1993 (3) TMI 168 - AT - Income Tax

Assessment Order, Interest Payable By Assessee, Original Assessment, Retrospective Amendment, Supreme Court, Total Income

Summary

Issues Involved:
1. Legality of charging interest under section 215 of the Income-tax Act, 1961.
2. Impact of retrospective amendment in section 80J on the assessee's liability.
3. Requirement of a show-cause notice before charging interest under section 215.
4. Applicability of amendments to section 215(3) and their prospective or retrospective nature.

Issue-wise Detailed Analysis:

1. Legality of Charging Interest under Section 215:
The primary issue was whether the interest charged under section 215 of the Income-tax Act, 1961, amounting to Rs. 5,01,855, was legal and justified. The assessee argued that the interest was erroneously charged because the additional demand arose from a retrospective amendment in section 80J. The tribunal noted that the assessee initially filed a return showing a loss, which was later revised. The ITO completed the assessment, resulting in a net tax payable by the assessee, thus invoking section 215 for interest on the delayed payment of advance tax.

2. Impact of Retrospective Amendment in Section 80J:
The assessee contended that the retrospective amendment to section 80J, upheld by the Supreme Court in the case of Lohia Machines Ltd., led to the increased income and subsequent interest charge. The tribunal clarified that the Supreme Court's interpretation of section 80J and rule 19A, which excluded borrowed capital from the computation of capital for relief under section 80J, was always valid. Therefore, the assessee's claim for deductions under section 80J was incorrect, and the interest charged was a result of the correct computation of income as per the law.

3. Requirement of a Show-cause Notice:
The assessee argued that no opportunity for a hearing was provided before charging interest under section 215. The tribunal referred to the Rajasthan High Court's decision in Golecha Properties (P.) Ltd. v. CIT, which held that no show-cause notice is necessary before charging interest under section 215. The liability for interest is automatic upon default, and the ITO's mention of "Charge due interest" in the assessment order was deemed sufficient authorization.

4. Applicability of Amendments to Section 215(3):
The assessee argued that the amendments to section 215(3), which allowed for the increase of interest if income increased due to rectification or appellate orders, were prospective and not applicable to their case. The tribunal agreed that the amendments were prospective but clarified that the increase in the assessee's income was due to the Supreme Court's decision in a writ petition, not under sections 154, 155, 250, 254, 260, 262, or 264. Therefore, the provisions for reducing interest did not apply, and the interest charged was justified.

Conclusion:
The tribunal concluded that the action of the Assessing Officer and the CIT (Appeals) in charging interest under section 215 was justified. The appeal filed by the assessee was dismissed, confirming the interest charge. The tribunal emphasized that the interest under section 215 is compensatory, not penal, and the assessee had the option to seek a waiver or reduction of interest from the appropriate authorities if they could show sufficient cause.