2006 (3) TMI 288 - AT - Income Tax

Summary

Issues:
Appeal against charging of interest under section 158BFA(1) for delay in filing block return.

Detailed Analysis:
The appeal was filed against the order of the CIT(A)-IV, Rajkot, regarding the charging of interest under section 158BFA(1) for the block period 1-4-1989 to 8-6-1999. The assessee, an individual and partner in two companies, received a notice under section 158BC after a search action under section 132 of the Income-tax Act. The return for the block period was filed on an ad hoc basis due to the non-receipt of seized records and statements. The contention was that the delay in filing the return was due to the department's failure to provide the necessary material.

The CIT(A) confirmed the charging of interest under section 158BFA(1), stating that there was no provision in the law to consider the delay caused by the department in filing the return. However, it was acknowledged that the delay was due to the department's inaction. The appellant argued that the interest charged was penal and unjustified as the delay was beyond their control. The department argued that interest was mandatory for any delay in filing the block return.

The Tribunal found that the delay in filing the return was indeed due to the department's failure to provide the necessary material despite repeated requests by the assessee. The interest under section 158BFA(1) was considered penal in nature and required a default on the part of the assessee to be justified. The Tribunal cited relevant case laws to support the view that penal provisions should not be oppressive and should only be imposed in cases of default or lack of bona fides.

The Tribunal set aside the lower authorities' decision and directed the Assessing Officer to verify when the necessary material was provided to the assessee before levying any interest. It was emphasized that interest under section 158BFA(1) should not be charged for no fault of the assessee. The appeal of the assessee was allowed with the specified direction to the Assessing Officer.

In conclusion, the Tribunal's decision highlighted the importance of considering the circumstances leading to the delay in filing the return before imposing penal interest under section 158BFA(1). The decision aimed to prevent the misuse of penal provisions and ensure fairness in tax assessments.