Karnataka H.C : the assessee is entitled to refund of interest collected under section 158BFA(1) of the Act when the refund is calculated applying section 240(b) of the Act

High Court Of Karnataka

CIT vs. Micro Nova Pharmaceuticals (P.) Ltd.

Block Period : 1988-89 To 1998-99

Section : 158BFA

V. G. Sabhahit And Ravi Malimath, JJ.

IT Appeal No. 3219 Of 2005

August 11, 2011

JUDGMENT

Ravi Malimath, J. – This appeal is by the Revenue being aggrieved by the order of the Tribunal dismissing the appeal by confirming the finding of the lower authority that the refund may be granted in accordance with the provisions of section 240(b) of the Income-tax Act, 1961.

2. The assessee is carrying on the business of pharmaceuticals. A search was conducted and accordingly, a notice under section 158BC was issued requesting the assessee to file a return of income for the block period 1988-89 to 1998-99. By a letter dated January 2, 1998, the assessee sought time to file his return of income. On June 16, 1999, the assessee once again sought time to file its return and, consequently, on June 29, 1999, the assessee filed the return of income declaring a sum of Rs. 153 lakhs as undisclosed income for the block period April 1, 1987, to November 5, 1997. The Assessing Officer passed an order and arrived at the same undisclosed income for the block period at Rs. 153 lakhs. Aggrieved by the same, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals). The Appellate Commissioner by following the conclusion drawn by him in the case of the assessee’s sister concern, viz., Micro Labs Ltd. proceeded to hold that the notice issued under section 158BC of the Act was invalid and, consequently, the assessment was annulled. It was further held that since the amount of tax computed by the Assessing Officer was the exact amount, on which the assessment order came to be passed, there is no question of making any refund. Consequently, the appeal was allowed. The Assessing Officer giving effect to the said order, rejected the claim of the assessee holding that the interest levied under section 158BFA(1) of the Act could not be added to the tax paid under the return of income. However, the Assessing Officer held that the interest was levied under section 158BFA(1) of the Act for delay in filing the return from the date of issue of notice for filing the return along with payment of tax. He further held that the interest amount forms part of the returned income. Consequently, the claim of the assessee was rejected. Aggrieved by this order, the assessee preferred an appeal to the Commissioner of Income-tax (Appeals), who by placing reliance on the order passed in the case of Micro Labs Ltd., held that the Assessing Officer has to retain only the tax chargeable on the returned income and the excess amount has to be refunded to the assessee in accordance with the provisions of section 240(b) of the Act. Accordingly, the relief was granted by allowing the appeal. The Revenue being aggrieved against this order preferred an appeal to the Tribunal. The Tribunal dismissed the appeal. Hence, the present appeal by the Revenue.

3. This appeal was admitted to consider the following substantial questions of law :

“(i) Whether the appellate authorities were correct in holding that the assessee is entitled to refund of interest collected under section 158BFA(1) of the Act when the refund is calculated applying section 240(b) of the Act ?

(ii) Whether the appellate authorities were correct in holding that interest under section 158BFA(1) of the Act does not form part of the liability of the assessee at the point of filing the block return ?

4. Sri. M. Thirumalesh, the learned counsel appearing for the Revenue, contends that the order is contrary to law. That the Tribunal has wrongly granted the relief to the assessee, which is opposed to law. He further contends that the reliance placed on the case of Micro Labs Ltd. was erroneous.

5. Sri S. Parthasarathi, learned counsel appearing for the respondent, defends the impugned order. He submits that the finding has already been recorded and, hence, the questions of law are required to be answered in favour of the assessee.

6. Heard counsel.

7. The Appellate Commissioner placed reliance on the order passed in the sister concern of the assessee in the case of Micro Labs Ltd. In the said case, the assessment orders were annulled and, consequently, it was held that the interest under section 158BFA(i) would be nil. For the reasons recorded therein, the Appellate Commissioner held that the Assessing Officer is directed to retain only the tax chargeable on the returned income and the excess amount, if any, be refunded in accordance with the provisions of section 240(b) of the Act. On appeal by the Revenue, the Tribunal on a similar reasoning dismissed the appeal.

8. On the annulment of the assessment proceedings, there would be no assessed undisclosed income and assessed tax under section 158BC of the Act and when there is no assessed tax under section 158BC, consequently, interest under section 153BFA(1) of the Act would be nil.

9. That the Revenue claims the interest under section 158BFA(1) for the delay in filing the return within the stipulated time in the notice. However, when the assessment itself has been annulled on the ground of a defective notice, the plea of the Revenue towards charge of interest for the delay in filing the return would not, therefore, arise for consideration. Having considered the materials on record, we are of the considered view that there is no error committed by the authorities that calls for any interference. For the aforesaid reasons, the appeal would have to fail. Accordingly, the substantial questions of law are answered in favour of the assessee and against the Revenue. Consequently, the appeal is dismissed.

[Citation : 340 ITR 118]

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