Commissioner Of Income-Tax, Gujarat-I v. Ramjibhai Hirjibhai & Sons.

1. The following question has been referred to us for our opinion :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Income-tax Officer had no jurisdiction under the provisions of section 154 of the Act for charging interest under section 139 for late submission of the return ?"

2. Shortly stated, the facts leading to this reference are as under :

The relevant assessment year is 1967-68. The relevant accounting year was S. Y. 2022. The notice to file return under section 139(2) of the Income-tax Act, 1961, was issued on June 26,1967, and served on the assessee on July 15, 1967. It is common ground that by a circular of the department the time for filing return was extended up to 15th August, 1967. On August 11, 1967, the assessee made an application that the time for furnishing return may be extended up to September 30, 1967, for the reason that the data to be furnished with the return of income was not complete. It appears that no formal order was made in writing by the Income-tax Officer on this application. However, on September 29, 1967, the assessee made another application that it had to file return of its income for S. Y. 2022 on or about 30th September, 1967, but as the data to be furnished along with the return was still not complete, it was prayed that the time for furnishing return be extended up to 31st December, 1967. This application for adjournment was forwarded to the Income-tax officer under the cover of letter of the chartered accountant of the assessee-firm of the same date. It appears that the Income-tax Officer has made an endorsement on the said covering letter that the time for furnishing return was extended up to 15th November, 1967. The assessee could not file its return within the time granted by the Income-tax Officer but filed it as a matter of fact on December 23, 1967. The Income-tax Officer completed the assessment on 26th May, 1967, under section 143(3) of the Income-tax Act, 1961, and determined the total income at Rs. 1,99,987. The Income-tax Officer, however, did not charge interest under section 139 of the Act for late submission of the return. When this omission was noticed by him, he issued notice under section 154 of Income-tax Act, 1961, and called upon the assessee to file objections, if any, to the proposed rectification. The assessee filed its objections against the proposed rectification, which were, however, rejected by the Income-tax Officer who rectified his original order under section 154 and levied penal interest of Rs. 2,610.

3. The assessee being aggrieved with this order of the Income-tax Officer carried the matter in appeal before the Appellate Assistant Commissioner. On behalf of the assessee, it was contended that since levy of interest under section 139(1) was discretionary, the Income-tax Officer must be deemed to have exercised his discretion in favour of the assessee in not charging penal interest in the original order of assessment. This contention impressed the Appellate Assistant Commissioner, who, following the decision of the Supreme Court in S.A.L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149 (SC), cancelled the said order of the Income-tax Officer under section 154 of the Income-tax Act, 1961.

4. The revenue being aggrieved with this order of the Appellate Assistant Commissioner went in appeal before the Tribunal. The Tribunal felt that the question, whether or not interest was leviable in the case before it was a matter of argument debate in view of the decision of the Andhra Pradesh High Court in Kishanlal Haricharan v. Income-tax Officer [1971] 82 ITR 660 (AP) and the decision of the Mysore High Court in Indian Telephone Industries Co-operative Society Ltd. v. Income-tax Officer [1972] 86 ITR 566 (Mys). In the opinion of the Tribunal, as there was divergence of judicial opinion between the Andhra Pradesh High Court as opined in Kishanlal Haricharan's case [1971] 82 ITR 660 (AP) and the Mysore High Court in Indian Telephone Industries' case [1972] 86 ITR 566 (Mys), it could not be said that the provisions of section 154 would be applicable on the facts of the case. The Tribunal, therefore, confirmed the order of the Appellate Assistant Commissioner. At the instance of the revenue, therefore, the question set out above has been referred to us.

5. We are afraid we cannot agree with the view taken by the Tribunal for two obvious reasons; firstly, because we do not think that there is any scope for debate in view of the decision of this court in Dalwadi & Company v. Commissioner of Income-tax (Income-tax Reference No. 54 of 1972, decided on December 17, 1973), by a Division Bench consisting of Divan C.J. and T.U. Mehta J : and, secondly, because on a plain reading of clause (iii) of the proviso to section 139(1)(b), there is no scope for contending, much less upholding, that there can be possibly some debate on the scope of the said proviso which has, by clause (iii), enjoined levy of penal interest in the case of an assessee failing to furnish return before the maximum date extended under clause (i) or (ii) of the said proviso. The Division Bench of this court in Dalwadi's case was concerned with the same provision. The facts in that case were that the Income-tax Officer had omitted to charge interest for the late submission of the return for the assessment year 1962-63. The assessee was a registered firm and the notice under section 139(2) along with the form of return of income was served on the assessee on September 12, 1962, and the return of income for the said assessment year was filed by the assessee on March 27, 1963. The original assessment was completed on July 19, 1966. In the original proceedings, the Income-tax Officer did not charge any penal interest. Later on, rectification proceedings were started and in those proceedings by an order of November 23, 1966, made in exercise of the powers under section 139(4), penal interest of Rs. 1,350 was charged. While the appeal of the assessee in that case was pending before the Appellate Assistant Commissioner, sub-section (8) was inserted in section 139 with effect from April 28, 1963, and rule 117a was inserted by the Income-tax (Amendment) Rules, 1964. The Appellate Assistant Commissioner accepted the contention urged on behalf of the assessee and held that when the original assessment order was passed on July 29, 1966, the Income-tax Officer knew of section 139(8) as well as the provisions contained in rule 117A, since these provisions gave an option to the Income-tax Officer to reduce or waive the penal interest and the Income-tax Officer must be deemed to have waived penal interest when he passed the original assessment order on July 29, 1966, and did not charge any penal interest. In that view of the matter, the Appellate Assistant Commissioner allowed the appeal of the assessee. The revenue, therefore, carried the matter in appeal before the Tribunal. The Tribunal was of the opinion that sub-section (8) of section 139 was not applicable to the assessment under reference and, therefore, there was no question of the applicability of rule 117A. In the alternative, the Tribunal held that even if those provisions were applicable, the Income-tax Officer could waive penal interest only in certain circumstances and subject to certain conditions, particularly with the prior approval of the Inspecting Assistant Commissioner and since it was wanting, the Tribunal held that non-charging of interest at the time of original assessment was a mistake apparent from the record inasmuch as it was a statutory provision under section 139(4) and, therefore, allowed the appeal of the revenue and set aside the order of the Appellate Assistant Commissioner. At the instance of the assessee, in that case, the Tribunal referred the question to this court for its opinion, whether the Tribunal was right in holding that the Income-tax Officer has power to levy penal interest under section 139(4) read with section 139(1) of the Income-tax Act. The Division Bench, speaking through Divan C.J., observed in this context as under :

"Therefore, it is apparent that the obligatory levying of penal interest under section 139 was omitted by the Income-tax Officer and the procedure laid down in section 139(8) and rule 117A was not followed. Even if, therefore, the provisions of section 139 and rule 117A were held to be retrospective and were held to be applicable to the case of the assessee, the Income-tax Officer at the time of the original assessment order had not waived penal interest within the meaning of rule 117A. Hence, non-waiving of penal interest was consequently an error apparent on the face of the record and rectification provisions of section 154 could clearly be invoked by the Income-tax Officer."

6. The Division Bench further observed in Dalwadi's case that waiver or reduction of penal interest payable under the provisions of section 139 can be carried out by the Income-tax Officer in such cases and under such circumstances as may be prescribed. Rule 117A says that the Income-tax Officer may reduce or waive interest payable under section 139 in the cases and under the circumstances mentioned in that rule. The Division Bench found in Dalwadi's case that since the amount of penal interest exceeded Rs. 1,000, proviso (v) to rule 117A was clearly attracted and since the previous approval of the Inspecting Assistant Commissioner was not obtained, the condition precedent was not satisfied. The attention of the Division Bench was invited on behalf of the assessee in Dalwadi's case to the decision of the Supreme Court in S.A.L. Narayan Row's case [1965] 57 ITR 149 (SC) but the Division Bench found that that decision could not help the assessee in that case on the aspect regarding the scope and applicability of rectification provisions in view of the facts of the case before it.

7. A similar question arose in Additional Commissioner of Income-tax v. Mohanlal P. Jain [1976] 102 ITR 584 (Guj), where this very Division Bench was concerned with the case of late payment of annuity deposit as required under section 280C(2) of the Income-tax Act, 1961. The Income-tax Officer has the discretion in the matter of condonation of delay in making deposit within the prescribed time subject to certain conditions and in certain cases prescribed under the scheme. Under clause 4(2) of the scheme the conditions and the cases in which the Income-tax Officer can condone delay are prescribed. The important conditions, inter alia, are that the Income-tax Officer has to obtain pervious approval of the Inspecting Assistant Commissioner before condoning delay and the assessee concerned has to make an application in writing in the prescribed form before the specified date and the Income-tax Officer is required to make an order in writing. In that case, the delay in making deposit was of only three days and it was it was made on 3rd April, 1967, instead of 31st March, 1967, for the assessment year 1967-78. The Income-tax Officer while making the assessment order allowed the deduction on that count of annuity deposit from the taxable income of the assessee. However, later on, the Income-tax Officer by his order of June 17, 1969, purporting to act under section 154 corrected that order since the conditions precedent for condoning delay in making payment of the annuity deposit were not satisfied, with the result that the allowance made on account of annuity deposit was withdrawn. In appeal, the appellate Assistant Commissioner confirmed the order of the Income-tax Officer. However, in appeal before the Tribunal, it was held that the mistake sought to be rectified by the Income-tax Officer was not a mistake apparent from the record since the Income-tax Officer should be deemed to have exercised his discretion in the matter of condoning the delay when in the original assessment order he gave deduction on that count. On a reference at the instance of the revenue, the Division Bench considered the provisions contained in clause (a) of the scheme which empowered the Income-tax Officer to condone delay subject to certain conditions and in certain cases and observed-See [1976] 102 ITR 584, 589 (Guj) :

"In our opinion, the contentions of the revenue should prevail. It is an admitted position that there is no necessity of any detailed investigation in this matter so far as the question of exercise of discretion of the Income-tax Officer under the proviso to sub-section (2) of section 280c is concerned, because it is common ground between the parties that no application in the prescribed form as required under sub-paragraph (2) of clause 4 of the scheme of 1966 was made before the Income-tax Officer for condoning the delay. The Income-tax Officer concerned has also not made any order in writing condoning the delay in question. It is also an admitted position that no previous approval of the Inspecting Assistant Commissioner was obtained as required under the proviso to paragraph (2)(v) of clause 4 of the said scheme before the Income-tax Officer could have made the order condoning delay. In our opinion, therefore, the Tribunal was not justified on the facts and in the circumstances of these cases to draw an inference that the Income-tax Officer had condoned the delay in fact."

8. On behalf of the assessee in Mohanlal P. Jain's case [1976] 102 ITR 584 (Guj) reliance was placed on the decision of the Supreme Court in S. A. L. Narayan Row's case [1965] 57 ITR 149 (SC) and it was sought to be argued that it must be held that the Income-tax Officer had in fact exercised his discretion for condoning the delay, inasmuch as the Income-tax Officer granted the deduction of the annuity deposit amount after considering the delay in making the deposit. The Division Bench in Mohanlal P. Jain's case [1976] 102 ITR 584 (Guj) was not impressed with this contention since the discretion which the Income-tax Officer has in the matter of condoning delay under clause 4 of the scheme is not absolute. This is what the Division Bench said while distinguishing the decision of the Supreme Court in S. A. L. Narayan Row's case [1965] 57 ITR 149 (SC) :

"It appears that the Tribunal had followed this decision and has inferred from the admitted facts that the Income-tax Officer concerned has exercised his discretion for condonation of delay. We do not think that the assessees are justified in pressing the ratio of this decision in service. The proviso to section 280C(2) which invests the Income-tax Officer with the discretion to condone delay is not in pari materia with the 5th proviso to section 18A(6) of the Indian Income-tax Act, 1922. In the proviso with which we are concerned under section 280C(2) the discretion invested in the Income-tax Officer is made subject to the conditions and the circumstances specified in section 280W of the Income-tax Act, 1961. It is no doubt true that the Income-tax Officer has a discretion. But it is not an absolute discretion at all. It is a limited discretion which is to be exercised subject to the conditions and in the circumstances mentioned in the scheme to be made in that behalf. As we have seen above, there were three important conditions subject to which the discretion is to be exercised by the Income-tax Officer. If those conditions were wanting, it cannot be successfully urged, much less accepted, that that discretion was in fact exercised by the Income-tax Officer concerned"

9. In view of this settled position, so far as this court is concerned, we do not think that the Tribunal was right in taking the view that there is a judicial divergence on the question as to under what circumstances the proviso to section 139(1) is attracted. In view of the decision in Dalwadi's case it cannot be urged that there is scope for debate as to when the proviso and especially clause (iii) is attracted. On a plain reading of clause (iii) it is clear to us that there is an obligation on the Income-tax Officer to levy penal interest in the manner contemplated under sub-clauses (a) and (b) of the clause if the assessee fails to furnish his return before the maximum date as extended under clause (i) or (ii) of the proviso. It is no doubt true that under sub-section (8) of section 139 the Income-tax Officer has in certain cases and under certain circumstances prescribed under rule 117A power to reduce or waive penal interest payable by an assessee under section 139(1). It is only under clause (v) of rule 117a that the case of the present assessee can come. The discretion of the Income-tax Officer as clearly laid down in Dalwadi's case is subject to prior approval of the Inspecting Assistant Commissioner in case the penalty exceeds the prescribed amount. It is an admitted position here that the assessee-firm was a registered firm and its case would, therefore, be covered by sub-clause (a) of proviso (iii) of section 139(1). It is an admitted position that the assessee had not moved the Income-tax Officer to condone or waive penal interest. Mr. Shah, on behalf of the assessee, placed strong reliance on the decision of the Supreme Court in S.A.L. Narayan Row's case [1965] 57 ITR 149 (SC), but as distinguished by the two Division Benches of this court in Dalwadi's case and Mohanlal P. Jain's case [1976] 102 ITR 585 (Guj) that decision, in our opinion, cannot be of much assistance to the case of the assessee. In that view of the matter, therefore, we are of the opinion that the Income-tax Officer had the power to initiate rectification proceedings and levy penal interest as he did since the omission on his part at the time of original assessment was an error apparent from the record because the relevant provision of penal interest is a mandatory provision of law. The Tribunal was, therefore, in our opinion, not right when it was of the opinion that there was some scope for debate in view of some judicial divergence of opinion between the Andhra Pradesh High Court in Kishanlal Haricharan's case [1971] 82 ITR 660 (AP) on the one hand and the Mysore High Court in Indian Telephone Industries Co-operative Society's case [1972] 86 ITR 566 (Mys) on the other. In that view of the matter, therefore, we must answer the question referred to us in the negative and in favour of the revenue. The assessee shall pay costs of this reference to the revenue.