2009 (7) TMI 858 - HC - Income Tax

Search and seizure - Block assessment - Undisclosed income - Interest u/s 158BFA - the very fact that the amount is described as interest is suggestive that it is compensatory in nature and if it has to be compensated in favour of the Revenue it has to be suffering loss of the revenue which is required to be made good - an amount of expenditure by way of interest paid on investment which had been specifically claimed in earlier years and only for the purpose of the amount borrowed for investment in the partnership as by way of assessee s capital contribution to the firm and not in any manner to the firm - the expenditure incurred was such that it was not possible for apportionment of the expenditure to the different business activities carried on by the assessee and as to in respect of which business what amount of interest had been paid It is no doubt true that for quantification of the income/interest it is linked to the final payment of tax as determined for the block period and at a given percentage every month - sections 158BFA(1) and 158BD as indicated above we are of the opinion that the Tribunal is clearly in error in directing the deletion of the interest part on the tax amount as ultimately determined but for the period during which there is a delay in filing the return - Decided in the favour of the revenue if it is possible to examine the question on legal principle judicial norms and propriety and the provisions of Article 141 of the Constitution do not allow us the liberty or freedom for this and accordingly this question has to be necessarily answered in favour of the Revenue and against the assessee - whether any further directions are required to be issued on perusal of the record for the present these appeals are allowed

Issues Involved:
1. Deduction of expenditure towards earning exempt income.
2. Liability to pay interest under section 158BFA(1) for belated filing of return.
3. Levy of surcharge for the block period.
4. Applicability of section 158BFA(1) interest for non-payment of tax.
5. Extension of self-assessment tax liability under section 158BC prospectively from 1st June 1999.

Detailed Analysis:

1. Deduction of Expenditure Towards Earning Exempt Income:
The court examined whether the Tribunal was correct in allowing the deduction of expenditure incurred for earning exempt income. The assessee claimed a deduction for interest paid on borrowed funds used for investment in a partnership firm, which was exempt under section 10(2A). The court found that the assessee did not lay a factual foundation to show that the borrowed funds were used for moneylending business. The Tribunal erred in allowing the deduction based on an incorrect application of the Supreme Court's judgment in Maharashtra Sugar Mills Ltd. The court held that the Tribunal was wrong in holding that no deduction towards expenditure for earning exempt income can be allowed, answering this issue in favor of the Revenue.

2. Liability to Pay Interest Under Section 158BFA(1) for Belated Filing of Return:
The court addressed whether the assessee is liable to pay interest under section 158BFA(1) for filing the return belatedly. The court emphasized that section 158BFA(1) operates independently of section 140A and is applicable for delayed filing of returns in block assessments. The Tribunal's reasoning that interest is compensatory and linked to section 140A was incorrect. The court held that the assessee is liable to pay interest for the delayed period of filing the return, answering this issue in favor of the Revenue.

3. Levy of Surcharge for the Block Period:
The court considered whether the Tribunal was correct in holding that no surcharge could be levied for the block period as the proviso to section 113 came into effect from 1st June 2002, after the search. The court referred to the Supreme Court's decision in Suresh N. Gupta, which held that surcharge is applicable even in block assessments. The court rejected the Tribunal's view and held that surcharge should be levied from the inception of Chapter XIV-B, answering this issue in favor of the Revenue.

4. Applicability of Section 158BFA(1) Interest for Non-Payment of Tax:
The court examined whether the Tribunal was correct in holding that interest under section 158BFA(1) is charged for non-payment of tax. The court clarified that interest under section 158BFA(1) is levied for the delayed filing of the return, not for non-payment of tax. The Tribunal's interpretation was incorrect. The court answered this issue in favor of the Revenue.

5. Extension of Self-Assessment Tax Liability Under Section 158BC Prospectively from 1st June 1999:
The court addressed whether the Tribunal was correct in holding that no interest under section 158BFA(1) can be levied as the Finance Bill, 1999 proposed the extension of self-assessment tax liability under section 158BC prospectively from 1st June 1999. The court held that the amendment to section 140A to include section 158BC does not affect the independent operation of section 158BFA(1). The Tribunal's decision was incorrect, and the court answered this issue in favor of the Revenue.

Conclusion:
The appeals were allowed, and the assessment orders as affirmed by the first appellate authority were confirmed. The court answered all the substantial questions of law in favor of the Revenue and against the assessee. The Tribunal's orders were set aside.

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