2015 (8) TMI 562 - HC - Income Tax

Addition of tax by way of additional tax under section 143(1)(a) - assessee challenged this additional addition of tax by saying that in a settlement scheme undertaken under the Kar Vivad Samadhan Scheme, 1998, additional tax could not be levied - whether additional tax imposed is a tax which can be added to the amount payable as tax under the Scheme in question or it is prohibited from adding the element of additional tax while assessment is being made under the Scheme in question - Held that - Keeping in view the principle of law laid down in the case of Hindustan Electro Graphites Ltd. (2000 (3) TMI 2 - SUPREME Court ) wherein held that the levy of additional tax bears all the characteristics of a penalty. It is held that when additional tax has the imprint of penalty, the Revenue cannot say that levy of additional tax is automatic under section 143(1)(a) of the Income-tax Act. The Supreme Court says that if additional tax could be levied in the manner as claimed by the Revenue, it will amount to punishing the assessee for no fault of his and this cannot be the legislative intent. Finally, it is held by the Supreme Court in the aforesaid case that additional tax being in the nature of penalty, it cannot be levied in the manner done and has quashed similar action taken of adding additional tax . We have no hesitation in allowing this appeal. The order impugned passed by the learned single Bench is quashed and it is held that the imposition of additional tax in the facts and circumstances of the case as done is not permissible. The additional tax levied under the Scheme be deleted and the matter is remanded back to the Assessing Officer for proceeding to assess the matter afresh after taking note of the principle of law laid down by the Supreme Court, as indicated hereinabove, and followed by us in the aforesaid order. - Decided in favour of assessee.

Summary

Issues:
1. Applicability of additional tax under the Kar Vivad Samadhan Scheme, 1998.
2. Nature of "additional tax" imposed under section 143(1)(a) of the Income-tax Act.
3. Validity of adding "additional tax" during assessment under the Scheme.
4. Interpretation of the term "tax arrears" under section 87 of the Scheme.
5. Comparison of judgments by the Supreme Court and High Courts regarding the nature of "additional tax."

Analysis:
1. The appellant challenged the additional tax added by the Assessing Officer under section 143(1)(a) of the Income-tax Act, arguing that under the Kar Vivad Samadhan Scheme, 1998, additional tax could not be levied. The writ court upheld the addition of additional tax, considering it as part of the tax payable under the Scheme and rejected the appellant's objection.

2. The appellant cited a Supreme Court judgment stating that "additional tax" is akin to a penalty and cannot be imposed as done under the Scheme. The respondent argued that the Scheme has been deemed constitutionally valid by the Delhi High Court and supported the imposition of additional tax.

3. The court deliberated on whether "additional tax" is a permissible addition to the tax payable under the Scheme. Referring to the Supreme Court's decision, the court concluded that "additional tax" bears the characteristics of a penalty and cannot be levied as claimed by the Revenue. The court held that the imposition of "additional tax" in this case was impermissible.

4. The court analyzed the term "tax arrears" under section 87 of the Scheme and the explanation provided by the Central Board of Direct Taxes. It concluded that "additional tax" falls under the category of tax payable and cannot be considered separately from the tax amount declared under the Scheme.

5. By comparing prior judgments of High Courts with the Supreme Court's decision in Hindustan Electro Graphites Ltd., the court emphasized the Supreme Court's ruling that "additional tax" is akin to a penalty. The court disregarded previous judgments supporting the imposition of additional tax and upheld the Supreme Court's interpretation.

In conclusion, the court allowed the appeal, quashed the order imposing additional tax, and remanded the matter to the Assessing Officer for reassessment in line with the Supreme Court's decision.