Allahabad H.C : This writ petition has been filed praying for quashing of the order, dt. 7th Sept., 1998 (Annexure 7 to the petition), and the demand notice dt. 30th March, 1995 (Annexure 4 to the petition), in respect of interest under ss. 234A and 234B of the IT Act, 1961, and for a mandamus restraining the respondents from realising interest under those sections.

Counsel Appeared

Vipin Kumar, Ram Niwas Singh & V.B. Upadhyaya, for the Petitioner : R.K. Agrawal, for the Respondent

JUDGMENT

M. katju, J. :

This writ petition has been filed praying for quashing of the order, dt. 7th Sept., 1998 (Annexure 7 to the petition), and the demand notice dt. 30th March, 1995 (Annexure 4 to the petition), in respect of interest under ss. 234A and 234B of the IT Act, 1961, and for a mandamus restraining the respondents from realising interest under those sections. It has further been prayed that the petitioners Appeal No. nil of 1995, be disposed of within a reasonable time. Heard Sri V.B. Upadhyaya and Sri R.N. Singh, learned counsel for the petitioner, as well as learned counsel for the Department.

The petitioner is a company registered under the Indian Companies Act. It is a non-banking finance company controlled by the Reserve Bank of India. Its business is akin to that of a commercial bank and it accepts deposits, and invests the funds in hire purchase business. For the asst. yr. 1989-90, it filed a return showing loss of Rs. 62,510 including set off of earlier losses of Rs. 49,113. The assessment for that year was completed on 18th Feb., 1992, under s. 143(3) on a net loss of Rs. 7,133. A true copy of the assessment order has been annexed as Annexure 1 to the petition. For the asst. yr. 1990-91, it showed a total loss of Rs. 46.940 and the assessment was completed on 25th Feb., 1993. The AO determined the income of the assessee on income of Rs. 9,74,930 after making addition of Rs. 7,08,616 and allowed absorbed loss of the previous assessment year at Rs. 49,113 creating a demand of Rs. 5,11,713 consisting of income of Rs. 4,37,355 plus interest of a sum of Rs. 43,740 under s. 234A and Rs. 30,618 under s. 234B. A true copy of the assessment order dt. 25th Feb., 1993, is annexed as Annexure 2 to the petition.

The assessee filed an appeal against the assessment order dt. 25th Feb., 1993, before the CIT (A) which was partly allowed vide order dt. 15th March,1995, granting relief of Rs. 29,216 and directing the AO to verify the facts of additions of Rs. 29,178 on account of accrued interest on FDRs of bank. A true copy of the order of the CIT(A) dt. 15th March, 1995, is Annexed as annexure 2 to the petition. In compliance with the order dt. 15th March, 1995, the AO by the order dt. 30th March, 1995, granted relief of Rs. 58,533 and assessed taxable income at Rs. 6,16,400. A true copy of the order dt. 30th March, 1995, is annexed as Annexure 3 to the petition. The AO then issued demand notice under s. 156 along with interest under s. 220(2). The details of the same are given in para. 9 of the petition. A true copy of the demand notice dt. 30th March, 1995, is annexed as Annexure 4 to the petitioner. The assessee-company filed an appeal against the order of the CIT (A) dt. 15th March, 1995, before the Tribunal vide Annexure 5 to the petition and this appeal is still pending before the Tribunal at New Delhi.

The assessee-company also moved an application under s. 154 before the AO on 22nd Dec., 1997, for rectification of the mistake, particular in respect of the interest on advance tax under ss. 234A and 234B and also regarding interest on advance tax for changing the amount which was shown in the earlier order without giving opportunity to the petitioner. A true copy of the said application is annexed as Annexure 6 to the petition. This application was rejected on 7th Sept., 1998, vide Annexure 7 to the petition.

5. It is alleged in para. 19 of the petition that the assessee-company had filed a return showing loss, and hence in view of cl. (a) of Explanation 1 to s. 234B, the provisions of s. 234B were inapplicable and the interest charged was arbitrary and illegal. In para. 20 of the petition it is alleged that since a loss return was filed for the asst. yr. 1990-91, there was no liability of the assessee to pay self-assessment tax or advance tax. The AO had also not been of the opinion during the asst. yr. 1990-91, that the assessee-company was liable to pay advance tax, and no order in writing or notice of demand under s. 156 was issued to the assessee under s. 210(3) or (4) during the previous year relevant to the asst. yr. 1990-91. Hence, it is alleged that the assessee-company was not in default in payment of advance tax and was not liable to pay interest under s. 234B.

In para. 23 of the petition it is alleged that interest under ss. 234A and 234B of the Act cannot be levied on the petitioner-assessee in view of the fact that the assessee had filed a return showing loss for the asst. yr. 1990-91, and the return submitted for the asst. yr. 1989-90 showing loss was accepted by the AO.

In para 24 of the petition it is alleged that the AO wrongly rejected the petitioner’s application dt. 22nd Dec., 1997.

In para. 26 of the petition it is alleged that the AO while passing the order dt. 30th March, 1995, had not passed any specific order regarding levy of interest under ss. 234A and 234B and thus interest cannot be levied through notice of demand under ss. 156. The AO in his order dt. 30th March, 1995, only ordered in the last para. “revised accordingly. Issue fresh challan after taking into account the payment made so far. Also charge interest as per rules.”

In para. 27 of the petition it is alleged that the notice of demand is like a decree of a civil Court which must follow the order. Since the assessment order does not mention the specific amount to be charged the demand notice cannot contain such amount as it will be going beyond the assessment order. It is contended that the expression “charge interest as per rules” cannot be read to mean that the AO has passed an order regarding charging of interest under ss. 234A and 234B. A true copy of the demand notice dt. 25th Feb., 1993, under s. 156 is Annexure

8 to the petition. The AO sent notice under s. 22(1) dt. 9th Dec., 1994, on which interest payable under s. 234A was shown to be Rs. 43,740 and interest under s. 234B was shown to be Rs. 30,618. A true copy of notice dt. 9th Dec., 1994, is annexed as Annexure 9 to the petition.

In para. 30 of the petition it is alleged that in the demand notice dt. 30th March, 1995, the amount of interest is shown to be Rs. 2,79,580. The AO has rectified the interest under s. 234B in purported exercise of power under s. 154, but the AO did not provide any opportunity to the petitioner before rectification of the said mistake, which was a mandatory requirement under s. 154(3) and hence it is illegal.

In para 38 of the petition it is alleged that the order in respect of interest under ss. 234A and 234B is not appealable and hence it can only be challenged in writ jurisdiction in this Court.

6. A counter-affidavit has been filed. In para. 4 of the same it is admitted that the assessment for the year 1989-90 was completed at a net loss of Rs. 7,133. In para. 5 of the same it is alleged that the return for the asst. yr. 1990-91 was belated. In para. 10 of the same it is stated that rectification under s. 154 was made on 7th Sept., 1998, as there was a mistake while revising the assessment. In para. 13 it is stated that for the asst. yr. 1990-91, the assessee filed a loss return but his assessment was made on a total income of Rs. 6,74,930, the details of which have been given in para 13. In para 14 of the same it is stated that since the return was filed on 7th May, 1991, belatedly the action in charging the interest was correct. In para. 22 of the same it is stated that the AO rightly charged interest under ss. 234A and 234B. A rejoinder affidavit has also been filed and we have perused the same.

Learned counsel for the petitioner has relied on the decision of the Supreme Court in CIT vs. N.D. George Polous (1998) 150 CTR (SC) 103 : (1998) 231 ITR 504 (SC) : TC S4.368 in which it has been held that an assessee is not under an obligation to file an estimate of advance tax for the asst. yrs. 1967-68 and 1968-69 as it had been previously assessed at nil assessment for the asst. yr. 1965-66. He has also relied on the decision of the Patna High Court in Ranchi Club Ltd. vs. CIT (1996) 131 CTR (Pat) 368 : (1996) 217 ITR 72 (Pat) : TC 43R.740. In that decision it was held that Expln. 4 to s. 234A makes it clear that interest is leviable on the tax on the total income as declared in the return and not on the total income as determined. In Director of Income-tax (Exemption) vs. Shree Sitaram Public Charitable Trust (1995) 124 CTR (Cal) 89 : (1994) 207 ITR 1087 (Cal) : TC S4.417, the Calcutta High Court held that where the returned income and assessed income of the latest previous year is nil there is no obligation on the assessee to file statement of advance tax and no liability to pay interest. The same view has been taken by the Calcutta High Court in CIT vs. Indian Molasses Co. (P) Ltd. (1993) 200 ITR 149 (Cal) : TC S4.363.

9. In our opinion, the above decisions squarely apply to the facts of the present case as admittedly the income assessed for the asst. yr. 1989-90 was a loss. Hence, there was no liability of the assessee to pay advance tax on the basis of his estimate of his current income for the asst. yr. 1990-91. Moreover, there was no order of the AO under s. 210(3). Hence, no interest was payable under s. 234B.

10. Shri Prakash Krishna then submitted that since the assessee filed the returns belatedly he is liable to pay interest under s. 234A. In our opinion, since the return was that of loss hence there was no liability to pay interest as held by the Patna High Court in Ranchi Club’s case (supra)

11. In view of the above the writ petition is allowed. The impugned orders dt. 7th Sept., 1998, and demand notice dt. 30th March, 1995, in respect of interest under ss. 234A and 234B are quashed.

No order as to costs.

[Citation : 247 ITR 701]