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Commissioner Of Income-Tax v. Prabhat Zarda Factory.

Patna High Court

Apr 25, 1996

Judgment

Subsequent
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Concise Analytical Summary of the Provided Opinion

Factual and Procedural Background

The Income-tax Appellate Tribunal (Patna Bench) referred three questions to this Court under section 256(2) of the Income-tax Act, 1961, in respect of the assessment year 1979-80. The dispute arises from the charging of interest under section 139(8) for late filing of a return by an assessee firm engaged in the manufacture of chewing tobacco and kimam.

Relevant factual chronology taken from the statement of case:

The specified last date for filing the return under section 139(1) was 31 July 1979.
The assessee applied in Form No. 6 for an extension to 30 September 1979, on the ground that verification of accounts with various suppliers was pending; this was allowed by the Inspecting Assistant Commissioner (Assessment).
On 26 September 1979 the assessee sought a further extension to 31 October 1979, citing illness of the accountant; this was also allowed.
The return was filed on 30 October 1979; the Inspecting Assistant Commissioner charged interest of Rs. 75,237 under section 139(8) for late filing.
The Commissioner of Income-tax (Appeals) cancelled the interest holding that the assessee was prevented by sufficient cause from filing earlier.
The Department appealed to the Income-tax Appellate Tribunal (Tribunal), which upheld the cancellation of interest, noting that interest had been levied without a show-cause notice and that the Tribunal was satisfied there was sufficient cause for delay.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in deleting the penal interest imposed by the Income-tax Officer under section 139(8) of the Income-tax Act, 1961?
Whether the charging of interest on account of delay in filing the return under section 139(8) of the Income-tax Act which is in the nature of compensation is illegal if no show-cause is given?
Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in not remanding the case regarding the charging of interest to the Commissioner of Income-tax (Appeals) for consideration of the matter afresh after giving reasonable opportunity to the assessee as has been done in S. Govindaraju v. CIT, [1982] 138 ITR 495 (Kar), if the answer to question No. 2 is against the Revenue?

Arguments of the Parties

Revenue (represented by Mr. Sharan)

Contended that the Tribunal had no jurisdiction to delete penal interest because no appeal lies under section 246 of the Act against the levy of penal interest.
Relied on the Supreme Court decision Central Provinces Manganese Ore Co. Ltd. v. CIT, [1986] 160 ITR 961, to support the contention that an appeal does not lie in respect of the exercise of discretion to waive or reduce interest under section 139(8) (as the Department understood it).
Argued that the Commissioner of Income-tax (Appeals) had erred in cancelling the interest and that, even if sufficient cause was found, the matter should have been remitted to the Assessing Officer to consider reduction or waiver under rule 117A of the Income-tax Rules.

Assessee (represented by Mr. Rastogi)

Relied on the Supreme Court decision Central Provinces Manganese Ore Co. Ltd. v. CIT and on several High Court decisions to support the proposition that an appeal lies against an assessment made under section 246(c) and that interest under section 139 may be dealt with by the appellate authority.
Invoked decisions of various High Courts (listed in the opinion) and the Full Bench decision of this Court in Bihar State Road Transport Corporation v. CIT to support the view that appellate authorities can deal with and set aside the levy of interest.
Contended that an appellate authority has power similar to the original authority and could therefore cancel interest imposed under section 139(8).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Commissioner Of Income-Tax v. Bishwanath Tulsyan, [1996] 220 ITR 178	Authority for answering Questions Nos. 2 and 3 (treatment of charging of interest and remand procedure).	The Court followed this judgment and, accordingly, answered Questions Nos. 2 and 3 in favour of the Revenue.
S. Govindaraju v. CIT, [1982] 138 ITR 495 (Kar)	Referenced in question No. 3 regarding remand to appellate authority for fresh consideration after giving opportunity to assessee.	The question asked whether the matter should be remanded as was done in this case; the Court answered Q3 by following Bishwanath Tulsyan and related authorities.
Central Provinces Manganese Ore Co. Ltd. v. CIT, [1986] 160 ITR 961 (Supreme Court)	Discussed appealability of orders levying interest under section 139(8) and section 215; passage quoted about levy of interest being part of assessment and appeal lying where assessee denies liability.	The Court held that the passage had been taken out of context by the Revenue; the Court read the passage and concluded it did not support the Revenue's broad contention that no appeal lies in every case. The passage indicates appealability where the assessee denies liability.
CIT v. Eastern Art Corporation, [1985] 156 ITR 881 (Delhi)	High Court authority cited for proposition that appeal lies and appellate authority may deal with interest under section 139 in proceedings under section 246.	Relied upon by the assessee; the Court treated such decisions as supportive of the competence of appellate authorities to cancel interest.
CIT v. Mahabir Parshad and Sons, [1980] 125 ITR 165 (Delhi)	High Court authority cited for appealability and appellate consideration of interest issues under section 246.	Cited by the assessee; Court considered it among the authorities supporting appellate competence.
CIT v. Mangal Brothers, [1984] 146 ITR 125 (MP)	High Court authority cited for appellate treatment of interest under section 139.	Cited by the assessee and treated as supportive precedent.
CIT v. Lalit Prasad Rohini Kumar, [1979] 117 ITR 603 (Cal)	High Court authority cited in support of appealability where interest formed part of assessment.	Relied upon by the assessee; regarded by the Court as part of the line of authorities permitting appellate interference.
Golecha Properties (P.) Ltd. v. CIT, [1988] 171 ITR 47 (Raj)	High Court authority cited for appellate competence to deal with interest under section 139.	Cited by the assessee; considered among supportive authorities.
CIT v. Devichand Pan Mal, [1986] 160 ITR 545 (Raj)	High Court authority cited for the position that appellate authorities can consider interest matters.	Cited by the assessee and regarded as supportive.
Bihar State Road Transport Corporation v. CIT, [1984] 149 ITR 208 (Full Bench)	Full Bench decision of this Court cited on appellate powers in the context of income-tax proceedings.	Relied upon by the assessee; the Court treated it as part of the jurisprudence supporting appellate intervention.
Jute Corporation of India Ltd. v. CIT, [1991] 187 ITR 688 (Supreme Court)	Supreme Court authority cited for the proposition that an appellate authority has powers akin to the original authority.	Cited by the assessee; the Court accepted the proposition that appellate authorities can exercise such powers where appropriate.
CIT v. Kanpur Coal Syndicate, [1964] 53 ITR 225 (Supreme Court)	Supreme Court authority cited for the proposition that appellate authority may have similar powers as the original authority.	Cited by the assessee and regarded by the Court as supportive of the appellate authority's competence to cancel interest.

Court's Reasoning and Analysis

The Court proceeded in two stages:

For Questions Nos. 2 and 3, the Court observed that these questions were covered by its earlier judgment in Commissioner Of Income-Tax v. Bishwanath Tulsyan ([1996] 220 ITR 178). Accordingly, the Court followed that judgment and answered Questions Nos. 2 and 3 in favour of the Revenue.
For Question No. 1 (whether the Tribunal was justified in deleting the penal interest under section 139(8)), the Court set out the relevant statutory provisions and rules as they existed:
- It quoted the proviso to section 139 and subsection (8) which prescribes charging of interest where returns are furnished after the specified date and also contemplates that the Assessing Officer may, in prescribed circumstances, reduce or waive interest.
- It noted Rule 13 (Form No.6) as the form of application for extension under section 139(1) and Rule 117A as the rule providing for reduction or waiver of interest (both rules were stated to have since been deleted, but were applicable then).
The Court examined the parties' contentions:
- The Revenue argued that the Tribunal had no jurisdiction to delete penal interest and relied on Central Provinces Manganese Ore to support that proposition.
- The Court analysed the passage cited from Central Provinces Manganese Ore and concluded that the Revenue had taken the passage out of context; the cited passage itself states that levy of interest is part of the assessment and that an assessee may dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all.
- The Court accepted the assessee's broader line of authority to the extent that appellate authorities (the Commissioner of Income-tax (Appeals) and the Tribunal) possess competence to cancel interest imposed under section 139(8).
The Court further reasoned on the factual matrix:
- Merely obtaining an extension under Form No.6 did not automatically waive interest; independent consideration under rule 117A was required to determine whether sufficient cause existed to reduce or waive interest.
- In the present case the assessee had filed Form No.6 twice, stating (a) verification of suppliers' accounts pending and (b) illness of the accountant — which corresponded with grounds contemplated in clause (v) of rule 117A.
- The appellate authority (CIT(A) and the Tribunal) had concluded on the basis of the record that there was sufficient cause for delay. The Court framed this as a mixed question of law and fact and acknowledged that it had been referred for opinion because of that mixture.

Holding and Implications

Holding (core rulings):

Question No. 1: The Court answered this question in the affirmative in favour of the assessee and against the Revenue — i.e., the Tribunal was justified in deleting the penal interest imposed under section 139(8) on the facts of this case.
Questions Nos. 2 and 3: The Court answered these questions by following Commissioner Of Income-Tax v. Bishwanath Tulsyan, and accordingly answered Questions Nos. 2 and 3 in favour of the Revenue.

Implications:

The direct effect on the parties is that the deletion of the penal interest by the appellate authority is sustained in this case (the Tribunal's deletion is held to be justified on the facts and the record).
The Court affirmed that appellate authorities — including the Commissioner of Income-tax (Appeals) and the Tribunal — are competent to cancel interest imposed under section 139(8) in appropriate circumstances; however, obtaining an extension of time under Form No.6 does not by itself automatically waive interest — an independent consideration under the rules (rule 117A as then extant) is required.
No costs were awarded: "There shall be no order as to costs."
The opinion does not purport to lay down a novel principle of law beyond the application of existing precedents and the statutory/regulatory scheme; the Court expressly followed prior authority for Questions Nos. 2 and 3 and applied established principles to the mixed question of law and fact in Question No. 1.

End of summary — constructed strictly from the content of the provided opinion.

Show all summary ...

1. The Income-tax Appellate Tribunal, Patna Bench, on an application made by the Revenue under section 256(2) of the Income-tax Act, 1961 (in short, “the Act”), has referred to this court for opinion the following questions for the assessment year 1979-80:

“1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in deleting the penal interest imposed by the Income-tax Officer under section 139(8) of the Income-tax Act, 1961?

2. Whether the charging of interest on account of delay in filing the return under section 139(8) of the Income-tax Act which is in the nature of compensation is illegal if no show-cause is given?

3. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in not remanding the case regarding the charging of interest to the Commissioner of Income-tax (Appeals) for consideration of the matter afresh after giving reasonable opportunity to the assessee as has been done in the case in S. Govindaraju v. CIT, [1982] 138 ITR 495 (Kar) if the answer of question No. 2 is against the Revenue?”

2. Questions Nos. 2 and 3 are covered by the judgment of this court delivered on April 23, 1996, in Tax Case No. 156 of 1985 — Commissioner Of Income-Tax v. Bishwanath Tulsyan., [1996] 220 ITR 178. We, therefore, following that judgment answer these questions Nos. 2 and 3 in favour of the Revenue in the affirmative (sic) and against the assessee.

3. To decide question No. 1, as to what are the facts in this case we may refer to certain facts from the statement of case which are as follows:

Proceeding relates to the assessment year 1979-80. The accounting period relevant to this assessment year was the financial year ended on March 31, 1979. The assessee is a registered firm. It has business of the manufacture of chewing tobacco and kimam, etc. The assessee could not file its return within the time prescribed under section 139(1) of the Income-tax Act. The last date for the filing of the return under section 139(1) was July 31, 1979. The assessee made an application in Form No. 6 seeking extension of time till September 30, 1979, for the filing of the return on the ground that the verification of accounts with various suppliers was to be completed. The Inspecting Assistant Commissioner (Assessment) allowed time till September 30, 1979. On September 26, 1979, the assessee asked for further time till October 31, 1979, on the plea that the accountant had fallen ill. The time asked for was again allowed by the Inspecting Assistant Commissioner (Assessment). The assessee filed its return on October 30, 1979. As the return had not been filed within the time allowed under section 139(1), the Inspecting Assistant Commissioner (Assessment) charged interest of Rs. 75,237 under section 139(8) for the late filing of the return.

4. Being aggrieved by this order of the Inspecting Assistant Commissioner (Assessment), the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) cancelled the interest on the ground that the assessee was prevented by sufficient cause from furnishing the return earlier.

5. Being aggrieved by the order of the Commissioner of Income-tax (Appeals), the Department filed an appeal before the Income-tax Appellate Tribunal. The contention of the Department in that appeal was that the Commissioner of Income-tax (Appeals) had erred in cancelling the interest charged under section 139(8). It was argued on behalf of the Department before the Tribunal that even if the Commissioner of Income-tax (Appeals) was satisfied that there was a reasonable cause for the delay in filing the return, he should have restored the matter to the Inspecting Assistant Commissioner (Assessment) for consideration whether interest levied under section 139(8) was liable to be reduced or waived under rule 117A of the Income-tax Rules. It was argued that discretion for reduction or waiver of interest had rested with the Assessing Officer and not with the appellate authority. The Departmental representative had stated that the matter be restored to the file of the Inspecting Assistant Commissioner (Assessment) for being decided afresh with reference to rule 117A. The Tribunal, taking into consideration the fact that interest had been levied without giving any show-cause notice to the assessee and feeling satisfied that there was sufficient cause for the delay in filing of the return, upheld the order of the Commissioner of Income-tax (Appeals) cancelling the interest.

6. Before answering question No. 1, it will be convenient to refer to the relevant provisions of law as were existing. The proviso to section 139 provided that, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of sub-section (8)(a):

“Where the return under sub-section (1) or sub-section (2) or subsection (4) for an assessment year is furnished after the specified date, or is not furnished, then whether or not the Assessing Officer has extended the date for furnishing the return under sub-section (1) or sub-section (2), the assessee shall be liable to pay simple interest at fifteen per cent, per annum, reckoned from the day immediately following the specified date to the date of the furnishing of the return, or, where no return has been furnished, the date of completion of the assessment under section 144, on the amount of the tax payable on the total income as determined on regular assessment, as reduced by the advance tax, if any, paid, and any tax deducted at source:

Provided that the Assessing Officer may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any assessee under this sub-section.”

7. Rule 13 of the Income-tax Rules provided that an application to the Income-tax Officer under the proviso to sub-section (1) of section 139 for seeking extension of the date for furnishing the return shall be in Form No. 6. This Form No. 6 has now been omitted from the Rules. Rule 117A of the Rules provides for reduction or waiver of interest payable under section 139. This rule now also stands deleted.

8. Mr. Sharan, learned, counsel for the Income-tax Department, submitted that the Tribunal had no jurisdiction to delete the penal interest inasmuch as no appeal can be filed under section 246 of the Act against levy of penal interest. He has referred to a decision of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. CIT, [1986] 160 ITR 961, referring to the following observations made therein that no appeal lay in regard to the improper exercise of discretion to waive or reduce interest under section 139(8).

9. We are afraid that this passage is taken out of the term. It relates to an application where an application has been filed separately before the Income-tax Officer for waiver or reduction of penal interest. As a matter of fact in this very judgment the Supreme Court has observed as under (page 966):

“Now, the question is whether orders levying interest under subsection (8) of section 139 and under section 215 are appealable under section 246 of the Income-tax Act. Clause (c) of section 246 provides an appeal against an order where the assessee denies his liability to be assessed under the Act or against any assessment order under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed or to the amount of tax determined or to the amount of loss computed or to the status under which he is assessed. Inasmuch as the levy of interest is a part of the process of assessment, it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all.”

10. Mr. Rastogi, learned counsel for the assessee, also relied upon the aforesaid judgment of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. CIT, [1986] 160 ITR 961. To support the contention he referred to decisions of the various High Courts that an appeal does lie if filed against the assessment made under section 246(c) of the Act, wherein the question of interest under section 139 may also be dealt with by the appellate authority. He referred to the decisions of CIT v. Eastern Art Corporation, [1985] 156 ITR 881 (Delhi); CIT v. Mahabir Parshad and Sons, [1980] 125 ITR 165 (Delhi); CIT v. Mangal Brothers, [1984] 146 ITR 125 (MP); CIT v. Lalit Prasad Rohini Kumar, [1979] 117 ITR 603 (Cal); Golecha Properties (P.) Ltd. v. CIT, [1988] 171 ITR 47 (Raj) and CIT v. Devichand Pan Mal, [1986] 160 ITR 545 (Raj). He also relied upon the Full Bench decision of this court in Bihar State Road Transport Corporation v. CIT, [1984] 149 ITR 208.

11. Mr. Rastogi further contended that an appellate authority has also the same power which the original authority may have prescribed under the law. He referred two decisions of the Supreme Court in Jute Corporation of India Ltd. v. CIT, [1991] 187 ITR 688 and CIT v. Kanpur Coal Syndicate, [1964] 53 ITR 225.

12. There cannot be any dispute that an appeal is a continuous process of the original proceeding. We are, therefore, of the opinion that the Commissioner of Income-tax, the appellate authority as well as the Tribunal are quite competent in law to cancel the interest imposed under section 139(8) of the Act.

13. The question then arises whether the penal interest has been rightly deleted. Sub-section (8) of section 139 provides that interest could be levied where the return is furnished after the specified date whether or not the Income-tax Officer has extended the date for furnishing the return. That being so merely extending time for furnishing a return by filing Form No. 6 will itself not amount to grant of waiver or deletion of interest on the ground that there were sufficient cause for the same. Though at the time when the extension is granted by the officer, it can be said that he exercised his discretion in a reasonable manner, but according to rule 117A, it has to be seen independently that there is sufficient cause for not furnishing the return in time.

14. In this case, the submission of Mr. Sharan, learned counsel for the Revenue, is that there was no material before the appellate authority to grant any relief to the assessee. But then the Income-tax Officer could have in the manner imposed penal interest on the assessee without reference to the record before him. The fact remains that the assessee had prayed for extension of time for filing the return and twice filed Form No. 6. In one Form No. 6 he had taken the ground that the accountant was ill and in the other Form No. 6, it was mentioned that the verification of the accounts of the suppliers could not yet be made. These were certainly the grounds which could have been considered by the Income-tax Officer at the time when he was imposing penal interest on the assessee as indicated above under clause (v) of rule 117A. Rule 117A states that if the assessee has shown sufficient cause that he could not furnish the return within time the interest could be waived or reduced. The appellate authority on the basis of the record has come to the conclusion that there was sufficient cause for the assessee not to have furnished the return within the time prescribed and particularly when the time had been extended by the Income-tax Officer. Thus, it is a matter of finding of fact as to whether there was sufficient cause or not. Nevertheless since the question is a mixed question of law and fact, it has been referred to this court for its opinion.

15. Keeping in view, the law and the facts and the circumstances of the present case, we are of the opinion that this question has to be answered in the affirmative, in favour of the assessee and against the Revenue.

16. There shall be no order as to costs.