Allahabad H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the ITO was neither competent to withdraw interest already allowed under s. 214 nor levying interest under s. 217(1A) while revising the assessment under s. 154/155 ?

High Court Of Allahabad

CIT vs. Pankaj Gupta

Sections 154(3), 214, 217(1A)

B.P. Jeevan Reddy, C.J. & R.A. Sharma, J.

IT Ref. Nos. 97, 113, 115, 118, 119 & 123 of 1979

9th January, 1991

B. P. JEEVAN REDDY, C.J.:

Under s. 256(2) of the IT Act, 1961, the Tribunal has referred the following two identical questions in all the six references before us :

” (1) Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that the ITO was neither competent to withdraw interest already allowed under s. 214 nor levying interest under s. 217(1A) while revising the assessment under s. 154/155 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was in law justified in entertaining an appeal against the withdrawing of interest under s. 214 and charging of interest under s. 217(1A)?”

The assessee was a partner in a firm, M/s Auto Sales, Allahabad. For the asst. yr. 1970-71, the ITO completed the assessment of the assessee-before the assessment of the firm for that year was completed. The assessee’s share of profit in the firm was taken at Rs. 86,000 subject to rectification under s. 154/155, after the assessment of the firm was completed. For this purpose, the firm was taken as an unregistered firm. This order of assessment was made on 29th Jan., 1973, and since it was found that the advance tax paid by the assessee was far higher than the tax determined payable, the assessee was held entitled to interest on excess payment of tax under s. 214 of the Act.

The assessment of the firm was completed later. Though it was treated as an unregistered firm by the ITO, the AAC in appeal treated it was a registered firm. The order of the AAC became final. The assessment order dt. 29th Jan., 1973, in the case of the assessee, was rectified in the light of, and in accordance with, the assessment order of the firm. This rectification order is dt. 25th Feb., 1974. In this order, the ITO held that the tax payable by the assessee is higher than the advance tax paid by him. On this ground, he withdrew the interest which was granted to the assessee under his order dt. 29th Jan., 1973. Further, the assessee was made liable to pay interest under s. 217 of the Act. Against this order, the assessee filed an appeal which was rejected as incompetent on the ground that no appeal is provided against an order under s. 156(?). A few days after passing the rectification order, the ITO communicated a “calculation chart” to the assessee setting out the particulars of the tax which was determined as payable in the rectification order. Against this calculation memo also, the assessee preferred an appeal. Both the said appeals were dealt with together by the AAC and dismissed against which the assessee preferred two appeals to the Tribunal. The Tribunal held in the first instance that the rectification order is itself illegal inasmuch as no notice under sub-s. (3) of s. 154 was issued before passing the rectification order. The Tribunal also found that the ITO had no power to withdraw the interest allowed to the assessee under s. 214 by his order dt. 29th Jan., 1973. The Tribunal held further that the ITO was equally incompetent to charge interest under s. 217 in the circumstances of the case. It is thereupon that the Revenue applied for and obtained the present references.

4. It is found as a fact by the Tribunal that before passing the rectification order which had the effect of enhancing the tax liability of the assessee, no notice to show cause was issued to him as prescribed by sub-s. (3) of s. 154. Sub-s. (3) of s. 154 reads as follows : “154(3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard.”

It is evident that sub-s. (3) gives statutory shape to the principles of natural justice. Any order of rectification passed which has the effect of enhancing the liability of the assessee, without complying with the said requirement, is invalid in law. Once this is so, the questions which are specifically referred to us do not really require to be answered. They are only academic in nature. We, therefore, decline to answer the questions referred, for the above reasons.

The references are disposed of accordingly.

No costs.

Decision in favour of Answer Declined.

[Citation : 188 ITR 184]

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