2023 (8) TMI 1026 - HC - Income Tax

Addition u/s. 69 - unexplained investment - correct assessment year - HELD THAT - A.O. should have added the Long-Term Capital Gain being the income of the Assessee and not the entire sale receipts, which included investment made by the Assessee in purchase of shares, as the investment was duly shown in balance sheet of the Assessee in previous year and was made out of past earning savings. On perusal of the same, it reveals that amount have been shown in the balance sheet in the name of Kailash Auto on purchase of 20000 and 10000 shares respectively for the assessment year 2014-2015, which is the investments of previous year and cannot be taxed in the subsequent year. Therefore, in our opinion, the A.O. could have added only income earned during Assessment Year 2015-16 and cannot tax the investment made in purchase of shares being income of past years, as there were no findings given by the A.O. that the purchase transactions were bogus transactions. Thus, Tribunal has rightly directed the A.O. to delete partially out of the total addition made u/s. 69 on account unexplained investment. We have no hesitation in holding that question decided against the revenue and in favour of the Assessee. Interest u/s 234B - to be charged on the returned income OR assessed income? - HELD THAT - Recently the Hon ble Apex Court in its judgment passed in the case of Shree Choudhary Transport Co. 2020 (8) TMI 23 - SUPREME COURT has held that in Income Tax matters the law to be applied is that which is enforce in the assessment year in question unless stated otherwise by express intendment or by necessary implication. Bare perusal of Section 234B of the Act it is crystal clear that the interest has to be charged on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. The term assessed tax has been defined in Explanation-1 of Section 234B (1). As per said Explanation-1 assessed tax means the tax on the total income determined under sub-Section (1) of Section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount provided in Explanation-I to section 234B. Therefore, the interest under Section 234B has to be charged on the assessed income and not on the returned income of an Assessee. In the present case, the Ld. ITAT in its impugned judgment, relying on judgment of this Court passed in the case of Ajay Prakash Verma ( 2013 (1) TMI 140 - JHARKHAND HIGH COURT ) has, erroneously held that the interest under Section 234B could be charged on the returned income and not on the assessed income. The Ld. ITAT has not even considered the provisions of Section 234B, as applicable during the period of AY 2015- 16, which is relevant to the instant appeal. The said finding of the Ld. ITAT is totally contrary to the provisions of Section 234A and 234B as amended by the Finance Act, 2001 and the Finance Act, 2006. Decided in favour of the revenue.

Summary

Issues Involved:
1. Justification of ITAT in deleting the addition made by the A.O.
2. Interpretation of provisions of section 234B(1) read with explanation 1 and 234B(3).
3. Consideration of amendments made in Section 234B and 234C w.e.f. 01.04.2007.
4. Applicability of the findings in Ajay Prakash Verma Vs. ITO case post amendment.

Summary:

1. Justification of ITAT in deleting the addition made by the A.O.:
The Assessee, deriving income from trading of spare-parts and mobile phones, filed a return declaring total income of Rs. 6,61,080/-. During scrutiny, the Assessee voluntarily surrendered LTCG for taxation. However, the A.O. added the entire receipt from the sale of shares, including the investment amounting to Rs. 5,40,000/-, as unexplained investment under Section 69 of the Income Tax Act, 1961. The CIT(A) upheld this addition. The ITAT, however, directed the A.O. to delete Rs. 5,40,000/- from the total addition, stating that the investment was shown in the balance sheet of the previous year and made out of past earnings and savings. The High Court affirmed ITAT's decision, holding that the A.O. should have added only the LTCG earned during the assessment year 2015-16 and not the entire sale receipts.

2. Interpretation of provisions of section 234B(1) read with explanation 1 and 234B(3):
The Revenue contended that the ITAT erred in directing to calculate interest under Section 234B on returned income instead of assessed income. The High Court analyzed the legislative and judicial history of Sections 234A and 234B, noting amendments by the Finance Act, 2001, which clarified that interest should be charged on assessed income. The Court referenced the Patna High Court's judgment in Ranchi Club Ltd. v. Commissioner of Income Tax, affirmed by the Supreme Court, and subsequent amendments that mandated interest be charged on assessed income.

3. Consideration of amendments made in Section 234B and 234C w.e.f. 01.04.2007:
The High Court noted that post the Finance Act, 2001, and subsequent amendments, interest under Sections 234A and 234B must be charged on assessed income. The Court cited judgments from the Punjab & Haryana High Court upholding this interpretation and emphasized that the law applicable in the assessment year in question must be enforced unless stated otherwise.

4. Applicability of the findings in Ajay Prakash Verma Vs. ITO case post amendment:
The High Court found that the ITAT erroneously relied on the Ajay Prakash Verma case, which did not consider the amendments brought by the Finance Act, 2001. The Court declared the judgment in Ajay Prakash Verma as per incuriam concerning the chargeability of interest under Section 234B, holding that interest should be charged on assessed income as per the amended provisions applicable during the assessment year 2015-16.

Conclusion:
The High Court upheld the ITAT's decision on the deletion of Rs. 5,40,000/- but reversed its finding on the chargeability of interest under Section 234B, directing that interest should be charged on assessed income. The appeal was partly allowed in favor of the Revenue.