2006 (4) TMI 87 - HC - Income Tax

Interest u/s 139(8) and under section 217(1A) for non-disclosure of income - Tribunal has rightly disallowed the interest levied under sections 139(8) and 217 in so far as the escaped income of Rs. 1,05,000 is concerned. It had rightly declined to set aside the interest levied under sections 139(8) and 217 in so far as regular assessment is concerned. Though for the purpose of limitation the order of assessment/reassessment made under section 147 would have the effect of effacing the order of regular assessment, in a given case if the original order of regular assessment is not set aside at all and in the course of assessment under section 147 only the additional income is added, it cannot be said that the interest levied under sections 139(8) and 217 which was accepted and paid by the assessee also stands effaced

Summary

Issues Involved:
1. Whether the Tribunal is right in holding that reassessment proceedings were rightly initiated for the assessment year 1972-73.
2. Whether the Tribunal was justified in restricting the interest levied under section 139(8) and under section 217(1A) of the Income-tax Act to the figures in the original assessment.

Issue-wise Detailed Analysis:

1. Reassessment Proceedings Initiation:
The Tribunal held that reassessment proceedings for the assessment year 1972-73 were validly initiated. The assessee had not disclosed the acquisition of property in the income-tax return for the assessment year 1972-73. This acquisition was discovered during a search, and the relevant documents were seized, revealing the purchase of a property for Rs. 1,05,000. The assessee argued that the information was included in the wealth-tax return for the assessment year 1973-74, which was enclosed with the income-tax return. However, the court noted that the wealth-tax return for 1973-74 was not relevant for the 1972-73 assessment year. The court concluded that the assessee had not disclosed the primary facts necessary for the 1972-73 assessment, and the reassessment proceedings initiated under section 148 of the Act were within the stipulated time and valid. The court referenced the Division Bench decision in Venkatesh Power Works v. CIT, emphasizing the duty of the assessee to disclose all material facts necessary for assessment.

2. Justification of Interest Restriction:
The Tribunal restricted the interest levied under sections 139(8) and 217(1A) of the Act to the figures in the original assessment. The court examined whether the interest levied for the delay in filing the return and for not disclosing the income should be set aside due to the reassessment. The court referred to several judgments, including Charles D' Souza v. CIT and CIT v. Mysore Iron and Steel Ltd., which discussed the definition of "regular assessment" and its implications. The court noted that the original assessment order was not set aside; instead, additional income was added during the reassessment. Therefore, the interest levied under sections 139(8) and 217 for the original assessment remained valid. The court concluded that the Tribunal correctly disallowed the interest levied on the escaped income of Rs. 1,05,000 but upheld the interest levied for the regular assessment. The court emphasized that the statutory liability for interest due to the delay in filing the return and non-disclosure of income persists, even after the reassessment.

Conclusion:
Both questions referred for consideration were answered in the affirmative, in favor of the Revenue and against the assessee. The reassessment proceedings were validly initiated, and the restriction of interest to the original figures was justified. The reference was disposed of with no order as to costs.