For benefit of revenue: Care required by revenue officers.

[C.A. DEV KUMAR KOTHARI]

Specific order to levy  tax and interest is required even though levy is mandatory

Links and references:

Judgments in cases of:

CIT vs. Awadh Hotels (P) Ltd (Allahabad High Court)

Ranchi Club Ltd 2000 (8) TMI 79 (SC)

 Anjum M.H Ghaswala 2001 (10) TMI 4 (SC)

in Insilco Ltd 2005 (8) TMI 31 (SC),

CIT vs. Awadh Hotels (P) Ltd (Allahabad High Court

Levy of interest under section 234A, 234b and 234C is mandatory, yet law require that the AO must specify the interest intended to be charged on assessee. There must be a specific order in this regard.

In case of Ranchi Club, the Supreme Court has so ruled. However, still we find that many times the Assessing Officers do not pass any order to levy interest , many times they do not specify the levy, but simply add the amount of interest in demand notice.

Demand notice is in consequence of order:

It must be borne in mind that demand notice is in consequence of an order. Without an order a demand cannot be raised. And without a demand notice a demand may not be recoverable. Therefore, order is an essential requirement to initiate recovery proceedings. For initiation of recovery proceedings, a demand notice is to be issued. Demand for tax, interest, penalty etc. require an order on record (and also served on assessee)  for levy of  them in a demand notice. The passing of order and demand notice both can be on the same day, yet the passing of order must precede issue of demand notice.

Why carelessness:

It is not understandable that why revenue officers are not careful or are careless and many times they fail to comply with minimum procedural requirement and do not even follow the limitations imposed to do any thing. The reason for such carelessness is ‘who care approach’, and such approach has been developed because by amending law, the basic irregularities are also rectified. This is clear from many of amendment which are  made simply to overcome procedural lapses or delays committed by revenue officers.

Decision in Ranchi Club ,  Anjum M.H.Ghaswala , and Insilco:

The issue in CIT vs. Ranchi Club Ltd    was  whether interest could be levied without an order but simply through demand notice? In that case it was held that the order of the AO in the assessment order to charge interest has to be specific and clear and the assessee must be made to know that the AO after applying his mind has ordered charging of interest.

Whereas in Anjum M.H. Ghaswala 2001 (10) TMI 4 (SC), matter pertained to power of the settlement Commission about levy or waiver of interest. It was held, in  that  context  that, the levy was mandatory and could not be waived.

In the case of  Insilco , the Supreme Court remanded the matter to decide whether the law laid down in Ranchi Club had been changed by Anjum M.H. Ghaswala or not.  In that it was considered that decision in  Ranchi Club has  not been expressly overruled nor has a different view been taken in Anjum M.H. Ghaswala‘s case.

CIT vs. Awadh Hotels (P) Ltd (Allahabad High Court

In this case the AO passed  order under section  143(3)  in which he did not passed any specific order to levy interest but he levied interest in demand notice. In due course of appeals the Tribunal, relying on Ranchi Club  held that in the absence of a specific direction, interest was not leviable. Before the High Court, the department relied on the larger bench decision in Anjum M.H Ghaswala 252 ITR 1 (SC) and argued that as interest u/s 234A, 234B & 234C was mandatory, there was no need for   assessment order to specifically direct that interest should be charged.  The High Court dismissed  the appeal on consideration of judgments as discussed earlier.

The High Court also held that there is also no force in the department’s argument that even if assessment order or computation sheet does not provide for interest, since interest is mandatory, it can be charged in the demand notice which is signed by the AO. Even if a provision of law is mandatory and provides for charging of tax or interest, the view taken in Ranchi Club Ltd is that such charge by the AO should be specific and clear and assessee must be made to know that the AO has applied his mind and has ordered charging of interest.

The mandatory nature of charging of interest and the actual charging of interest by application of mind and the mention of the provision of law under which such interest is charged are two different things. Consequently, if the assessment order is silent, interest u/s 234A, 234B & 234C cannot be levied.

Care required by authorities:

The tax authorities must take care to at least comply with minimum requirements. Now-a days this problem has been solved to a great extent by computerization. The AO usually adopt standard format of assessment order and in that levy of interest is included. Still in some cases we find lack of specific order for levy of interest.

The proper course is that in the assessment order the amount of tax, surcharge, cess, and interest etc. must be quantified under each applicable head  and then summed up. Based on order giving details of all levies and total sum demand notice should be issued. This should be based on order passed by AO on application of mind and not simply left to clerks or computer as a clerk computing the amount. A merely computer generated sheet, even if signed by officer may not be enough. In this regard also litigation is likely to take place.

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CIT vs. Awadh Hotels (P) Ltd (Allahabad High Court)

S. 234A, 234B & 234C interest, though mandatory, is not payable if AO does not direct it to be charged in assessment order 

The AO passed a s. 143(3) assessment order in which he omitted to direct that interest u/s 234A, 234B & 234C should be levied. The Tribunal, relying on Ranchi Club Ltd 247 ITR 209 (SC) held that in the absence of a specific direction, interest was not leviable. Before the High Court, the department relied on the larger bench decision in Anjum M.H Ghaswala 252 ITR 1 (SC) and argued that as interest u/s 234A, 234B & 234C was mandatory, there was no need for the assessment order to specifically direct that interest should be charged. HELD dismissing the appeal:

In CIT vs. Ranchi Club Ltd 2000 (8) TMI 79 (SC) it was held that the order of the AO in the assessment order to charge interest has to be specific and clear and the assessee must be made to know that the AO after applying his mind has ordered charging of interest. In Anjum M.H. Ghaswala 252 ITR 1 (SC), it was held, in the context of whether the Settlement Commission could waive interest, that the levy was mandatory and could not be waived. Subsequently, in Insilco Ltd 2005 (8) TMI 31 (SC), the Supreme Court remanded the matter to decide whether the law laid down in Ranchi Club had been changed by Anjum M.H. Ghaswala or not. Ranchi Club Ltd has not been expressly overruled nor has a different view been taken in Anjum M.H. Ghaswala‘s case. There is also no force in the department’s argument that even if assessment order or computation sheet does not provide for interest, since interest is mandatory, it can be charged in the demand notice which is signed by the AO. Even if a provision of law is mandatory and provides for charging of tax or interest, the view taken in Ranchi Club Ltd is that such charge by the AO should be specific and clear and assessee must be made to know that the AO has applied his mind and has ordered charging of interest. The mandatory nature of charging of interest and the actual charging of interest by application of mind and the mention of the proviso of law under which such interest is charged are two different things. Consequently, if the assessment order is silent, interest u/s 234A, 234B & 234C cannot be levied.