2009 (1) TMI 108 - HC - Income Tax

Non-payment of advance tax held that interest had to be levied u/s 234B while computing the amount recoverable from assessee, the Assessing Officer did not comply with the mandate of section 140A such mistake can be rectified so order of rectification was valid further it is held that order of rectification was not barred by limitation because period of four years envisaged u/s 154(7) had not elapsed - AO had rightly invoked the authority vested in him under section 154

Summary

Issues Involved:
1. Compliance with section 140A of the Income-tax Act, 1961 while giving appeal effect.
2. Validity of the order dated April 27, 2006, passed under section 154 of the Act.
3. Limitation under section 154(7) of the Act for correcting orders.

Issue 1: Compliance with section 140A of the Income-tax Act, 1961 while giving appeal effect:
The respondent-assessee filed the return of income in 1996, and the Assessing Officer required payment of interest under section 234B of the Act. The dispute arose when the Assessing Officer did not follow the procedure outlined in section 140A(1) of the Act while giving appeal effect to the order passed by the Income-tax Appellate Tribunal. The appellant contended that the interest liability should have been adjusted first before adjusting against the tax payable. A notice was issued under section 154 of the Act to rectify the order dated April 7, 2005. The subsequent order dated April 27, 2006, was challenged by the respondent-assessee, leading to appeals and counter-appeals.

Issue 2: Validity of the order dated April 27, 2006, passed under section 154 of the Act:
The order dated April 27, 2006, was challenged by the respondent-assessee, leading to appeals and counter-appeals. The Income-tax Appellate Tribunal allowed the appeal by the respondent-assessee, which was then challenged by the Revenue. The key contention was whether the Assessing Officer correctly followed the provisions of section 140A(1) of the Act while passing the order dated April 27, 2006. The Tribunal found that the order was in line with the statutory provisions of the Act, as the Assessing Officer had rectified the earlier error in payment adjustment.

Issue 3: Limitation under section 154(7) of the Act for correcting orders:
The respondent-assessee argued that the order dated April 27, 2006, was barred by limitation under section 154(7) of the Act. The contention was that the Assessing Officer had exceeded the four-year limitation period for correcting the order dated September 29, 1996, which determined the interest liability under section 234B of the Act. However, the court found that the Assessing Officer had not corrected the orders dated September 29, 1996, or March 23, 1998, but had rectified the order dated April 7, 2005, within the statutory limitation period. Therefore, the order dated April 27, 2006, was held to be within the permissible time frame for correction under section 154 of the Act.

In conclusion, the court allowed the appeal by the Revenue and set aside the order passed by the Income-tax Appellate Tribunal. The issues of interest charged under section 234B of the Act and the interpretation of the Explanation below section 140A(1) were decided in favor of the Revenue. The judgment clarified the correct application of statutory provisions and the limitation period for rectifying orders under the Income-tax Act, 1961.