1985-VIL-46-ITAT-ART
Equivalent Citation: ITD 015, 695,
Income Tax Appellate Tribunal AMRITSAR
Date: 16.10.1985
ANIL KUMAR.
Vs
INSPECTING ASSISTANT COMMISSIONER.
BENCH
Member(s) : P. K. MEHTA., P. S. DHILLON.
JUDGMENT
Per Shri P.K. Mehta, Accountant Member --- The assessee-HUF is in appeal for the assessment year 1981-82. It derived income from house property, share of income from the firm Madan Roller Flour Mills and dividends. The accounting year followed was financial year, which ended on 31-3-1981. Two issues have been raised in this appeal, which are separately dealt with below.
2. The first issue relates to the Commissioner (Appeals) holding that interest paid to Chaudhary Harbans Lal & Sons at the rate of 28 per cent was excessive. The Commissioner (Appeals) following a decision of the Tribunal, Jabalpur Bench, Camp Amritsar cited before him held the reasonable rate of interest to be 24 per cent. The interest paid in excess of 24 per cent was disallowed by him.
3. The assessee's counsel, Shri N.K. Sud, referred to the grounds of appeal, which were to the effect that the Commissioner (Appeals) had failed to appreciate that the IAC (Assessment) had placed no material on record to hold that payment was excessive keeping in view the normal market conditions and that he failed to notice that the order of the Tribunal cited before him did not prescribe an upper limit of interest at the rate of 24 per cent and had merely held interest paid at the rate of 24 per cent by that assessee to be reasonable and further even in view of conditions taken into account by the Tribunal in the assessment year 1975-76 interest at the rate of 28 per cent in the assessment year 1981-82 could not be said to be unreasonable. Shri Sud further stated that neither any material was brought on record on assessment stage to justify the partial disallowance of interest paid nor was the assessee confronted by the IAC (Assessment) with-the grounds for making the disallowance. It was pointed out that a specific ground on this issue had been taken before the Commissioner (Appeals). It was further contended that for applying the provisions of section 40A(2) of the Income-tax Act, 1961 ('the Act') it was the IAC (Assessment), who was expected to place material on record to show the prevalent market rate of interest. It was next submitted that the IAC (Assessment) was clearly in error when she considered the rate of interest on bank overdrafts paid by the firm Madan Roller Flour Mills to reach the conclusion that the interest paid at the rate of 28 per cent to Chaudhary Harbans Lal & Sons was excessive or unreasonable. It was pointed out that bank overdrafts were given after obtaining security from the borrower whereas the loan taken by the assessee-HUF was unsecured. Secondly, it was pointed out that for the assessment year 1978-79 as could be seen from pages 4 and 5 of the paper book filed the ITO had allowed interest at the rate of 31 per cent in the loan account of Shri Anil Kumar in his individual status. Thirdly, it was stated by referring to the copy of Tribunal's order dated 23-11-1979 cited before the Commissioner (Appeals) that when the Tribunal had considered a rate of 24 per cent to be reasonable for the assessment year 1975-76 a rate of interest of 28 per cent paid to Chaudhary Harbans Lal & Sons six years later cannot be said to be excessive or unreasonable. The departmental representative relied on the orders of the IAC (Assessment) and the Commissioner (Appeals).
4. On a consideration of the rival submissions, we find that it is not possible to sustain the disallowance made by the Commissioner (Appeals) on the facts and in the circumstances of this case. The IAC (Assessment) made disallowance of interest paid in excess of 24 per cent by invoking the provisions of section 40A(2). For the purposes of that section, the yardstick for determining an expenditure to be excessive or unreasonable is the fair market value of the goods, services or facilities for which the payment is made. The IAC (Assessment) has not referred to the prevalent market rate of interest in the accounting year, 1980-81 financial year in respect of unsecured borrowings. Her relying on the bank rate interest paid by the firm Madan Roller Flour Mills in respect of bank overdrafts, which are secured, was improper and unjustified. If that reasoning is eliminated, then there remains nothing to hold that fair market rate of interest for unsecured loans would be 21 per cent. Indeed the assessing officer had not brought on record proper material to justify the disallowance now sustained by the Commissioner (Appeals). On this short ground, itself the assessee deserves to succeed and the disallowance sustained by the Commissioner (Appeals) is to be deleted. Further the two other arguments made by the assessee's counsel are quite persuasive, namely, when market rate of 24 per cent was considered to be reasonable for the assessment year 1975-76 by the Tribunal a rate of interest of 28 per cent cannot be said to be excessive six years later in the case of an inflationary economy like that of India and there is further the conduct of the ITO in allowing a rate of interest of 31 per cent in assessee's own case for the subsequent assessment year for the karta's loan in his individual capacity. Judging from all these angles, the addition sustained by the Commissioner (Appeals) has to be deleted and it is, therefore, deleted.
5. The second issue raised by the assessee is quite interesting. It has challenged the legal competence of the Commissioner (Appeals) to uphold the levy of interest under section 215 of the Act on the footing that neither it had been levied by the IAC (Assessment) nor it had been challenged in the grounds of appeal before him on that basis. The IAC (Assessment) by a separate order under section 217(1)(a) of the Act for the assessment year 1981-82 directed the charging of interest under that section. The IAC (Assessment) also in para 2 of that order observed as under:
"Presuming though not admitting that the said estimate filed by the assessee is valid, then even interest is chargeable from the assessee under section 215."
The Commissioner (Appeals) after considering the facts of the case cancelled the interest charged under section 217(1)(a) but he sustained the levy of interest under section 215 by taking note of the observation quoted above of IAC (Assessment) in the alternative. The assessee has come in further appeal to the Tribunal.
6. Shri Sud argued in the first instance that the IAC (Assessment), in fact, has not levied interest under section 215 and his observation in para 2 of the order under section 217(1)(a) does not amount to the levy of the interest and the order passed was only for levying interest under section 217(1)(a). Because of this position, it was submitted that the assessee in the grounds of appeal taken before the Commissioner (Appeals) had merely challenged in ground No. 8 the levy of interest under section 217(1)(a) on the footing that that provision was not applicable at all. It was contended that in these circumstances the Commissioner (Appeals) had failed to notice the correct position as the levy of interest under section 215 in the alternative by the IAC (Assessment) and his action in upholding the levy of interest on a different basis was contrary to law. Further it was contended that in accordance with law and the facts noted by the Commissioner (Appeals) himself in his appellate order the assessee was not required to file any estimate of advance tax and to make payment of advance tax on the facts and in the circumstances of the case and its action in filing the estimates from time to time and paying the advance tax should not be read against it to attract the levy of any penal interest. It was explained that the IAC (Assessment) herself has observed in the order under section 217(1)(a) that the assessee was required to file the statement of advance tax in Form No. 28A on the basis of last assessed income for the assessment year 1977-78. It was pointed out that the last assessed income for that year was 'nil' income and no statement was required to be filed on that basis. Again the counsel referred to the provisions of section 209A(1)(a) to show that there was another condition applicable there that is not noticed by the IAC (Assessment) in her order, namely, the income returned which may be higher than the income last assessed by the due date of 15-9-1980 for filing the statement. It was submitted that the last returned income as on 15-9-1980 was for the assessment year 1978-79 for which a loss of Rs. 2,860 was declared and this being also below the taxable limit no statement could be filed, as required by section 209A(1)(a). On these facts, it was further contended that neither the provisions of section 209A(2) nor of sub-section (4) of that section will be attracted in the assessee's case and in the eye of law the assessee was not at all required to file any estimate of advance tax payable. It was also stated that it is not a case where the IAC (Assessment) issued any notice demanding advance tax. It was pointed out that the Commissioner (Appeals) had accepted in para 15 of his order that interest under section 217(1)(a) was not leviable but he failed to observe that according to the provisions of section 209A the assessee was not required under the law even to file any estimate of income and advance tax payable, not even under sub-section (4) of section 209A and the estimates filed were not estimates in the eye of law and this being so provisions of section 215 will also not be attracted. It was pointed out that section 215(1) opens with the words 'where, in any financial year, an assessee has paid advance tax under section 209A or section 212 on the basis of his own estimate (including revised estimate)...'. It was also pointed out that the Commissioner (Appeals) was wrong in holding in para 16 of his order that the assessee could file an estimate under section 209A(4). Here also sub-section (4) was read to bring out that that section refers to the liability to pay advance tax under sub-section (1) or sub-section (2) of section 209A or sub-section (3) when it is found that by reason of 'the current income being likely to be greater than the income on which the advance tax so payable by him has been computed or for any other reason'. The emphasis was that sub-section (4) refers to a case where advance tax payable has been, in fact, computed, as required under sub-section (1) or sub-section (2) or, as the case may be, sub-section (3) of section 209A and that when no such advance tax has been computed in fact that the right to file a higher estimate of advance tax payable under section 209A(4) will not be available. Finally, it was submitted that the assessee should not be penalised for its desire to pay advance tax even though when the law did not require it at all to file any estimate of advance tax payable and make payments thereafter. The departmental representative relied on the order of the Commissioner (Appeals) and it was stated that the Commissioner (Appeals) could even correct the order of the IAC (Assessment) if it was contrary to law and an authority of the Supreme Court in [1984] 147 ITR 11 (sic).
7. On a careful consideration of the submissions made by both the sides and the findings of the Commissioner (Appeals) and the IAC (Assessment), we feel that the levy of interest under section 215, as sustained by the Commissioner (Appeals) is not correct on the facts and in the circumstances of this case. A perusal the order of the IAC (Assessment) under section 217(1)(a) leaves no doubt that in the alternative the IAC (Assessment) did not work out and levy any interest under section 215 and merely let the matter rest on an observation. In law, she could levy another amount of interest chargeable under section 215 on the alternative basis. This omission is significant when it is kept in mind that the basis of levy of interest is different for section 217(1)(a) and section 215. Section 217(1)(a) is attracted when a statement under section 209A(1) for the payment of advance tax or estimate in lieu thereof as per section 209A(2) has not been furnished by an assessee and the interest is to be calculated upon the amount equal to the assessed tax, as defined in section 215(5). Under section 215(1) interest is to be calculated if the advance tax paid is found to be less than 75 per cent of the assessed tax and upon the amount by which the advance tax so paid falls short of the assessed tax. The IAC (Assessment), therefore, could levy the interest under section 215 only after recording a positive finding about the existence of circumstances required to exist for such a levy. The IAC (Assessment) merely stated that the estimate filed by the assessee may be presumed to be valid and then interest may be leviable under section 215.
8. Apart from the above aspect about in fact (sic) not charging of interest under section 215, we find great weight in the other argument of the assessee, namely, the assessee was not required to file any estimate of advance tax payable and to make payment of advance tax on the facts and in the circumstances of the case. The IAC (Assessment) is wrong in thinking that if a statement in Form No. 28A has not been furnished the estimate filed by the assessee on 15-9-1980 in lieu of the statement was not in existence and invalid because of the mere reason of not filing the statement. This observation is contrary to the provisions of section 209A, though it may not make any material difference for deciding the issue in hand. An assessee is permitted to file an estimate by section 209A(2) in lieu of the statement by the due date of filing the statement by reason of his current income being likely to be less then the income on which advance tax is payable by him under sub-section (1) or for any other reason. The issue here, however, is different. Due to the facts pointed out by the assessee it was not required to file any statement under section 209A(1)(a), the income assessed for the assessment year 1977-78 being the last assessed year to be nil and the income returned for the assessment year 1978-79 being a loss. In such a situation there is no likelihood of furnishing an estimate in lieu of the statement. Under sub-section (4) of section 209A also a reading of the provision as a whole will indicate that that situation can arise only when the advance tax payable under sub-section (1) or sub-section (2) has, in fact, been computed in the manner laid down under section 209 and not in a situation like that in the case of the assessee. The test of mere liability to pay advance tax alone is not sufficient to bring the assessee within the provisions of sub-section (4) of section 209A. When this is so the provisions of section 215 will also not operate because that section requires in the opening sentences quoted above that an assessee has paid advance tax under section 209A on the basis of his own estimate or revised estimate. Proceeding on this footing, it must be held that interest under section 215 could also not be levied in the assessee's case and the order of the Commissioner (Appeals) is erroneous and has to be reversed. The levy of interest under section 215 is cancelled.
9. The appeal of the assessee gets allowed.
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