1998 (5) TMI 44 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of interest charged under sections 139(8) and 215/217 for assessment years 1984-85 to 1987-88.
2. Legal validity of charging interest in rectification proceedings under section 154/155.
3. Adequacy of opportunity provided to the assessee before charging interest.
4. Applicability of relevant case law and judicial precedents.

Detailed Analysis:

1. Deletion of Interest Charged under Sections 139(8) and 215/217:
The primary issue revolves around whether the Commissioner of Income-tax (Appeals) was correct in deleting the interest charged under sections 139(8) and 215/217 for the assessment years 1984-85 to 1987-88. The Revenue appealed against this deletion, arguing that the interest was rightly charged following an increase in income due to rectification proceedings.

2. Legal Validity of Charging Interest in Rectification Proceedings:
The assessments were initially completed under section 143(1), and the share income from Kailash Nath and Associates was taken provisionally. Notices under section 154/155 were issued to rectify the share income after the final assessment of the firm. The Assessing Officer then charged interest under sections 139(8) and 215/217 based on the rectified income. The Revenue argued that such interest charges were legally valid, citing the case of CIT v. Arunachal Saw and Veneer Mills (P.) Ltd. [1997] 225 ITR 363 (Gauhati), which held that interest could be charged at the time of rectification of the assessment order.

3. Adequacy of Opportunity Provided to the Assessee:
The assessee contended that the interest charges were invalid as no specific opportunity was provided to contest the interest charges during the rectification proceedings. The Commissioner of Income-tax (Appeals) accepted this argument, referencing the case of CIT v. Pankaj Gupta [1991] 188 ITR 184 (All), which emphasized that any rectification order enhancing an assessment or increasing liability must provide the assessee a reasonable opportunity to be heard.

4. Applicability of Relevant Case Law and Judicial Precedents:
The Judicial Member and the Accountant Member delivered separate judgments on this issue. The Judicial Member reversed the order of the Commissioner of Income-tax (Appeals), relying on the Gauhati High Court decision, which supported the charging of interest during rectification without additional notice. Conversely, the Accountant Member upheld the Commissioner of Income-tax (Appeals)'s decision, emphasizing the necessity of providing an opportunity to the assessee, as mandated by the Allahabad High Court in CIT v. Pankaj Gupta.

Order of Reference to Third Member:
Due to the difference in opinions between the Judicial Member and the Accountant Member, the matter was referred to a Third Member. The Third Member, after considering the submissions and the relevant case laws, sided with the Accountant Member. The Third Member highlighted that the principles of natural justice, as enshrined in section 154(3), require that any rectification order increasing an assessee's liability must be preceded by a notice and an opportunity to be heard. The Third Member distinguished the Gauhati High Court's decision on the grounds that it was an ex parte decision and did not explicitly address the requirement of providing notice for charging interest.

Final Decision:
The Third Member concluded that the decision of the Allahabad High Court in CIT v. Pankaj Gupta was applicable and that the Assessing Officer's order charging interest without providing an opportunity to the assessee was invalid. Consequently, the order of the Commissioner of Income-tax (Appeals) deleting the interest charged under sections 139(8) and 215/217 was upheld, and the Revenue's appeals were dismissed. The matter was then listed before the Division Bench for passing an order in accordance with the majority opinion.