1. The only point involved in this appeal pertains to withdrawal of a part of the interest of Rs. 61,377 granted to the assesseeunder Section 214 of the Act, by passing orderunder Section 154 of the Act.
2. The assessee is a company. The assessment year is 1980-81 and the relevant previous year ended on 31st October, 1979.
3. In its return of income as well as at the time of assessment proceedings, the assessee had claimed deduction as contemplated under Section 80J of the Act in respect of Unit No. 2. It may be mentioned that in working out the "capital employed", the assessee had taken up a stand before the ITO that the liability should not be deducted. During the course of hearing, the assessee had stated before the ITO that since it had challenged the retrospective amendments made in Section 80J of the Act before the Hon'ble Supreme Court along with other assessees and had obtained stay of the amended provisions, the deduction as claimed by it should be allowed. In the assessment framedunder Section 143(3) r.w.s. 144B of the Act, the ITO had accepted the assessee's contention, in view of the stay granted by the Supreme Court in the following manner: 12. The assessee-company has claimed 80J relief on the gross amount of the assets without deducting any liability. The law has been amended with retrospective effect by Finance (No. 2) Act, 1980 according to which liabilities to be deducted from the capital employed so as to compute the correct amount for 80J. However, the assessee-company has obtained stay from the Supreme Court against invoking provisions of amended act. Respectfully following the Supreme Court's stay, 80J allowance has been allowed on the gross value which will be rectified after the receipt of Supreme Court's order if necessary.
Since there is loss of Unit Nos. 4 and 5, 80J relief has been allowed to be carried forward. 80J relief in respect of Unit No. 3 has been allowed up to the extent of profit available and the rest has been carried forward.
It may be mentioned that the assessee had filed its return of income on 24-6-1980 declaring total income of Rs. 38,27,120. The ITO had framed the assessment on 5-9-1983, subject to aforesaid observations on a total income of Rs. 46,35,610. As the assessee had paid advance tax of Rs. 30,00,000, a refund of tax of Rs. 2,59,196 was granted to it.
Further, the assessee was also given interest of Rs. 1,06,231 under Section 214 of the Act.
4. On 25-1-1985, the Hon'ble Supreme Court pronounced its decision in the case of number of assessees including the assessee which is in the name of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308. In the said decision, the Hon'ble Supreme Court has accepted the contention of the revenue that in working out the "capital employed" for the purpose of granting deduction under Section 80J of the Act, the liabilities have to be deducted. The ITO, therefore, passed an order under Section 154 of the Act on 26-2-1985 wherein he determined the total income of the assessee at Rs. 48,88,822.
It may be mentioned that in the original assessment, the ITO had calculated deduction under Section 80J of the Act, in respect of Unit No. 2 at Rs. 4,55,654 while in the order passed under Section 154 of the Act, such deduction worked out to Rs. 2,02,439. Due to this difference, the total income of the assessee had gone up to Rs. 48,88,822 as against Rs. 46,35,610 originally computed by the ITO. The ITO, therefore, raised additional demand of Rs. 2,11,089 which included Rs. 61,377 being a part of the interest granted to the assessee under Section 214 of the Act in the original assessment.
5. In appeal before the CIT(A), the assessee challenged the action of the ITO on the ground that any reduction in interest under Section 214 of the Act could be done only at the time of regular assessment and not by passing an order under Section 154 of the Act. In this connection, the CIT (A)'s attention was invited to Section 2(40) of the Act which contains the definition of "regular assessment". It was, therefore, urged that the ITO was not justified in withdrawing a part of the interest allowed under Section 214 of the Act at the time of original assessment. The CIT(A) however did not find any substance in the plea taken by the assessee in the following manner :-- There is hardly any substance in the contention of Shri V.R. Shah.
The ITO has only amended the regular assessment originally framed.
It does not cease to be a regular assessment after passing the order under Section 154 by the ITO in order to give effect to the judgment of the Hon'ble Supreme Court. Therefore, it is within the powers of the ITO to withdraw the interest allowed to the assessee under Section 214. Under the circumstances, no interference is called for.
6. Being aggrieved by the order of the OIT(A), the assessee has come up in appeal before the Tribunal. In order to better appreciate the rival contentions, the position that emerges after orders passed under Sections 143(3) and 154 of the Act are tabulated below:Total income assessed 46,35,610 48,88,822Tax at 55 per cent 25,49,585 26,88,852Surcharge at 7 1/2 per cent 1,91,219 2,01,664Total tax payable 27.40,804 28,90,516Advance tax paid 30,00,000 30,00,000Tax payable 27,40,804 28,90,516Refund of tax 2,59,196 1,09,484Int. under Section 214 payable by the Govt.
1,06,231 44,854 3,65,427 1,54,338 After passing order under Section 154, the ITO raised demand for excess refund of tax of Rs. 1,49,712 and. for excess refund of interest under Section 214 of Rs. 61,377.
7. The learned counsel for the assessee reiterated the submissions which were made before the IT authorities and strongly contested that the ITO was not justified in withdrawing a part of the interest which was granted to the assessee under Section 214 of the Act. Inviting our attention to Section 154 of the Act, he submitted that on the facts and circumstances obtaining in the instant case, the ITO could not have passed order under that section with a view to withdraw a part of the interest granted to the assessee under Section 214. of the Act, as there was no mistake apparent from the record justifying such action.
According to the learned Counsel for the assessee, since the modification in the assessment order was not required to be made on account of any appellate order or a decision of the High Court/Supreme Court in a reference matter, no order could be passed under Section 154 of the Act. In this connection, he stated that along with other assessees, the assessee had challenged the constitutional validity of certain provisions of Section 80J of the Act and the Rules made thereunder before the Hon'ble Supreme Court in its writ jurisdiction and not by way of an appeal or a reference. He also submitted that the ITO would be justified in taking action under Section 154 of the Act where he follows a decision of the Hon'ble Supreme Court in some other case and but not in the assessee's case itself.
8. Inviting our attention to the provisions of Section 214 of the Act, as they stood prior to the amendment made therein by the Taxation Laws (Amendment) Act, 1984 (in short TLA 1984) as well as subsequent thereto, the learned Counsel for the assessee vehemently argued that since we are dealing with the assessment year 1980-81, the ITO was not justified in withdrawing a part of the interest granted to the assessee under that section as it stood on the first day of April, 1980. He also stressed the point that the Amendment made in that section by TLA 1984 was prospective and effective from 1-4-1985.
9. The learned Counsel for the assessee was fair enough to state that he was aware of the Full Bench decision of the Hon'ble Gujarat High Court in the case of Bardolia Textile Mills v. ITO [1985] 151 ITR 389 wherein the Hon'ble High Court has given opinion on the expression "regular assessment" to mean the assessment as modified/rectified from time to time giving effect to appellate orders or rectifying the order suo motu by the ITO under Section 154 of the Act. He, however, strongly relied on the Full Bench decision of the Hon'ble Bombay High Court in the case of CIT v. Carona Sahu Co. Ltd. [1984] 146 ITR 452 and the Full Bench decision of the Hon'ble Kerala High Court in the case of CIT v.G.B. Transports [1985] 155 ITR 548 wherein the Hon'ble High Courts have held that the expression 'regular assessment' would mean the assessment as originally framed by the ITO and not any subsequent rectification/modification made under Section 154 of the Act. He, therefore, strongly urged that since the ITO was not justified in withdrawing a part of the interest granted to the assessee, under Section 214. of the Act, he should be directed to refund the said amount to the assessee.
10. The learned representative for the department, on the other hand, strongly relied on the orders of the IT authorities and submitted that in view of the decision of the Hon'ble Gujarat High Court in the case of Bardolia Textile Mills (supra), the ITO was fully justified in withdrawing a part of the interest granted to the assessee under Section 214. of the Act. He also invited our attention to the remarks made by the ITO in the assessment framed on 5-9-1983 (reproduced above) and pointed out that he had framed the said assessment subject to the decision of the Hon'ble Supreme Court which was awaited at that time.
In other words, he submitted that the order passed by the ITO under Section 154 of the Act, after the pronouncement of the decision of the Hon'ble Supreme Court was nothing, but the continuation of completion of the assessment process. He also highlighted the fact that but for the stay obtained by the assessee from the Hon'ble Supreme Court, the ITO would have framed the assessment on Rs. 48,88,822 originally ignoring the assessee's claim that the liabilities should not be considered in working out the 'capital employed' for the purpose of granting deduction under Section 80J of the Act. In this view of the matter, the assessee would not have been entitled to interest under Section 214 of the Act to the extent of Rs. 61,337. However, since the assessee had obtained a stay from the Hon'ble Supreme Court, the ITO had no choice but to pass the asst. order with such remarks, so as to protect the interest of the revenue. He strongly stressed the point that there was" a Clear understanding between the assessee and the ITO that the issue regarding deduction under Section 80J of the Act would be rectified after the receipt of the decision of the Hon'ble Supreme Court, if necessary. He, therefore, strongly urged that in the instant case, it is not necessary to discuss the scope of the provisions of Sections 154 and 214 of the Act, as well as the effect of certain amendments made in Section 214 of the Act by TLA 1984, as was argued on behalf of the assessee. Finally, he submitted that since the decision of the Hon'ble Gujarat High Court in the case of Bardolia Textile Mills (supra) is binding on us the fact that the other two Hon'ble High Courts have taken a different view would not be of any consequence in deciding the point at issue. He, therefore, urged that we should uphold the action of the IT authorities.
11. We have considered the rival submissions of the parties and we are constrained to observe that the assessee ought not to have entered into this litigation and should have accepted the withdrawal of a part of the interest granted to it under Section 214 of the Act. We make this observation as it would be very apparent from the relevant portion of the assessment order (reproduced above) that the ITO had to keep the issue open regarding granting of deduction under Section 80J of the Act and consequential tax calculations in view of a stay obtained by the assessee from the Supreme Court. If the stay was not obtained by the assessee in the manner it did, the ITO would have framed the assessment on a total income of Rs. 48,88,822 thereby the revenue would not have been required to pay interest to the extent of Rs. 61,377 to the assessee under Section 214 of the Act. However, since the assessee had obtained the stay from the Hon'ble Supreme Court, the ITO had to accept the computation made by the assessee for deduction under Section 80J of the Act (subject to rectification) till the decision of the Hon'ble Supreme Court was available in a writ petition filed before it. It is under these circumstances that on 5-9-1983 the ITO had framed the assessment on a total income of Rs. 46,35,610 whereby certain refund was due to the assessee and interest was granted to it under Section 214 of the Act. Therefore, we see no infirmity in the order of the ITO passed under Section 154 of the Act. Even otherwise, in view of the aforesaid binding decision of the Hon'ble Gujarat High Court in the case of Bardolia Textile Mills (supra), the action of the ITO cannot be assailed. It is no doubt true that in the cases of Corona Sahu Co. Ltd. (supra) and G.B. Transports (supra), the Hon'ble Bombay and Kerala.
High Courts have taken a view different from the one taken by the Hon'ble Gujarat High Court in the case of Bardolia Textile Mills (supra). However, that fact by itself would in any way improve the assessee's contention as we are bound by the decision in the case of Bardolia Textile Mills (supra). In this view of the matter, we have no hesitation in upholding the order of the CIT(A) under appeal.