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Orissa State Financial Vs. Income-tax Officer. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Cuttack
Decided On
Reported in(1986)17ITD100Ctk
AppellantOrissa State Financial
Respondentincome-tax Officer.
Excerpt:
.....revenue authorities so long they remain in force. regarding the second point, he stated that the assessee paid the amount on 15-9-1978 as advance tax under section 209 as no other amount was due to be paid by the assessee on the said date. this is clear from the fact that the amount was paid in a challen prescribed by the department for the payment of advance tax. the department has also treated the amount as advance tax and so, it was not open to the department to change their stand and say that the amount did not represent advance tax for the purpose of allowing interest under section 214. next, he referred to the decision in the case of cit v. traub (india) (p.) ltd. [1979] 118 itr 525 (bom.) wherein it has been held that even when there is a default in adhering to the schedule.....
Judgment:
Per Shri S. N. Rotho, Accountant Member - This appeal has been filed by the assessee against the order under section 263 of the Income-tax Act, 1961, (the Act) passed by the Commissioner, Orissa, Bhubaneswar for the assessment year 1979-80.

2. The assessee is a financial corporation set up by an Act of the State Legislature of Orissa, viz., the State Financial Corporation Act, 1951. For the assessment year 1979-80 the previous year of which ended on 31-3-1979, the assessee filed a return on 31-7-1979 disclosing nil income. The ITO heard the representative of the assessee under sections 143(2) and 142(1) of the Act. He prepared a draft assessment order dated 22-3-1982 and invited the assessees objections. The objections received from the assessee were forwarded to the IAC and his directions were obtained. Thereafter, the assessment was completed by the ITO under section 143(3) 144B of the Act on 25-9-1982.

3. Subsequently, the Commissioner scrutinised the records and came to hold the view that he assessment order passed by the ITO was erroneous and prejudicial to the interests of the revenue. Hence, he issued a show-case notice on 26-7-1984 to the assessee in the following terms : "Scrutiny of the assessment records for the assessment year 1979-80 reveals that the assessment made by the ITO is erroneous and detrimental to the interests of revenue inasmuch as (1) he has failed to include interest income of Rs. 1,31,885, and (2) has allowed excess interest under section 214 of Income-tax Act, 1961, to the tune of Rs. 1,66,196.

Hence, I propose to cancel the order of assessment with a direction to the ITO redo the same." 4. The assessee replied that the sum of 1,31,885 was not the income of the assessee and so, non-inclusion of the same could not be said to be erroneous or prejudicial to the interests of revenue. It pointed out that the Tribunal in their order dated 7-10-1980 in the case of this very assessee for the assessment years 1974-75 to 1976-77 have held that interest of the same nature as the interest of Rs. 1,31,885 did not constitute the income of the assessee. It was futher urged that merely because the department has carried the matter in reference to the Honble High Court, it could not be said that the ITO erred in following the order of the Tribunal which was operative on the date on which he passed the assessment order. Regarding the second point, it was urged by the assessee that the ITO had merely directed the charging of interest as per rules and the subsequent interest found payable to the assessee because of the excess payment of advance tax was a ministerial work and even if there is any mistake in such clerical work, it would not make the order of assessment passed by the ITO erroneous in any way. Without prejudice to the above, it was contended that the first instalment of advance tax amounting to Rs. 4,05,355 was paid on 15-9-1978 under section 209 of the Act. A notice under section 210 of the Act was subsequently, served on the assessee on 16-11-1978 demanding advance tax of Rs. 8,18,983 and earlier payment of Rs. 4,05,355 made on 15-9-1978 was rightly appropriated towards the said demand of Rs. 8,18,983 raised under section 210 subsequently. Hence, it was urged that there was no error in the order of the ITO or the subsequent ministerial calculations following the assessment when the aforesaid payment made on 15-9-1978 was taken as advance tax for the purpose of calculating interest under section 214 of the Act. Under these circumstances, the assessee requested in its reply to the show-cause notice that the proposed action under section 263 be dropped.

5. The Commissioner did not accept the above contentions of the assessee. He observed that the interests of Rs. 1,31,885, no doubt, related to the doubtful debts in respect of which cases have been instituted in different Courts. Further, the Tribunal has already decided this issue in favour of the assessee holding that interest on such doubtful debts could not constitute the real income of the assessee. However, the Commissioner on the only ground that a reference against the aforesaid order of the Tribunal has been filed by the department in the Honble Orissa High Court. Regarding the second point, he observed that the assessee did not file any estimate along with the payment made on 15-9-1978. He referred to section 214 and held that interest could be allowed only on instalments of advance tax paid during the financial year. According to him, the assessee did not file any statement or estimate of advance tax under section 209 and so, the payment made on 15-9-1978 was not an instalment of advance tax and, consequently, no interest was allowed thereon. At the time of hearing, it was urged that mistake, if any, in the calculation of interest could be rectified under section 154 of the Act and so, it was not a case to which jurisdiction of the Commissioner under section 263 could be applied. The Commissioner rejected this connection on the ground that calculation of interest is part of the assessment order and the demand notice issued by the ITO was erroneous and so, the matter clearly came within the ambit of section 263. In this view of the matter, he passed the impugned order under section 263 and directed the ITO to revise the assessment by enhancing the income by a sum of Rs. 1,31,885 and by reducing the interest on Rs. 4,05,355 amounting to Rs. 1,66,196 from the total interest allowed to the assessee.

6. Shri B. K. Mohanti, the learned representative for the assessee, urged before us that the Commissioner, erred in his decision. Regarding the first point he stated that the ITO had the order dated 7-10-1980 of the Tribunal before him and he followed the said decision of a higher authority which was operative on the day on which he passed the order.

In support of this proposition, he referred to the decision in the case of Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT [1977] 109 ITR 229 wherein it has been held by the Honble Calcutta High Court that an order passed by the ITO following the decision of the Tribunal, cannot be held to be erroneous and such an order cannot be revised under section 263. He also referred to the decision of the Honble Orissa High Court in the case of Orissa Forest Corpn. [1982] ELT 875 wherein it has been held that the decisions passed by an appellate authority should be respected by the subordinate revenue authorities so long they remain in force. Regarding the second point, he stated that the assessee paid the amount on 15-9-1978 as advance tax under section 209 as no other amount was due to be paid by the assessee on the said date. This is clear from the fact that the amount was paid in a challen prescribed by the department for the payment of advance tax. The department has also treated the amount as advance tax and so, it was not open to the department to change their stand and say that the amount did not represent advance tax for the purpose of allowing interest under section 214. Next, he referred to the decision in the case of CIT v. Traub (India) (P.) Ltd. [1979] 118 ITR 525 (Bom.) wherein it has been held that even when there is a default in adhering to the schedule prescribed for the payment of advance tax, interest under section 214 is payable to the assessee if the demand has been accepted by the department as payment of the instalment of advance tax.

Hence, he urged that the order under section 263 deserved to be cancelled.

7. Shri S. Dasgupta, the learned representative for the department, on the other hand, supported the order of the Commissioner. He stated that the ITO should not have followed the order of the Tribunal which was under reference before the High Court because the said order had not yet become final. Secondly, he pointed out that the ITO has not discussed the taxability of interest under consideration in his assessment order. Hence, he failed to apply his mind to the issue which alone made his order erroneous. He reiled on the decision in the case of Gee Vee Enterprises v. Addl. CIT [1975] 99 ITR 375 (Delhi) in this connection. He pointed out that this point has not been mentioned by the Commissioner in the show-cause petition but it was not necessary to do so because of the decision in the case of Russell Properties (P.) Ltd. (supra) at page 243. Regarding the second point, he stated that the interest can be paid under section 214 only if the payment has been made by way of the advance tax. According to him, no interest under section 214 is payable on any amount that has not been paid strictly in accordance with the provisions relating to payment of advance tax. In this connection, he referred to the decision in the case of Kangundi Industrial Works (P.) Ltd. v. ITO [1980] 121 ITR 339 (AP) wherein it has been held that the instalments paid after the due dates did not qualify for interest under section 214. He also referred to the decision in the case of Oil India Ltd. v. CIT [1982] 138 ITR 836 (Cal.) wherein it has been decided that the show-cause notice issued under section 263 need not be exhaustive.

8. Shri B. K. Mohanti replied that the argument based on the decision of Gee Vee Enterprises case (supra) was not mentioned even in the order passed by the Commissioner. He stated that section 263(3) is always available to the department to safeguard their interests in case the reference pending before the Honble High Court is decided in favour of the revenue. But that fact alone did not confer jurisdiction under section 263 to revise the order passed in accordance with the direction of a superior authority which held the field at the relevant time.

9. We have considered the contentions of both the parties as well as the facts on record. We find that the ITO had made the assessment under section 143(3), read with section 144B after discussing the matter with the representative of the assessee. The IAC also had an occasion to review the assessment made by the ITO. It is true that the order of the ITO does not refer to the taxability of the sum of Rs. 1,31,885. But the order of the Tribunal dated 7-10-1980 was before the ITO when he sent the draft order to the IAC under section 144B. The said decision of the Tribunal in favour of the assessee was also available to the IAC when he gave the directions under section 144B. Hence, it cannot be said that the assessment order was passed without proper enquiry when the facts and circumstances of the case called for such an enquiry.

Hence, we hold that the case of Gee Vee Enterprises (supra) did not apply to the facts of this case because the ITO had made the enquiry and he was not put on any further enquiry by the facts and circumstances of the case. There is also force in the contention raised for the assessee that this point is not made a ground for passing of the order under section 263 by the Commissioner either in the show-cause notice or in the body of the order itself. As has been held in the cases cited by the learned representative for the assessee and referred to earlier in this order following the order of the Tribunal, cannot be said to be a mistake committed by the ITO. Hence, non-inclusion of interest of Rs. 1,31,885 in the total income of the assessee on the authority of the Tribunals order dated 7-10-1980 which was operative on that date, was not an error committed by the ITO. The mere fact that the Tribunals order was being contested before an higher forum does not mean that the subordinate authorities should ignore that order. This is clearly supported by the decision of the Orissa High Court in the case of Orissa Forest Corpn. (supra).

10. We now come to the second point relating to allowing of interest under section 214. Here too, we do not find any mistake committed by the ITO or his ministerial staff. The sum of Rs. 4,05,355 paid on 15-9-1978 has been treated by the department itself as advance tax and credit for the same has been given while calculating the tax payable on regular assessments. That amount was taken as advance tax just as the subsequent instalments paid after the service of a notice under section 210 on the assessee. Hence, it cannot be said that the said amount did not represent advance tax only for the purpose of section 214. This conclusion gets strengthened if it is remembered that the assessee paid the amount when nothing was due from him by using a challan prescribed for the payment of advance tax only. The mere fact that an estimate or a statement did not accompany the said payment does not, in our opinion, mean that the amount is anything other than advance tax. This conclusion is supported by the decision in the case of Traub (India) (P.) Ltd. (supra). The case of Kangundi Industrial Works (P.) Ltd. (supra) is distinguishable on facts because in that the case, the assessee had not yet been served with a notice under section 210 and so, it was open to the assessee to make payment of advance tax on any day he choose.

11. For the above reasons, we come to the conclusion that there was no error in the assessment order passed by the ITO after obtaining prior approval of the IAC under section 144B and so, the jurisdiction assumed by the Commissioner under section 263 is not sustainable in the eye of law.

12. In the result, we cancel the impugned order under section 263 and allow the appeal.


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