2009 (12) TMI 569 - HC - Income Tax

Search and seizure Block assessment Delay in filing return Levy of interest under section 158FA interest is compensatory calculation of interest Tax already paid to be taken into account - Accordingly, the appeal disposed of

Summary

Issues:
1. Correctness and legality of the order passed by the Tribunal in IT(SS)A No. 181/Bang/2002.
2. Levying of interest under section 158BFA(1) of the Income-tax Act, 1961 for belated filing of the return.
3. Interpretation of section 158BFA(1) regarding the levy of interest on undisclosed income.

Analysis:
1. The Revenue appealed against the Tribunal's order in IT(SS)A No. 181/Bang/2002, challenging the assessment of undisclosed income and the interest levied for late filing of the return. The assessee, involved in money-lending, received a notice under section 158BC to file the return by May 7, 1998, but filed it on October 30, 1998. The Assessing Officer determined undisclosed income and imposed interest for late filing, which was confirmed by the first appellate authority. The Tribunal partially allowed the appeal, directing a reexamination of tax payments and adjustment of interest calculation. The Revenue contested this decision, leading to the present appeal.

2. The key issue revolved around the interpretation of section 158BFA(1) concerning the levy of interest on undisclosed income. The Revenue argued that interest was justified due to the delay in filing the return beyond the stipulated date. However, the assessee contended that interest should only apply to the sum found payable as per the assessment order after deducting taxes paid before the due date. Citing the Supreme Court judgment in CIT v. Pranoy Roy, the assessee emphasized that interest is compensatory and should not be levied when taxes have already been paid. The Tribunal's order was based on this principle, directing the Assessing Officer to verify tax payments and rework the interest calculation accordingly.

3. Section 158BFA(1) mandates the levy of interest on undisclosed income for late filing of returns after a specified period. The Court analyzed the provision and held that interest is meant to compensate the Revenue for the period of tax withholding by the assessee. Therefore, interest should only be charged on the sum payable as per the assessment order, reduced by taxes paid before the due date. The Tribunal's decision to remit the matter for reworking the interest calculation based on tax payments was deemed legally sound. Consequently, the Court affirmed the Tribunal's order, clarifying that interest should not be levied on the entire tax amount if taxes were paid before the notice date. The judgment provided clarity on the application of section 158BFA(1) and upheld the Tribunal's decision on interest calculation and adjustment based on tax payments.