2005 (3) TMI 72 - HC - Income Tax

First point is with regard to the charging of interest u/s 201(1A) on the amount defaulted Assessee contended that interest payable in terms of sections 234A, 234B and 234C where the statute used the expression liable to pay interest alike section 201(1A), was held to be discretionary by a circular issued by the Board on May 23, 1996 - In respect of first point held that the interest payable u/s 201(1A) is mandatory and can neither be waived nor the rate could be reduced - second point is in respect of creation of new range and ward under the jurisdiction of CIT under section 120, assessee contend that has been raised is that the officer who had passed the order had no jurisdiction and as such the order passed is a nullity and cannot be enforced Held that proceedings and the orders in relation to the assessment years 1983-84, 1984-85,1986-87 and 1987-88 being without jurisdiction and nullity are hereby set aside.

Issues Involved:
1. Charging of interest under section 201(1A) of the Income-tax Act, 1961.
2. Jurisdiction of the officer who passed the order.
3. Opportunity to be heard in assessment year 1985-86.

Issue-wise Detailed Analysis:

1. Charging of Interest under Section 201(1A):
Dr. Pal argued that the interest payable under section 201(1A) should be considered discretionary, similar to sections 234A, 234B, and 234C, as per a Board circular from May 23, 1996. However, Mr. Agarwal contended that interest under sections 234A, 234B, and 234C is coercive to ensure timely compliance, whereas interest under section 201(1A) is compensatory for the delay in tax payment. The court held that the interest liability under section 201(1A) is mandatory and automatic, as it compensates the government for the delay in receiving tax. This decision aligns with previous rulings, including Kanoi Industries P. Ltd. v. Asst. CIT, which confirmed the mandatory nature of interest under section 201(1A).

2. Jurisdiction of the Officer:
Dr. Pal argued that the officer who passed the order lacked jurisdiction, making the order a nullity. The court examined the notification dated April 10, 1989, creating a new Income-tax Range 21, effective from May 8, 1989. The court concluded that jurisdiction is prospective and does not apply retrospectively. Therefore, any proceedings initiated after May 8, 1989, by the previous jurisdictional officer are without jurisdiction and null. The court referenced several cases, including Kiran Singh v. Chaman Paswan, to support that jurisdiction cannot be conferred by default or agreement and that an order passed without jurisdiction is a nullity.

3. Opportunity to be Heard in Assessment Year 1985-86:
For the assessment year 1985-86, Dr. Pal argued that the order was passed without giving the assessee an opportunity to be heard, violating the principles of natural justice. The court held that even though the interest under section 201(1A) is mandatory, the principle of audi alteram partem (right to be heard) must be followed. The court cited several cases, including A.K. Kraipak v. Union of India, to emphasize that administrative orders with penal consequences require an opportunity to be heard.

Conclusion:
The court concluded that:
- The orders for the assessment years 1983-84, 1984-85, 1986-87, and 1987-88, initiated after May 8, 1989, are without jurisdiction and null.
- The order for the assessment year 1985-86, although within jurisdiction, was passed without giving an opportunity to be heard and must be reconsidered after providing such an opportunity.

Order:
The court set aside the orders for the assessment years 1983-84, 1984-85, 1986-87, and 1987-88 due to lack of jurisdiction. For the assessment year 1985-86, the court directed the appropriate authority to decide the matter afresh after giving the assessee an opportunity to be heard. The appeal was allowed with no order as to costs.

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