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2023 (1) TMI 584 - SC - Income TaxLevy of Interest u/s 158BFA(1) - Block assessment u/s 158BD - levy of interest for belatedly filing the return of income for the block period and also the levy of surcharge under Section 113 of the Income Tax Act. - it is prayed to hold that in absence of the notice u/s 158BC, served upon the assessee - other person , the Assessing Officer was not justified in levying the interest under Section 158BFA. - HELD THAT - with respect to assessment of undisclosed income for the block period including the filing of the return etc., the normal assessment proceedings including under Section 140 of the Income Tax Act shall not be applicable. Therefore, the submission on behalf of the assessee that interest under Section 158BFA for the period prior to 01.06.1999 in view of insertion of the words Section 158BC in Section 140A w.e.f. 01.06.1999, shall not be chargeable, cannot be accepted. It requires to be noted that neither Section 158BC nor Section 158BFA required the assessee to pay tax along with the return. Liability to deposit the tax along with return arises only under Section 140A. The memorandum explaining the provisions of the Finance Bill further makes it clear that the existing provisions of Section 140A were not applicable to Chapter XIVB relating to assessment of income of the block period in search and seizure cases. It further recognizes that the admitted tax declared in the return cannot be collected till the assessment is completed. Therefore, the Legislature intended to amend Section 140A by incorporating Section 158BC so as to make liable those persons who are filing return under Section 158BC also. Thus, by virtue of the amendment, a new class of assessee was brought onto the statutebook whose income are subject to be assessed under Chapter XIVB, in section 140A compelling them to pay selfassessment tax. Thus, the interest under Section 158BFA is leviable on standalone basis for late or nonfiling of return, which ceases on the day return is filed. In the impugned judgment and order, the High Court has elaborately and comprehensively explained the rationale behind introduction of Section 158BC in Section 140A and has specifically observed and held that the liability of payment of interest does not stop merely on filing of the return but is attracted in terms of Section 140A till payment of tax in terms of the section and even now the provisions of Section 158BFA(1) and Section 140A operate independently. We are in complete agreement with the view taken by the High Court. Levy of Interest u/s 158BFA(1) - in the Absence of Notice u/s 158BC upon the assessee - HELD THAT - It is required to be noted that prior to amendment in Section 158BD vide Finance Act, 2002 and even thereafter, the provisions of Section 158BC would be applicable in case of searched persons . Section 158BD would be applicable in case of persons other than searched persons . Therefore, in case of a person other than searched person , no notice under Section 158BC which is required to be issued in case of searched persons was required to be issued. For a person other than searched person , notice under Section 158BD is sufficient. Levy of Interest u/s 158BFA(1) - scope of the amendment - prospective or restorative - HELD THAT - in case of the person other than searched person the notice under Section 158BD would be required/sufficient and in case of late filing of the return under Section 158BC, the interest will be leviable under Section 158BFA. Any other interpretation would lead to Section 158BD nugatory. It can be seen that by inserting the words under Section 158BC in Section 158BD, the Parliament intended to clarify that the assessment for the block period in case of the persons other than searched persons would also be as per the procedure under Section 158BC of the Income Tax Act. The amendment is clarificatory in nature. the submission on behalf of the assessee that in absence of any notice under Section 158BC served upon the assessee persons other than searched persons for the period prior to the amendment in Section 158BD vide Finance Act, 2002, there shall not be any liability to pay interest under Section 158BFA, has no substance and the same is required to be rejected and the said question is required to be answered in favour of the revenue and against the assessee. Levy of surcharge u/s 113 - HC has held the issue in favor of Revenue - HELD THAT - While passing the impugned judgment and order, the High Court has relied upon earlier decision of this Court in the case of Suresh N. Gupta 2008 (1) TMI 396 - SUPREME COURT . However, the said decision has been specifically overruled by this Court in the case of Vatika Township Private Limited 2014 (9) TMI 576 - SUPREME COURT . The question of law with respect to levy of the surcharge under proviso to Section 113 of the Income Tax is held in favour of the assessee and against the revenue. It is observed and held that in the present case the assessee is not liable to pay the surcharge under proviso to Section 113 of the Income Tax Act.
Issues Involved:
1. Levy of interest under Section 158BFA(1) of the Income Tax Act for late filing of the return for the block period in absence of any notice under Section 158BC. 2. Levy of surcharge under proviso to Section 113 of the Income Tax Act. Detailed Analysis: 1. Levy of Interest under Section 158BFA(1): Background and Arguments: - The appellant, an individual and Director Partner in Khoday Group, was issued a notice under Section 158BD to file the return for the block period. The appellant filed the return including undisclosed income and was levied interest under Section 158BFA(1) for late filing. - The appellant contended that interest under Section 158BFA(1) could not be levied in absence of a notice under Section 158BC, arguing that Section 158BD was amended to include Section 158BC only from 01.06.2002, making the interest levy invalid for notices issued prior to this date. - The High Court ruled that Section 158BFA(1) was applicable even before the amendment, holding that Chapter XIVB's provisions were self-contained and did not require a notice under Section 158BC for levying interest. Supreme Court's Analysis: - The Supreme Court noted that Chapter XIVB, dealing with block assessment, is a complete code in itself, providing for self-contained machinery for assessment of undisclosed income. - It was observed that the liability to pay interest under Section 158BFA(1) arises due to late filing of the return under Section 158BC, irrespective of the amendment in Section 158BD. - The Court held that the insertion of the words "under Section 158BC" in Section 158BD by the Finance Act, 2002, was clarificatory in nature and did not change the applicability of Section 158BFA(1). - The Court concluded that the assessee is liable to pay interest under Section 158BFA(1) for late filing of the return even in the absence of a notice under Section 158BC and for the period prior to 01.06.1999. 2. Levy of Surcharge under Proviso to Section 113: Background and Arguments: - The High Court had upheld the levy of surcharge under Section 113, relying on the decision in Commissioner of Income Tax vs. Suresh N. Gupta. - The appellant argued that the decision in Suresh N. Gupta was overruled by the Constitution Bench in Vatika Township Private Limited, which held that the proviso to Section 113 is prospective. Supreme Court's Analysis: - The Supreme Court referred to the decision in Vatika Township Private Limited, which clarified that the proviso to Section 113 is prospective and not applicable retrospectively. - The Court noted that the High Court's reliance on the overruled decision in Suresh N. Gupta was incorrect. - It was held that the assessee is not liable to pay the surcharge under the proviso to Section 113 as the amendment is prospective. Conclusion: - The Supreme Court ruled in favor of the revenue regarding the levy of interest under Section 158BFA(1), affirming that interest is applicable for late filing of returns even without a notice under Section 158BC and prior to 01.06.1999. - The Court ruled in favor of the assessee regarding the levy of surcharge under the proviso to Section 113, holding that the surcharge is not applicable retrospectively and quashed the High Court's judgment to that extent.
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