2008 (9) TMI 114 - HC - Income Tax

Block assessment whether surcharge could be levied in the case of a search carried out prior to June 1, 2002 i.e. prior to insertion of proviso to section 113 - Tribunal concluded that issue with regard to the levy of surcharge was debatable when the AO passed his order on June 11, 2003, u/s 154, therefore the rectification proceedings were not in order held that issue was debatable one and hence provisions of s. 154 couldn t be invoked no reason to interfere with the findings of tribunal

Summary

Issues involved:
1. Condonation of delay in I. T. A. No. 366/2008.
2. Interpretation of the levy of surcharge in block assessment.
3. Application of the proviso to section 113 of the Income-tax Act, 1961.
4. Jurisdictional question regarding the initiation of action under section 154 of the Income-tax Act.
5. Debatable nature of the issue regarding the levy of surcharge.

Condonation of Delay:
The High Court allowed the application for condonation of delay in I. T. A. No. 366/2008 based on the reasons provided in the application and submissions made by the appellant's counsel. The delay was condoned, and the application was disposed of.

Interpretation of Levy of Surcharge:
The Tribunal considered whether surcharge could be levied in a case of a search conducted before June 1, 2002. It was determined that the proviso to section 113 of the Income-tax Act, 1961, inserted by the Finance Act of 2002, was prospective, allowing surcharge only for searches after June 1, 2002. The search in this case occurred on November 25, 1999. The Tribunal agreed with the assessee and the Commissioner of Income-tax (Appeals) that the issue of surcharge levy was debatable at the time of the Assessing Officer's order in 2003. Consequently, the Tribunal dismissed the Revenue's appeal.

Application of Proviso to Section 113:
The Supreme Court's decision in CIT v. Suresh N. Gupta clarified that the proviso to section 113 introduced by the Finance Act, 2002, was only clarificatory. This meant that the proviso applied to searches conducted before June 1, 2002, as well. However, the issue of initiating action under section 154 of the Act depended on whether the provision was properly invoked. Both the Commissioner of Income-tax (Appeals) and the Tribunal found the issue debatable, leading to the dismissal of the Revenue's appeal.

Jurisdictional Question under Section 154:
The High Court affirmed the lower authorities' findings that the issue was debatable, preventing the invocation of section 154 of the Act. Despite the Supreme Court's decision favoring the Revenue on the merits, the appeal failed due to the jurisdictional issue. The Court declined to interfere with the authorities' conclusions, resulting in the dismissal of the appeal.

Debatable Nature of Surcharge Levy Issue:
Although the Supreme Court's decision favored the Revenue on the merits, the appeal was dismissed due to the jurisdictional question. The authorities found the issue debatable, leading to the conclusion that section 154 of the Act could not be invoked. Consequently, the appeal was dismissed by the High Court.