DCIT CEN CIR 10, MUMBAI vs. VIJAY NAGAR CORPORATION, MUMBAI

Assessee by: Shri Prakash Jotwani Department by: Shri Vikram Batra सुनवाई क� तार�ख / Date of Hearing: 13.05.2016 घोषणा क� तार�ख /Date of Pronouncement: 25.05.2016 आदेश / O R D E R PER AMARJIT SINGH, JM:

The revenue has filed the above mentioned two appeals against the order dated 14.11.2012 passed by the learned Commissioner of Income Tax (Appeals) 37, Mumbai [hereinafter referred to as the learned “CIT(A)”] relevant to the A.Y.1991-92 & 1992-93. These appeals are being taken together because the matter of controversy A.Y.1991-92 & 1992-93 and the parties are also same which can conveniently be decided by a single order.

"1. That on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the interest charged u/s.220(2) amounting to Rs.1,31,20,406/- without considering the final order of Hon’ble Settlement Commission reckoning the due date w.e.f.01.05.1993, holding order being reframed afresh vide order of Settlement Commission dt. 03.05.2011 without appreciating the fact that the order of the Hon’ble ITSC was equated with assessment order only. &1177/Mum/15 A.Y.1991-92 & 1992-93

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating the facts that the initial order of Hon’ble ITSC was set aside only for limited purpose and as such the case clearly falls under para – 2 of Board’s circular no.334 dt. 03.04.1982 wherein interest u/s. 220(2) was to be computed with reference to the due date reckoned from original demand notice and with respect to the tax liability finally determined.” 4. Issue no.1 and 2 are inter connected infact these issues are raised only one issue with regard to implementation of order passed by the Settlement Commission on the application of the assessee wherein the Assessing Officer passed the order for giving effect to the order of Settlement Commission raising the demand of interest to the tune of Rs.67,20,291/- for A.Y.1991-92 and interest to the tune of Rs.64,00,115/- for A.Y.1992-93 of the Act for the period w.e.f. from the last date of assessment i.e. 02.05.1994 to 03.05.2011 for A.Y.1991-92 and 04.04.1999 to 03.05.2011 for A.Y.1992-93 u/s. 220(2). This issue has been raised by the assessee before learned CIT(A) and the learned CIT(A) accepted the contention of the assessee and arrived at this conclusion that interest is liable to be payable on the above mentioned assessment year i.e. 1991-92 and 1992-93 for the period w.e.f. raising the demand by the Assessing Officer after the issuance of demand notice in pursuance of the fresh order passed by the Settlement Commission in pursuance of the direction of Hon’ble Bombay High Court and Hon’ble Supreme Court A.Y.1991-92 & 1992-93 of India. The learned departmental representative has argued that the learned CIT(A) has passed the order wrongly and illegally because the demand of the interest is relevant to the A.Y.1991-92 and 1992-93. Therefore, in the said circumstances the interest is liable to be calculated and payable from the passing relevant assessment order.

4.1 On the other hand, the learned representative of the assessee has argued that the learned CIT(A) has passed the order judiciously and correctly which is not required to be interfere with at this appellate stage and also placed reliance on the law settled in [2012] 209 taxman 456 / 23 Hon’ble High Court of Bombay in case of Commissioner of Income Tax – 1 Vs. Chika Overseas (P.) Ltd. and CBDT Circular no.334, F. No.440/8/81 dated 03.04.1982 and Hon’ble Supreme Court in Vikrant Tyres Ltd. 247 ITR 821 and Carbon Ltd. & Ors Vs. [1997 (6) SCC 479. Before going further we are of the view that it is necessary to advert the finding of the learned CIT(A) on record:-

“2.4.1 I have given my careful consideration to the rival submission, perused the material on record and duly considered the factual matrix of the case as also the applicable legal position.

2.4.2 Appeal Nos. CIT(A)-37/I.T.No.314 & 315 / DCCC-10/11-12 were filed by the appellant against levying of interest u/s.220(2) amounting to A.Y.1991-92 & 1992-93 Rs.67,20,291/- and Rs.64,00,115/- for A.Yrs. 1991-92 and 1992-93 respectively. As per the ground of appeal, the Ld. A.O. had calculated interest u/s.220(2) in respect of demand raised vide order passed on 03.05.2011, the interest having been wrongly charged from 01.05.1993 to 03.05.2011. Further, it was agitated that the Ld. A.O. erred in giving effect to the order of the Settlement Commission in charging interest u/s.220(2) without giving opportunity of being heard to the appellant.

2.4.3 Upon hearing the appellant, I find that the appellant has filed more appeals for these assessment years bearing appeal Nos. CIT(A)- 37/I.T.No.413 & 414/DCCC-10/11-12 against order u/s.154 passed by Ld. A.O. on the same subject. A plain reading of sec. 246A of the I.T. Act where the appealable orders before the CIT(Appeals) have been narrated, I find that he charging of interest u/s.220(2) does not fall in any of the clauses mentioned therein. Reliance in this regard is placed on: &1177/Mum/15 A.Y.1991-92 & 1992-93 (i) Sk. Munner SK. Manu Choudhary, 300 ITR 216 (Bom).

(ii) CIT Vs. Dailemer Benz AG 108 ITR 961(Bom)

(iii) National Products Vs. CIT 108 ITR 935(Kar.)

2.4.4 The above being the case, I do not find any merit in the appeal filed by the appellant bearing appeal Nos. I.T.No.314 & 315/DCCC-10/11-12 and these are accordingly dismissed as infructuous.

2.5.1 As regards appellant’s other appeals filed on the same subject bearing I.T.No.413 & 414/DCCC- 10/11-12, it is seen that appellant’s claim falls u/s.246A(1)(c) as the Ld. A.O.’s order was to the effect of refusing to allow appellant’s claim u/s.154 in respect of the charging of interest u/s.220(2).

2.5.2 Appellant’s contention regarding wrong charging of interest was forwarded to the Ld. A.O. for his report. Ld. A.O. vide letter No.ACIT/CC-10/ Remand Report / Ajmera Hsg. Corpn./2012-12 dt.08.10.2012 submitted the remand report which A.Y.1991-92 & 1992-93 was received in this office on 12.10.2012 through the Addl. CIT, Central Rg.2, Mumbai and a copy thereof was forwarded to the appellant for his rejoinder, if any. In his remand report, Ld. A.O. has referred to the CBDT’s Circular No.334 [F.No.400/3/81-ITCC] dated 03.04.1982. The operative part of the remand report reads as under:-

I have carefully gone through the submissions made by the assessee before your goodself in its letter dated 30th April, 2012, Order of the Hon’ble Settlement Commission, High Court, Supreme Court and other relevant facts of the case. Here, it is significant to read point no.2 of para 2 of the Board’s aforesaid circular, which states that Where the assessment made originally by the Income-tax Officer is either varied or even set aside by one appellant authority but on further appeal, the original order of the Income Tax Officer is restored either in part or wholly, the interest payable under section 220(2) will be computed with reference to A.Y.1991-92 & 1992-93 the due date reckoned from the original demand notice and with reference the tax finally determined. The facts that during an intervening period, there was not tax payable by the assessee under any operative order would make no difference to this position.

Thus the remand of the case by the High Court to the Settlement Commission was confined only to the question of determination of legal income, penalty etc. and the Settlement Commission was not required to go into the maintainability of application u/s.245C(1) of the Act.

&1177/Mum/15 A.Y.1991-92 & 1992-93

6. In the above factual matrix, the undersigned is of the view that the assessee has wrongly misinterpreted the contents of the Board’s aforesaid circular and as such, there is no infirmity in levying interest u/s.220(2) while giving effect to the Settlement Commission’s final order u/s.245D(4). Therefore, it is kindly requested that the issue of chargeability of interest u/s.220(2) may be decided on merits keeping in view the legislative intent behind the legislation in this regard and above factual proposition”.

2.5.3 On the other hand, Ld. A.R. has stated that Hon’ble Supreme Court has merely confirmed the Bombay High Court’s order dated 08.07.2009 where it was held that all the proceedings were remanded back to the Settlement Commission for hearing afresh. Emphasis has been made by him on para 17 of the order of the Hon’ble Bombay High Court which reads as under:-

For the aforesaid reasons, writ petitions are allowed. Impugned orders dated 29.1.1999 passed by the Settlement Commission are hereby set aside and all the proceedings are hereby remanded back to the Settlement Commission for hearing afresh A.Y.1991-92 & 1992-93 after giving due opportunity to the Revenue in the light of the observations made above. Parties shall appear before the Settlement Commission at Mumbai on 3rd August, 2009 and the Settlement Commission shall dispose off the proceedings within six months thereafter.

2.5.4 It would be appropriate at this stage to go into the history of this case. Pursuant to a search at the appellant’s premises, an application to Settlement Commission was made on 18.10.1993. This application came to be admitted by the Settlement Commission vide order u/s.245D(1) on 17.11.94 and the final order u/s.245D(4) passed on 31.12.1998 determining income of Rs.21,91,030/- for A.Y.1991-92 and Rs.21,19,492/- for A.Y.1992-93. Subsequently, Revenue went in Writ against this order of the Settlement Commission and Hon’ble Bombay High Court vide its order dated 28.07.2000 set aside the order of the Settlement Commission. The appellant as well as revenue filed SLP and the Hon’ble Supreme Court vide its order dated 11.07.2006 set aside set aside the order of the Hon’ble Bombay High Court and restored the application to the Hon’ble Bombay High Court.

ITA No.1176&1177/Mum/15 A.Y.1991-92 & 1992-93 2.5.5 Thereafter, the Hon’ble Bombay High Court in its second order dated 08.07.2009 again set aside order of the Settlement Commission with a direction to decide the appeal of the appellant afresh (please refer to the para 17 of the said order as cited supra). The appellant again filed an SLP against the order of the Hon’ble Bombay High Court. However, Hon’ble Supreme Court upheld the order of the High Court and the matter was sent back to the Settlement Commission to decide application afresh. Thereafter, a fresh order u/s.245D(4) was passed by the Settlement Commission on 03.05.2011 assessing the income at Rs.81,92,874/- for A.Y.1991-92 and Rs.79,21,543/- for A.Y.1992-93. Pursuant to the order of the Settlement Commission, as above, an order giving effect to the same was passed by the Ld. A.O. on 03.05.2011. However, calculation sheet for interest was allegedly not given to the Settlement Commissions order. The appellant, therefore, requested the Ld. A.O. to provide the calculation sheet and upon receipt of the same, rectification application u/s.154 was filed before the Ld. A.O. on 18.02.2011 stating that the interest u/s.220(2) of Rs.67,20,291/- for A.Y.1991-92 and Rs.64,00,115/- for A.Y.1992-93 were wrongly calculation since if the amount specified in any notice of A.Y.1991-92 & 1992-93 demand u/s.156 is of paid within 30 days of the service of the notice, the assessee shall be liable to pay simple interest at one percent every month or part of the month comprised in the period commencing from the day on which the amount is paid.

2.5.6 According to the Ld. A.R., interest should not be levied from 01.05.1993 because Hon’ble Supreme Court had set aside the original order of Settlement Commission passed on 17.11.1994 by affirming the action of the Hon’ble Bombay High Court and directed the Settlement Commission to pass a fresh order. According to him, as the fresh assessment order (order giving effect to the order of Settlement Commission’s order) was passed by the Ld. A.O. on 03.05.2011 because neither the Assessment order dt. 03.05.2011 nor the demand notice dt. 03.05.2011 require the appellant to pay interest after 30 days from the date of service of the original demand notice dt.17.11.1994. It was further argued that since the demand crystallized under the order giving effect to Settlement Commission’s order 03.05.2011, question of levying of interest from the date of original order on 17.11.1994 does not arise. In support of the above stand, a reference was also made to the decision of Hon’ble A.Y.1991-92 & 1992-93 Bombay High Court in CIT Vs. M/s. Chika Overseas P. Ltd. (Bom), ITA No. 3737 of 2010 dated 18.11.2011. It is profitable at this stage to refer to the above said decision of Hon’ble Bombay High Court which is squarely on the issue of charging of interest u/s.220(2) after setting aside of the original order. The operative part of the same reads as under:-

“5. The argument of the revenue is that even though the original assessment order dated 28.02.1997 was set aside by the ITAT, once the fresh assessment order is passed, the demand arising therefrom would relate back to the date of service of the original demand notice. In the present case, the original demand was served on 28.02.1997 and, therefore, interest under sec.220(2) would be leviable after thirty days from 28.02.1997.

2.5.7 On appreciation of the facts of the case which have been brought out in great detail (supra), it is seen that appellant’s case falls under clause (1) of the Para 2 of circular No.334 dated 03.04.1982 and not under clause (2) of the said para as the original assessment order was set aside in toto by the Hon’ble Bombay High Court and which came to be confirmed by the Hon’ble Supreme Court. Admittedly, the original demand after passing of first order u/s.245D(4) was paid within the due date. This is a case where the assessment has been reframed afresh by the Ld. A.O. upon receipt of order passed by the Settlement Commission u/s.254D(4) on 03.05.2011. Secondly, it is not a case where the original order of the A.O. was varied or set aside by the Appellate authority as mentioned in circular No.334. The proceedings before the Settlement Commission are not in the nature of appeal. In this regard, it is apposite to refer to the decision of Hon’ble Supreme Court in Vikrant Tyres Ltd. 247 ITR 821 (SC) where it has been, inter alia, held as under:- &1177/Mum/15 A.Y.1991-92 & 1992-93 “A bare reading of section 220(2) clearly indicates that if the assessee does not pay, the amount demanded under a notice issued under section 156 of Act within the time stipulated under sub-section (1), the said assessee is liable to pay simple interest at one and one-half per cent for every month or part of a month comprised in the period commencing from the date immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid and, therefore, the condition precedent under this section is that there should be a demand notice and there should be a default to pay the amount so demanded within the time stipulated in the said notice.

In the instant, immediately after the assessment was made for the relevant years, demand notices were issued under section 156(1) and admittedly, the appellant satisfied the said demanded nothing was due pursuant to the said demand notices. However, after the judgement of the appellate authority which went in favour of the assessee, the revenue refunded the amount due as per the said A.Y.1991-92 & 1992-93 order of the authority. Thereafter, when the matter was taken up ultimately in reference to the High Court and the assessee lost the case, fresh demand notices were issued and it was also an admitted fact that in satisfaction of the said demand notice, the appellant had paid the amount as demanded within the time stipulated therein. The question, therefore, was whether the revenue was entitled to demand interest in regard to the amount which was refunded to the assessee by virtue of the judgment of the appellate authority and which was repaid to the revenue after the decision in the reference by the High Court on fresh demand notices being issued to the assessee. Admittedly, on a literal meaning of the provisions of section 220(2), such a demand for interest cannot be made. The High Court by a literal meaning of the provisions of section 220(2), such a demand for interest cannot be made. The High Court by a liberal interpretation of the said section and relying upon section 3 of the Validation Act has held that the revenue was entitled to invoke section 220(2) for the purpose of demanding interest on such retention of money. &1177/Mum/15 A.Y.1991-92 & 1992-93 The High Court was not correct in its view. It is a settled principle in law that the Courts while construing Revenue Acts, have to give a fair and reasonable construction to the language of a statue without leaning on one side or the other, meaning thereby that no tax or levy can be imposed on a subject by an Act of Parliament without the words of the statue clearly showing an intention to lay the burden on the subject. In this process, the courts must adhere to the words of the state and the so- called equitable construction of those words of the statue is not permissible. The task of the court is to construe the provision of the taxing enactments according to the ordinary and natural meaning of the language used and then to apply that meaning to the facts of the case and in that process if the taxpayer is brought within the net, he is caught, otherwise he has to go free.

The condition precedent for invoking section 220 is that if there is a default in payment of amount demanded under a notice by the revenue within the time stipulated therein and if such a demand is not satisfied, the section 220(2) can be invoked. &1177/Mum/15 A.Y.1991-92 & 1992-93 The High Court also fell in error in replying on section 3 of the Validation Act to construe section 22(2) in the manner in which it had done in the impugned judgment. Section 3 of the Validation Act, could not be relied upon to construe the authority of the revenue to demand interest under section 220. The said section enacted to cope up with a different fact-situation. That section only revives the old demand notice which had never been satisfied by the assessee and which notice got quashed notice got restored by an order of a higher forum. In such a situation, section 3 the Validation Act restored the original demand notice which was never satisfied by the assessee and the said section does away with the needs to issue a fresh notice. Beyond that, the section could not be restored to for reviving a demand notice which was already fully satisfied.

Therefore, section 220(2) could not be invoked to demand any interest from the assessee for the assessment years in question.

2.5.8 It was, further, held by the Hon’ble Supreme Court in Vikrant Tyres Ltd (Supra).. &1177/Mum/15 A.Y.1991-92 & 1992-93 “This principle in law is settled by this court in India Carbon Ltd. Vs. State of Assam 1997 (6) SCC 479 wherein this Court held Interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax makes a substantive provision in this behalf. A Constitution Bench of this Court speaking through one of us (Hon. Bharucha, J) in the case of V.V.S. Sugars V. Government of A.P. 1999 (4) SCC 192 reiterated the preposition laid down in India Carbon Ltd.’s case (supra) in the following words: The Act in question is a taxing statute and therefore, must be interpreted as it reads, with no additions and no subtractions, on the ground of legislative intendment or otherwise. If we apply this principle in interpreting section 220, we find that the condition precedent for invoking the said section is only if there is a default in payment of amount demanded under a notice by the revenue within the time stipulated therein and if such a demand is not satisfied, then section 220(2) can be invoked.

2.5.9 Respectfully following the above mentioned decisions of Hon’ble Supreme Court and Hon’ble Bombay High Court and in the facts of the case, I am of the view that A.Y.1991-92 & 1992-93 the interest u/s.220(2) charged by the Ld. A.O. for the period prior to the passing of final order dated 03.05.2011 is not sustainable in the eyes of law. As it was a mistake apparent from record, the action of the Ld. A.O. in rejecting the application u/s. 154 cannot be upheld. Accordingly, these grounds are allowed.”

5. In view of the above the learned CIT(A) has decided the issue in favour of the assessee and accordingly the interest u/s.220(2) of the Act would be chargeable from passing the order dated 03.05.2011 passed by the Settlement Commissioner and the interest prior thereto is not liable to be chargeable in the eyes of law. The learned CIT(A) took the date 03.05.2011 when the fresh order u/s.245D(4) was passed by the Settlement Commission assessing the income to the tune of Rs.81,92,874/- for A.Y.1991-92 and Rs.79,21,543/- for A.Y.1992-93. No doubt the earlier order passed by the Settlement Commissioner was under litigation. However the final order was passed by the Settlement Commissioner u/s. 245D(4) on 31.12.1998 determining the income to the tune of Rs.21,91,030/- for the A.Y.1991-92 and Rs.21,19,492/- for the A.Y.1992-93. It is not under dispute that the said tax had already been paid within the prescribed period as mentioned in the para no.2.5.7 in the CIT order. No doubt when the income was assessed on the basis of these orders then subsequently the interest is liable to be payable. The assessee has relied upon the A.Y.1991-92 & 1992-93 law settled in [2012] 209 taxman 456 / 23 Hon’ble High Court of Bombay in case of Commissioner of Income Tax – 1 Vs. Chika Overseas (P.) Ltd. and CBDT Circular no.334, F. No.440/8/81 dated 03.04.1982 and Hon’ble Supreme Court in Vikrant Tyres Ltd. 247 ITR 821 and Carbon Ltd. & Ors Vs. [1997 (6) SCC 479. The contents of the above said authority as well as circular has already been mentioned in the order CIT(A) therefore, there is no need to repeat the same. Moreover, apparently the demand was raised in pursuance of order dated 17.11.1994 u/s. 245D(1) of the Act and in pursuance of final order dated 245D(4) of the Act determining the income to the tune of Rs.21,91,030/- for the A.Y.1991-92 and Rs.21,19,492/- for the A.Y.1992-93 had already been paid which is not in dispute. Subsequently, the demand was raised in pursuance of order dated 03.05.2011 u/s 245D(4) of the Act and this demand was not in knowledge of the assessee. When this demand was raised the same is required to be payable in accordance with law and not from the period of relevant assessment year i.e.1991-92 and 1992-93. Nothing new material brought before us to which it can be assumed that the learned CIT(A) has passed the order wrongly and illegally. The learned departmental representative nowhere produced any law before us, contrary to the finding of the learned CIT(A) in question. No tangible material was produced before us which may speak about the in-genuineness of the order passed by the learned CIT(A). In view of the above said circumstances we are of the view that the learned ITA No.1176&1177/Mum/15 A.Y.1991-92 & 1992-93 CIT(A) has passed the order judiciously and correctly which does not require to be interfere with at this appellate stage.

6. Accordingly both the appeals filed by the revenue are hereby dismissed.

Order pronounced in the open court on 25th May, 2016.