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TMI Blog2010 (7) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... that unless initially, interest was chargeable under the original assessment order, the question of an increase or reduction would not arise and that a prior levy of interest in the original assessment order is a precondition for the levy of interest under Section 234B(4). 2. The Petitioner is an IATA approved travel agent and is engaged in the business of domestic and international air ticketing. The Petitioner also acts as a money changer of foreign exchange. The Petitioner has twenty six branches in India and a head office at Mumbai. For Assessment Years 2002-03 to 2006-07, the Petitioner filed returns of income. In each of the years, the tax deducted at source was more than the tax payable on the income declared. The returns of income for Assessment Years 2002-03 and 2004-05 were accepted and an intimation was issued under Section 143(1). For Assessment Year 2003-04, the case was selected for scrutiny and an assessment was completed under Section 143(3). A search action was conducted under Section 132 on 9 November 2005. Pursuant thereto, notices were issued to the Petitioner under Section 153A, in response to which, the Petitioner filed its returns of income. On 15 May 2007, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectified under Section 254. The Commission held that on 19 March 2008, when it had passed its order, a decision of the Special Bench of the Tribunal in Sahitya Mudranalaya,{(1995) 79 Taxman 463 (Bom)} had taken the view that interest under Section 234B should be awarded when the Settlement Commission passes an order under Section 235B(4) even if no interest was leviable at the time of the original order of assessment. The Commission noted that the levy of interest under Section 234B is mandatory under the judgment of the Supreme Court in Anjum Ghaswala (supra) and that in a subsequent decision in Hindustan Bulk Carriers (supra), the Supreme Court has held that both the disclosed income before the Income Tax Department and the income disclosed before the Settlement Commission should be clubbed together and the tax and interest would be calculated on the aggregate amount. Moreover, it was held that the Settlement Commission has no power to waive interest. The Settlement Commission held that since the levy of interest was mandatory, it had committed an obvious mistake in directing that interest under Section 234B should not be charged and having regard to the judgment of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... {(2005) 279 ITR 432 (SC)} the decision in Anjum Ghaswala has been referred for consideration to a larger Bench. 7. On the other hand, on behalf of the Revenue, Counsel submitted that (i) The power of the Settlement Commission to award interest under Section 234B(4) is not subject to the condition that interest should have been leviable under the original order of assessment; (ii) The observations of the Supreme Court in Anjum Ghaswala and Hindustan Bulk Carriers would establish that interest is chargeable under Section 234B(4) for the first time, under an order of the Settlement Commission under Section 245D(4); (iii) The Settlement Commission was under Section 254 duty bound to rectify a mistake which had occurred, which was apparent from the record, since it is a fundamental principle that no party appearing before the Tribunal, be it an assessee or the Department, should suffer on account of any mistake committed by the Tribunal. In ignoring the binding judgment of the Tribunal in Sahitya Mudranalaya (supra), which held the field when the Settlement Commission had passed an order originally on 19 March 2008, the Settlement Commission committed an error apparent on the record wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 143" shall not include the additional Income-tax, if any, payable under section 143. (2) Where, before the date of determination of total income under Subsection (1) of Section 143 or completion of a regular assessment, tax is paid by the assessee under Section 140A or otherwise.(i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section; (ii)thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax. (3) Where, as a result of an order of reassessment or recomputation under section 147 or section 153A, the amount on which interest was payable under subsection (1) is increased, the assessee shall be liable to pay simple interest a the rate of one per cent for every month or part of a month comprised in the period commencing on the date following the date of determination of total income under Subsection (1) of Section 143 and where a regular assessment is made as is referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 245D(4), "the amount on which the interest was payable under Subsections (1) or (3) has been increased or reduced, as the case may be." Thereupon, the provision is that interest shall be increased or reduced accordingly. In a case where the interest is increased, the Assessing Officer has to serve on the assessee a notice of demand whereas if the interest is reduced, the excess interest has to be refunded. 10. In the present case, the issue before the Court arises out of the order of the Settlement Commission under Section 245D(4) and the question is as to whether the amount on which interest was payable under Subsection (1) or subsection (3) has been increased or reduced. Now, in Subsection (1) of Section 234B, interest is payable on an amount equal to the assessed tax (where the assessee who is liable to pay advance tax has failed to pay such tax) or on the amount by which the advance tax paid falls short of the assessed tax. In a situation where the assessee has paid advance tax which is less than ninety per cent of the assessed tax, interest is payable on the difference between the assessed tax and the advance tax paid. Subsection 4 of Section 234(B) refers to a situation whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of first principle, is also consistent with the interpretation placed by the Supreme Court on the provisions of the statute. In CIT vs. Anjum M.H.Ghaswala (supra), a Constitution Bench of the Supreme Court was considering the question as to whether the Settlement Commission has the jurisdiction to reduce or waive interest chargeable under Section 234A, 234B and 234C while passing an order of settlement under Section 245D(4). The principle of law which emerges from the judgment of the Supreme Court is that though Section 245D(4) confers a wide power on the Commission while settling a case, nevertheless the Act mandates that this shall be done in accordance with the provisions of the Act. The Supreme Court held that the liability to pay interest under Sections 234A, 234B and 234C is mandatory and the Commission would have no power to waive or reduce interest payable statutorily except to the extent of granting relief under circulars issued by the Board under Section 119. In the following observations, the judgment of the Supreme Court indicates that necessary changes in regard to the payment of interest would have to be made depending on the change that has occurred upon the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: "There is another way of looking at the issue. Section 234B(3) provides differently for regular assessment and reassessment. In a reassessment, ordinarily income assessed is more than what was determined originally. If two different periods are provided to meet such a situation, it is inconceivable that the Legislature intended to totally give a go by to interest on the income which for the first time is disclosed before the Commission. By analogy and harmony, the period has to be till the date of the Commission's order. To put it differently, the interest charged in terms of sections 234A, 234B and 234C becomes payable on the income already disclosed in the returns filed, together with the income disclosed before the Commission. The concerned interest as aforesaid shall be on the consolidated amount of income, i.e., both disclosed and undisclosed. as indicated above, such interest shall be charged till the Commission acts in terms of section 245D." Concurring judgments were delivered by Mr.Justice M.B.Shah and Mr.Justice D.M.Dharmadhikari. In the judgment of Mr.Justice D.M.Dharmadhikari, it was observed thus: "The provisions contained in Chapter XIXA merely aim at encouragi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion which was not earlier disclosed before the Assessing Officer, even if no interest could have become leviable if originally disclosed income is considered in isolation by operation of section 234B(1) of the Act." 14. In C.I.T. Vs. Kotak Mahindra Finance Ltd., {(2004) 265 ITR 119} the contention of the assessee was that an assessment under Section115J is on deemed income and hence Sections 234B and 234C will not apply. The contention was that the accounts of a Company under Schedule VI cannot be prepared before the end of the previous year whereas, Section 207 provides for the estimation of current income at the end of the previous year. Hon'ble Mr.Justice S.H.Kapadia (as the Learned Chief Justice then was) rejected the argument and held that the difficulty faced by the assessee in computation could not defeat the liability to pay advance tax. The Division Bench of this Court held as follows: "Under section 207 of the Income Tax Act, advance tax is payable during any financial year in respect of the "current income". The words "current income" are very crucial. The words "current income" refer to computation of total income under the provisions of the Income-tax Act including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecial Bench of the Tribunal in the case of Sahitya Mudranalaya vs. CIT.{(1995) 79 Taxman 463}. As a matter of fact, the judgment of the Gujarat High Court confirming the judgment of the Tribunal noted earlier was delivered on 3 March 2008 which was also prior to the original order of the Settlement Commission. The Settlement Commission, therefore, committed an error apparent by not following the decision of the Special Bench of the Tribunal which was confirmed by the Gujarat High Court. These judgments, as we have noted earlier, were also consistent with the law laid down by the Supreme Court in Anjum Ghaswala and Hindustan Bulk Carriers. The Settlement Commission was, therefore, justified in allowing the Miscellaneous Application under Section 154 and setting right the error apparent which occurred in the original order. In Honda Siel Power Products Ltd. vs. CIT,{(2007) 295 ITR 466 (SC)} the Supreme Court has emphasized that the basic purpose underlying Section 254 is based on the fundamental principle that no party appearing before the Tribunal, be it an assessee or the Department, should suffer on account of any mistake committed by the Tribunal. In the circumstances, the Settl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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