2011 (8) TMI 660 - HC - Income Tax

Refund on appeal u/s 140 - Block assessment - notice issued under section 158BC - (i) Whether the appellate authorities were correct in holding that the assessee is entitled to refund of interest collected under section 158BFA(1) of the Act when the refund is calculated applying section 240(b) of the Act? (ii) Whether the appellate authorities were correct in holding that interest under section 158BFA(1) of the Act does not form part of the liability of the assessee at the point of filing the block return? - Held That - On the annulment of the assessment proceedings, there would be no assessed undisclosed income and assessed tax under section 158BC of the Act and when there is no assessed tax under section 158BC, consequently, interest under section 153BFA(1) of the Act would be nil. - the substantial questions of law are answered in favour of the assessee and against the Revenue.

Summary

Issues Involved:
1. Entitlement to refund of interest collected under section 158BFA(1) of the Income-tax Act.
2. Determination of whether interest under section 158BFA(1) forms part of the liability of the assessee at the point of filing the block return.

Analysis:

Issue 1: Entitlement to Refund of Interest under Section 158BFA(1) of the Act

The case involved an appeal by the Revenue against the Tribunal's decision to dismiss the appeal and grant a refund to the assessee in accordance with section 240(b) of the Income-tax Act, 1961. The Tribunal upheld the lower authority's decision based on the annulment of assessment proceedings due to a defective notice issued under section 158BC. The Appellate Commissioner relied on a similar case involving the assessee's sister concern, where the interest under section 158BFA(1) was deemed nil after annulment of assessment orders. The Tribunal, following this reasoning, dismissed the Revenue's appeal. The High Court affirmed this decision, stating that when the assessment is annulled, there is no assessed tax under section 158BC, leading to nil interest under section 158BFA(1). The Court concluded that the Revenue's claim for interest due to delay in filing the return was not valid after the annulment of assessment proceedings. Therefore, the appeal by the Revenue was dismissed, and the substantial questions of law were answered in favor of the assessee.

Issue 2: Liability of Interest under Section 158BFA(1) at the Point of Filing the Block Return

The Revenue contended that the interest under section 158BFA(1) formed part of the assessee's liability at the time of filing the block return. However, the High Court held that since the assessment proceedings were annulled due to a defective notice, the question of charging interest for delay in filing the return did not arise. The Court found no error in the authorities' decisions and ruled in favor of the assessee, dismissing the Revenue's appeal. The judgment emphasized that in cases where assessment proceedings are annulled, resulting in no assessed tax under section 158BC, interest under section 158BFA(1) would be deemed nil. Therefore, the liability for interest in such circumstances was not applicable, and the assessee was entitled to a refund in accordance with the provisions of the Act.

In conclusion, the High Court upheld the Tribunal's decision, dismissing the Revenue's appeal and affirming the entitlement of the assessee to a refund of interest collected under section 158BFA(1) of the Income-tax Act. The judgment clarified that in cases of annulled assessment proceedings, the interest liability would be nil, leading to the assessee's favorable outcome in this matter.