THE COMMISSIONER OF INCOME TAX vs. M/S CANARA BANK

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 23RD DAY OF NOVEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.194 OF 2015 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX

LTU, JSS TOWER'S, BSK III STAGE

BANGALORE-560085. 2. THE JOINT COMMISSIONER OF INCOME-TAX

LTU, JSS TOWER'S, BSK III STAGE

BANGALORE-560085. ... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.) AND: M/S. CANARA BANK BALANCE SHEET AND CENTRAL ACCOUNTS SECTION HEAD OFFICE, 112, J.C. ROAD BANGALORE-560002 PAN: AAACC 6106G. ... RESPONDENT (BY SRI. T. SURYANARAYANA, ADV.) - - - THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961, ARISING OUT OF ORDER DATED 28-11-2014

2 PASSED IN ITA NO.317/BANG/2014, FOR THE ASSESSMENT YEAR 2007-08, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. II. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE ITAT, BANGALORE IN ITA NO.317/BANG/2014 DATED 28-11-2014 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE JOINT COMMISSIONER OF INCOME TAX, LTU, BANGALORE. THIS I.T.A. COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT Mr.K.V.Aravind, learned counsel for the revenue. Mr.T.Suryanarayana, learned counsel for the assessee. 2. This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment Year 2007-08. The appeal was admitted by a Bench of this Court vide order dated 07.09.2015 to consider the following substantial questions of law:

3 i. Whether the Tribunal was correct in deleting interest under section 234C of the Act even though the same was calculated while processing return a u/s. 143(1) of the Act? ii. Whether the Tribunal was correct in holding that interest under section 220(2) of the Act is not chargeable during the period of stay, as the same is against the provisions of income tax Act, where the stay was sought by the assessee and not given suo moto by the assessing officer? 3. Facts leading to filing of this appeal briefly stated are that the assessee is a banking company. The assessee filed the return for the Assessment Year 2007- 08. The Assessing Officer concluded the assessment under Section 143(3) of the Act and assessed the taxable income at Rs.1772,81,78,854/- as against Rs.593,48,70,178/- declared by the assessee. The order passed by the Assessing Officer was subject matter of the proceeding under Section 263 of the Act before the Commissioner of Income Tax (Appeals), who

4 by an order dated 07.03.2011 directed the Assessing Officer to re-assess a sum of Rs.52,77,81,540/- representing the write back of stale demand drafts. The aforesaid order of the Commissioner of Income Tax (Appeals) was challenged by the assessee before the Income Tax Appellate Tribunal. The Tribunal quashed the order of the Commissioner of Income Tax (Appeals) to the extent that it pertained to the assessment of write back of stale demand drafts. Thereafter, the Assessing Officer passed an order on 07.03.2011 giving effect to the order dated 07.09.2012 passed by the Tribunal. The Assessing Officer charged the interest under Section 234C of the Act. The assessee challenged the levy of interest under Section 220(2) of the Act for the period during which the Assessing Officer himself has granted the stay of recovery. The Assessing Officer also granted refund of interest under Section 244A of the Act which according to the assessee was not properly calculated. Being aggrieved, the assessee filed an appeal. The

5 Commissioner of Income Tax (Appeals), by an order dated 25.11.2013, inter alia held that interest under Section 234C of the Act could not have been levied. It was further held that sofar as grant of interest on refund of amount to the assessee under Section 244A of the Act is concerned, the assessee gave a computation of interest payable by the department. The Commissioner of Income Tax (Appeals) directed the Assessing Officer to verify the same. With regard to the issue of levy of interest under Section 220(2) of the Act, it was held by the Commissioner of Income Tax (Appeals) that the short period covered by the stay issued by the Assessing Officer is not for the period from December 2009 to February 2010. In the result, the appeal was partly allowed. Thereupon, the revenue filed an appeal before the Tribunal. The Tribunal, by an order dated 28.11.2014 maintained the order passed by the Commissioner of Income Tax (Appeals). In the aforesaid factual background, this appeal has been filed.

6 4. At the outset, learned counsel for the revenue submitted that he does not intend to press the first substantial question of law. Learned counsel for the assessee submitted that the Tribunal grossly erred in holding that the interest under Section 220(2) of the Act is not chargeable during the period of stay as the same is against the provisions of the Act and where the levy of interest was challenged by the assessee and was not given suo motu by the Assessing Officer. On the other hand, learned counsel for the revenue has defended the order passed by the Commissioner as well as the Tribunal and submitted that the view taken by the Tribunal is just and proper in the facts and circumstances of the case and does not call for interference by this Court. 5. We have considered the submissions made on both sides and have perused the record. The levy of interest under Section 220(2) of the Act is prescribed by the statute. When stay is granted to a party, it is

7 always subject to a statutory provision and it is well settled in law that mere grant of stay does not prevent the running of the interest. Therefore, the finding recorded by the Commissioner as well as the Tribunal that the interest under Section 220(2) of the Act is not chargeable during the period of stay is perverse as the interest is mandatorily leviable under Section 220(2) of the Act. For the aforementioned reasons, the second substantial question of law is answered in favour of the revenue and against the assessee. In the result, the appeal is partly allowed. Sd/- JUDGE Sd/- JUDGE RV