2009 (8) TMI 834 - HC - Income Tax

Interest under section 220(2) read with section 245D(6A) of the Act - submissions of appellant that the order of the Settlement Commission is very vague on the issue of charging of interest as it is not clarified as to from which period the interest is charged Held that - After the expiry of the period of 30 days from the date of the order and/or demand notice, the interest under section 220(2) is payable. Thus, the starting point of charging of interest is known. The order of the Assessing Officer is merged to the order of the Settlement Commission and whatever amount is deter- mined by the Settlement Commission interest is payable on that amount. - Under section 245D(6A), liability to pay interest is fastened when tax payable pursuant to an order under section-245D(4) is not paid within the specified time. Keeping this provisions in mind, the Settlement Commission has directed to charge interest under section 220(2) up to the date of order under section 245D(4) of the Act. While disposing of the rectification application, the Settlement Commission has made it clear that if the petitioner is of the opinion that there is computational error in determination of the quantum of interest under section 220(2) leviable in its case, appropriate remedy may have to be sought by way of rectification/ revisional proceedings before the income-tax authority. - Decided against the assessee. Regarding undervaluation of closing stock Held that - There was no change in the method of valuation of raw material/closing stock and the same was uniformly and consistently followed as in the earlier years and the issue of valuation of closing stock should be taken up in regular assessment proceedings and not in block assessment proceedings - Matter remanded to the Settlement Commission with a direction to re-examine this issue

Issues Involved:

1. Excess stock due to inflated burning loss.
2. Unaccounted sale on basis of weighment slips of third parties.
3. Undervaluation of closing stock of finished goods and raw material.
4. Unaccounted cash advances to employees out of cash available in books.
5. Interest under section 220(2) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Excess Stock Due to Inflated Burning Loss:
The petitioner argued that the Settlement Commission's treatment of telescoping was inconsistent with the treatment given to the director, despite both having similar excess burning loss claims. The petitioner contended that there was no evidence found during the search to suggest that the excess stock was due to trading activity, and that the Assessing Officer's presumption was unfounded. The court, however, found that the Settlement Commission's findings were based on the director's admission and the evidence presented, and thus did not warrant interference.

2. Unaccounted Sale on Basis of Weighment Slips of Third Parties:
The petitioner claimed that the Settlement Commission erred by not considering that the sales recorded in the weighment slips were identified in the third parties' sales register. The court did not find sufficient grounds to challenge the Commission's findings, which were based on the evidence and admissions provided during the proceedings.

3. Undervaluation of Closing Stock of Finished Goods and Raw Material:
The petitioner argued that the method of valuation of closing stock was consistent with previous years and should not be reassessed in block assessment proceedings. The court agreed with the petitioner, noting that the method of valuation had been accepted in regular assessments for the years 1995-96 and 1996-97. The court found that the Settlement Commission had not appropriately considered the inclusion of freight and octroi in the valuation and directed the Commission to re-examine this issue in light of the decision in N.R. Paper and Board Ltd. v. Deputy CIT [1998] 234 ITR 733 (Guj).

4. Unaccounted Cash Advances to Employees:
The petitioner contended that the advances were out of cash available in the books for business expenses. The court found that the Settlement Commission's findings were based on evidence of unaccounted transactions and did not warrant interference.

5. Interest Under Section 220(2) of the Income-tax Act, 1961:
The petitioner challenged the imposition of interest, arguing that the Settlement Commission's directions were vague and inconsistent with the treatment given to directors. The court, however, upheld the Commission's decision, noting that the directions were in accordance with the provisions of the Income-tax Act and supported by Supreme Court decisions. The court clarified that the interest was to be charged from the date of the original demand notice until the date of the Settlement Commission's order, and any computational errors should be addressed through rectification or revision proceedings.

Conclusion:
The court allowed the petition only concerning the undervaluation of closing stock of finished goods and raw material. It set aside the Settlement Commission's order on this issue and remanded it for re-examination in light of the decision in N.R. Paper and Board Ltd. v. Deputy CIT and the court's observations. The petition was dismissed on all other issues, and the rule was made absolute to the extent specified, without any order as to costs.

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