record as discussed by us above, keeping in view the ratio in the case of Chloride India (supra). We consider that it is necessary also to refer to another decision of the Hon'ble Supreme Court in the case of Maharana Mills (P.) Ltd. v. ITO [1959] 36 ITR 350 in which the field covered by Section 35 of the Indian Income-tax Act, 1922 was considered and reviewed, which is corresponding to Section 154 of the 1961 Act. It was held in that case that the record contemplated by Section 35 did not mean only the order of assessment but all proceedings on which the assessment order is based and the ITO is entitled for the purpose of exercising his jurisdiction under Section 35 to look into the whole evidence and the law applicable to ascertain whether there was any error. Thus, we cannot agree with the contention made on behalf of the assessee that since the ITO did not levy interest under Section 139(8) in his order under Section 251, giving effect to the appellate order, action under Section 154 cannot be taken, in view of the decisions of the appellate authorities and in view of the fact that in the original assessment order, interest was directed to be levied and was actually charged, which was not agitated by the assessee before any appellate authority in the quantum appeal.

20. At the time of hearing, reference was made to another decision of the Hon'ble Calcutta High Court in the case of Mohanlal Soni (supra) in which it was held that the levy of interest under Section 139, treating a registered firm as an unregistered firm, is not discriminatory and does not offend article 14. It may also be mentioned that as contended before the Commissioner (Appeals), it has also been contended before us now that after giving effect to the appellate order and after adjusting the advance tax paid, etc., the net tax payable by the assessee as a registered firm would be nil and, therefore, there would be no interest chargeable under Section 139. In this context, it is necessary to refer again to the decision in the case of Priya Gopal Bishoyee (supra), in which it was noted that on the date of imposition of penalty there would be no assessed tax within the meaning of the Explanation to Sub-clause (b) (sic) of Section 271(1)(a), if it was a registered firm.

It was pointed out that if the assessee was an unregistered firm, in view of the above provision, then the assessed tax must be calculated on that basis. Thus, the contention of the assessee in this respect also cannot be conceded.

21. We have heard the learned Counsels for both the sides at length and we find that the decision of the Special Bench of the Tribunal, as relied on by the assessee, would not be helpful to decide the present case before us as the facts are distinguishable.

22. In view of what we have discussed in various paragraphs above, we are of the opinion that the Commissioner (Appeals) was justified on the facts of the case in sustaining the order of the ITO under Section 154.

We find no substance in the appeal of the assessee. The order of the Commissioner (Appeals) is, accordingly, sustained.


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