2005 (11) TMI 491 - HC - Income Tax

Chargeability of interest under ss. 234A and 234B - Whether the Tribunal was justified in declining permission to raise additional grounds merely on the ground that these grounds were not raised within a period of limitation for filing appeal against the order of CIT ? - Unexplained Investments - HELD THAT - It is pointed out by the learned counsel for the appellant that the power to permit additional grounds to be raised vests in Tribunal. Subject to permission of Tribunal, additional plea can be raised at any time. No period of limitation is prescribed for raising additional plea. The Tribunal could not have refused to consider the question of grant of permission for raising additional plea or ground solely on the basis of the fact that when such plea was raised, period for filing appeal against order under appeal had already expired. The principle was reiterated and explained in wide amplitude in National Thermal Power Co. Ltd. vs. CIT 1996 (12) TMI 7 - SUPREME COURT in which it was noticed that the power to allow additional ground to be raised at the time of hearing vested in the Tribunal which has direct nexus with the object of the taxing powers. It was a case which arose in like circumstances as the present case. The assessee has sought to ascertain the conditions before the Tribunal by drawing its attention to its decision by claiming that the assessee is entitled to certain relief in respect of certain conditions made by the section officer which the Tribunal had earlier not found to (be) taxable. The Tribunal has declined to undertake the plea. The assessee was unsuccessful in his plea before the High Court, on a reference being made about the jurisdiction of Tribunal to allow raising of such grounds which were not urged before the appellate authority earlier. The Tribunal in refusing to entertain the plea raised by the assessee on the anvil of binding decisions in respect of chargeability of interest under ss. 234A and 234B has declined to exercise jurisdiction vested in it by law by ignoring the well settled principle, that it owes a duty to determine correct tax liability which in the context include liability arising on account of charging section, penalty or interest leviable under the Act and as per the binding precedent of Hon'ble Supreme Court. We are in respectful agreement with the view expressed by the Madras High Court in JDB Srinivasan's case 1993 (7) TMI 323 - MADRAS HIGH COURT and of this Court in Shilpa Associates case 2003 (3) TMI 55 - RAJASTHAN HIGH COURT . As a result, the first question reframed as above must be decided against the Revenue. We hold that the Tribunal was not justified in refusing to allow the assessee to raise additional ground which required application of mind by the Tribunal and by the High Court which otherwise binds the authority in correctly assessing the tax liability on the ground of limitation. So far as merit of the contention that no notice of demand claiming interest under any of the provisions under ss. 234A, 234B and 234C can be issued unless there is a specific order to that effect in the assessment order, the matter appears to be concluded by the reasoning given in decision of the Patna High Court in Uday Mistanna Bhandar Complex vs. CIT Ors. 1996 (7) TMI 126 - PATNA HIGH COURT and which decision of Patna High Court has been merged in the decision of the Hon'ble Supreme Court, on appeal, when it was dismissed. The present case is no different. The assessment order in the present case only speaks about charge of interest as per rules as was the case in Ranchi Club Ltd. (supra), wherein the principle was approved by the Hon'ble Supreme Court that it was not sufficient to make interest payable as a consequence of order passed under the Act. Unexplained Investments - Apart from the legal fiction created under the provisions contained in ss. 68 and 69C no other provision has been brought to our notice where investment found to be in the name of wife and disclosed by her; on rejecting the source of such investment, the AO can be allowed to deviate from statutory presumption required to cause and jump on unproved presumption to assume such investment to be from undisclosed income of assessee's spouse. No such presumption is permissible in law, nor it arose from fact. If the AO wanted the investment disclosed by wife to be clubbed in the hands of her husband, on finding that explanation about sources of such investment submitted by her was not satisfactory, it was for the Revenue to bring on specific material on record to link such investment with the husband of Smt. Huma. No such material has been referred to or brought on record. In the present appeal automatic substantive assessment in the hands of assessee by clubbing the same with his income cannot be sustained on any ground. The reason adopted by the authority only permits it to be assessed as the income of the wife from explained source in her hands. Accordingly, the question No. 3 as reframed in the case of Zakir Hussain has to be decided in negative in favour of the assessee and against the Revenue relating to clubbing of income of Smt. Huma Hussain with the income of appellant Zakir Hussain and raising a demand on account of interest under ss. 234A and 234B without any specific order. Accordingly, the appeal is allowed and the order passed by the Tribunal as well as CIT(A) and the AO are set aside to the extent indicated above.

Summary

Issues Involved:
1. Permission to raise additional grounds in appeal.
2. Levy of interest under Sections 234A and 234B.
3. Rejection of explanation regarding receipt of cash gifts.
4. Clubbing of income in the hands of the assessee.

Issue-wise Detailed Analysis:

1. Permission to Raise Additional Grounds in Appeal:
The Tribunal refused to allow the assessee to raise additional grounds challenging the validity of the interest charges under Sections 234A and 234B, citing that these grounds were not raised within the limitation period for filing the appeal. The court held that the Tribunal has wide powers under Rule 11 of the ITAT Rules, 1963, to permit raising of any additional ground at any stage of proceedings. The Tribunal's refusal solely based on the expiration of the appeal filing period was unjustified. The court emphasized that the Tribunal must consider grounds that arise from judicial decisions or are purely questions of law, even if raised later, to ensure correct tax liability.

2. Levy of Interest Under Sections 234A and 234B:
The court referred to the Supreme Court's decision in CIT vs. Ranchi Club Ltd., which mandates specific directions in the assessment order for levying interest under Sections 234A and 234B. The court reiterated that a notice of demand under Section 156 can only be issued if there is a clear and specific order in the assessment order levying such interest. The court found that in the present case, the assessment order only mentioned "charge interest as per rules," which was insufficient to justify the demand notices. Thus, the levy of interest without specific directions in the assessment order was invalid.

3. Rejection of Explanation Regarding Receipt of Cash Gifts:
The AO rejected the explanation provided by Smt. Huma regarding the receipt of cash gifts from her parents and relatives, treating the amounts as income from undisclosed sources. The court noted that the AO's assessment lacked specific material linking the investments disclosed by Smt. Huma to her husband, Zakir Hussain. The court emphasized that merely rejecting the explanation does not automatically attribute the source of such investments to the husband without concrete evidence.

4. Clubbing of Income in the Hands of the Assessee:
The AO clubbed the income assessed in the hands of Smt. Huma with her husband Zakir Hussain's income on a substantive basis. The court found this action unjustified, as there was no material evidence linking the investments made by Smt. Huma to her husband. The court highlighted that the statutory presumption under Sections 68 and 69C requires specific material to link the investment to the husband, which was absent in this case. The automatic substantive assessment in the hands of Zakir Hussain was not permissible without concrete evidence.

Conclusion:
The court allowed the appeal, setting aside the orders passed by the Tribunal, CIT(A), and the AO to the extent indicated. The Tribunal was directed to permit raising additional grounds in appeal, and the levy of interest under Sections 234A and 234B without specific directions in the assessment order was invalidated. The court also ruled against the clubbing of Smt. Huma's income with Zakir Hussain's income without concrete evidence linking the investments.