DELIZA RESIDENCY vs. CHIEF COMMISSIONER OF INCOME TAX

J U D G M E N T The petitioner is a partnership firm doing business in running a bar attached hotel at Wadakkancherry, Thrissur district. During the previous year relevant to the assessment year 2005-2006, the petitioner had completed the construction of a hotel building. In the returns filed for the assessment year 2005-2006, however, the petitioner declared that he had no taxable income. Pursuant to the intimation that was given to him under the Income Tax Act the respondent authorities issued a notice under Section 148 of the Income Tax Act and re-opened the assessment. In the re- assessment proceedings, the Income Tax Officer made an addition of Rs.96,12,500/- towards income from other sources and completed the assessment accordingly. The additions made by the Income Tax Officer represented the difference between the declared cost of construction of the hotel building as per the petitioners books of accounts and the cost of construction estimated by the Departmental Valuation Officer. Ext.P1 is the assessment order that was passed against the petitioner. The petitioner carried the matter in appeals under the Income Tax Act and the said appellate proceedings culminated in the dismissal of the appeal filed by the petitioner before this Court vide ITA.No.11 of 2010. In the appeal preferred by the petitioner, the additions made by the Income Tax Officer were considerably reduced and, as against the amount of Rs.96,12,500/- added by the Income Tax Officer, the additions sustained on the petitioner pursuant to the appeal was only in an amount of Rs.39,72,961/-. On the reduced amount, interest under Section 234A, 234B and 220(2) of the Income Tax Act were also levied. The petitioner thereafter preferred applications before the 1st respondent for waiver of the interest under the aforementioned provisions. The 1st respondent by Ext.P5 order dismissed the petitions preferred by the petitioner. In the writ petition, Ext.P5 order of the 1st respondent is impugned, inter alia, on the ground that it does not consider the genuine hardship that was faced by the petitioner in estimating the cost of investment for the purposes of declaration of his income in the returns filed by him, and for payment of advance tax.

“4. A survey u/s.133A was carried out in this case on 07-12-2005. It was found by the Assessing Officer that a hotel building was constructed and the business of the hotel commenced during the previous year relevant to the A.Y.2005-06. The investment in hotel building disclosed in the books of accounts was found prima facie far below the actual cost of construction and that no income tax return was filed for the assessment year. Having formed a belief that income has escaped assessment within the meaning of section 147 of the Act, notice u/s.148 was issued by the Assessing Officer on 10-04-2006. The assessee filed a return in response to notice u/s.148 on 22-09-2006 declaring nil total income. The hotel building was referred for valuation and the assessment was made on 07-12-2007 determining the total income at Rs.96,12,560/- which was modified in appellate proceedings to Rs.39,72,960/- and the same has become final. As such it is undisputed that the assessee had derived total income of Rs.39,72,960/- for the A.Y. 2005-06 and tax on the total income was not paid as advance tax before 31-03-2005 and that no return was filed voluntarily before the due date for filing the return i.e. 31-07-2005. It is also an undisputed fact that no income was declared even in the return filed in response to notice u/s.148 on 22- 09--2006 even though the total income of Rs.39,72,960/- was determined by the Tribunal which is the highest fact finding authority. Hence the assessee is liable to pay the tax on total income earned for the year in advance before 31- 3-2005 and to file the return declaring such total income on or before 31-7-2005. Levy of interest u/s.234B is held to be compensatory in nature by by various High Courts including the Hon'ble (page 124) : “It is well settled that interest u/s.234B is compensatory in character. It is not penal in nature.............It is for this reason that section 234B does not envisage grant of hearing in so far as levy of interest is concerned. The levy is automatic on it being proved that the assessee has committed a default as governed by section 234B.” In this case interest charged u/s.234B is only by way of compensation to the Exchequer for being deprived of the payment of advance tax, to which it was legitimately entitled. There are no enabling provisions to reduce the interest levied on the basis of tax on total income determined in regular assessment.