No Interest u/s 234B & 234C on income declared during survey – ITAT

By | April 29, 2017
(Last Updated On: April 29, 2017)

Held

Survey operation under section 133A of the Act was conducted at the business premises of the assessee on 5.3.2008 i.e. after close of the financial year relevant to the assessment year 2006- 07. Now the question arises whether the assessee as per the provisions of section 210 read with section 208 of the Act for the financial year relevant to the assessment year 2006-07 for which it declared the income on 5.3.2008 is liable to pay advance tax during financial year 2005-06. This income was not in existence during financial year 2005-06 neither as per assessee’s own account or in pursuance of the order of the Assessing Officer under section 210 of the Act, as this income has arisen only when survey has taken place as on 5.3.2008. The assessee cannot foresee during financial year 2005-06 that there will be survey in 2008 and as per Revenue, they have found certain discrepancies and assessee will be compelled to disclose income for assessment year 2006-07 to buy peace and avoid litigation. There is no iota of evidence brought by the Revenue that this income has actually arisen in assessment year 2006-07.

IN THE ITAT MUMBAI BENCH ‘E’

Emem Freight Forwarders

v.

Deputy Commissioner of Income-tax, 22 (3), Mumbai

P.K. BANSAL, ACCOUNTANT MEMBER
AND PAWAN SINGH, JUDICIAL MEMBER

IT APPEAL NO. 5036 (MUM.) OF 2013
[ASSESSMENT YEAR 2006-07]

FEBRUARY  15, 2017

Nishit Gandhi for the Appellant. B.S. Bist, D.R. for the Respondent.

ORDER

P.K. Bansal, Accountant Member – This appeal filed by the assessee is against the order of the ld. CIT(A)-33, Mumbai dated 30.11.2010 pertaining to assessment year 2006-07.

2. The assessee has even though taken six grounds of appeal, but grounds No.2 to 6 were not pressed, therefore, they are dismissed as not pressed.

3. The only ground, which survived for our disposal reads as under:—

1.The ld. CIT(A)-33 erred in not reducing interest charged under section 234B and 234C of Rs.9,58,591/- as against interest chargeable of Rs.1,66,906/- in the facts and circumstances of the case.

4. The assessee is engaged in the business of freight forwarding. There had been a survey at the premises of the assessee on 5.3.2008. During the course of survey, few discrepancies were noticed and the assessee to avoid litigation disclosed/offered a sum of Rs.90 lakhs detailed as under:-

(a) Non-deduction of TDS on certain expensesRs.67 lakhs
(b) For cash paymentRs.23 lakhs
Total Rs.90 lakhs

5. The Assessing Officer completed the assessment determining the total income at Rs.95,84,870/-. The Assessing Officer levied interest under section 234B and 234C of the Act amounting to Rs.9,58,591/- from 1.4.2006 to the date of assessment. The assessee went in appeal before the ld. CIT(A). The ld. CIT(A) dismissed the appeal of the assessee.

6. We have heard the rival submissions and carefully considered the same along with the orders of the authorities below. The only question before us, as argued by the ld. A.R. of the assessee as well as by the ld. D.R., is that whether the interest has to be levied from the date of survey to the completion of the assessment or from 1.4.2006 to the date of assessment. The ld. A.R. of the assessee in this regard vehemently relied on the order of the Hon’ble Karnataka High Court in the case of T.P. Indrakumar v. ITO [2010] 322 ITR 454, in which the Hon’ble High Court held as under:—

“Held, (i) that the assessee pre-empted all further probe and consequential acts by offering an additional amount of Rs. 10 lakhs by way of income. This amount was mentioned as cash credit, which in terms of the Act, can be added by way of income. The assessment made was valid.

(ii) That the assessee had offered a sum of Rs. 10 lakhs as an additional income in addition to the income already offered in his return only to buy peace with the Department and that had been accepted by the Assessing Officer without further scrutiny. In such a situation, it could not be held that the assessee had defaulted in payment of instalment of advance tax, as the amount of Rs. 10 lakhs was offered by way of income for the first time as per the assessee’s letter dated February 28, 2000, to buy peace and avoid further adverse consequences and the assessing authority having acted upon this proposition of the assessee and having regard to the peculiar facts and circumstances of this case, the addition of income under sections 234A and 234B in the case of the assessee was not necessary and not justified.”

7. We have perused the facts of this case. We noted that in this case the Assessing Officer, when the case was taken for scrutiny, noted there were discrepancies in the capital account and investment made as claimed by the assessee. The assessee offered a sum of Rs.10 lakhs to buy peace with the Department to avoid further scrutiny. The Assessing Officer simply accepted the offer of the assessee of Rs.10 lakhs as additional income and levied interest under section 234A and 234B of the Act. The assessee went in appeal against the levy of interest, which was dismissed by the ld. CIT(A). The Tribunal also upheld the orders of the lower authorities but when the matter went before the Hon’ble High Court, the High Court, on the peculiar facts of the case, deleted the interest levied under section 234A and 234B of the Act. The levy of interest, in our opinion, is mandatory in view of the decision of the Hon’ble Supreme Court in the case of CIT v. Anjum M.H. Ghaswala in Appeal (civil) No. 2421 of 2000, but the question before us is whether the assessee is liable to pay interest from 1.4.2006 or not. Whether the provisions of section 234B and 234C of the Act are applicable or not. The provisions of section 234B(1) of the Act lays down as under:—

“234B. Interest for defaults in payment of advance tax.

(1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of [one] per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year [to the date of determination of total income under sub- section (1) of section 143 [and where a regular assessment is made, to the date of such regular assessment, on an amount]] equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.”

8. From the said provision, it is apparent that this section is applicable only if an assessee is liable to pay advance tax under section 208 of the Act and has failed to pay the same or where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax. Section 208 of the Act castes duty on an assessee to pay advance tax during the financial year in every case where the amount of such tax payable by the assessee during that year has been computed in accordance with the provisions of Chapter XVII-C is Rs.10,000/- or more. Section 210 of the Act requires the assessee to pay advance tax at his own or in pursuance of the order of the Assessing Officer on or before each of the due dates specified under section 211 of the Act. In the instant case, the assessment year involved is 2006-07. Survey operation under section 133A of the Act was conducted at the business premises of the assessee on 5.3.2008 i.e. after close of the financial year relevant to the assessment year 2006- 07. Now the question arises whether the assessee as per the provisions of section 210 read with section 208 of the Act for the financial year relevant to the assessment year 2006-07 for which it declared the income on 5.3.2008 is liable to pay advance tax during financial year 2005-06. This income was not in existence during financial year 2005-06 neither as per assessee’s own account or in pursuance of the order of the Assessing Officer under section 210 of the Act, as this income has arisen only when survey has taken place as on 5.3.2008. The assessee cannot foresee during financial year 2005-06 that there will be survey in 2008 and as per Revenue, they have found certain discrepancies and assessee will be compelled to disclose income for assessment year 2006-07 to buy peace and avoid litigation. There is no iota of evidence brought by the Revenue that this income has actually arisen in assessment year 2006-07. Even the provisions of section 209(1) of the Act talks of the payment of advance tax in the financial year. In our view, in view of the peculiar facts of this case, in the financial year neither the assessee can foresee accrual of the income which has arisen as on 5.3.2008 nor the Assessing Officer could have required the assessee to pay advance tax in pursuance of an order made under section 210 of the Act. In view of this fact, we are of the view that due to the clear mandate of section 234B (1) of the Act, since the assessee was not liable to pay advance tax under section 208 or 210 of the Act, therefore, that the assessee was not liable to pay advance tax in respect of income of Rs.90 lakhs which he declared on 5.3.2008. Since the assessee was not liable to pay advance tax, no question of deferment of advance tax under section 234C of the Act arises. In view of this fact, we are of the view that it is a case where interest cannot be levied under section 234B and 234C of the Act on the assessee. We accordingly set aside the order of the ld. CIT(A) and delete the interest.

9. In the result, appeal filed by the assessee is allowed.

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