1. The assessee in this appeal filed a petition under Section 154 on 9-1-1986 asking, inter alia, for the grant of interest under Section 244(1A) of the Income-tax Act in respect of the tax paid in excess. The original assessment order was passed in this case under Section 144 on 26-12-1974 raising a demand of Rs. 5,98,398. This amount was collected by the department in full. This assessment was reopened on 9-3-1977 under Section 146. A fresh assessment was made on 3-9-1979, the tax in respect of which was also collected. As a consequence of the order passed under Section 146 cancelling the exparle assessment made, the assessee claimed that the entire amount collected from him became refundable and on that refund he was also entitled to interest under Section 244( 1A). This claim for the allowance of interest was the one made by making an application under Section 54 on 9-1 -1986. The Income-tax Officer found this application to be in order and allowed interest from the date of payment of tax to the date of the passing of the order under Section 143(3) i.e., 3-9-1979. The assessee also claimed that he got some relief in appeal and as a consequence of which some amount became refundable to him and claimed interest on that refund also. This interest also was granted by the Income-tax Officer.
The interest granted under Section 244(1A) and the interest granted under Section 154 on the amount paid on the exparte assessment together came to Rs. 1,61,854.
2. The Commissioner of Income-tax while scrutinising the order passed by the Income-tax Officer under Section 154 came to the conclusion that the grant of interest by the Income-tax Officer was incorrect. In exercise of his powers under Section 263, the Commissioner gave a notice to the assessee calling upon him to explain as to why the interest granted under Section 154 should not be withdrawn. The assessee objected to the withdrawal of this interest. Considering the order passed by the Income-tax Officer erroneous and caused prejudice to the interests of the Revenue, the Commissioner cancelled the order and directed the Income-tax Officer to recover the amount of refund granted. Aggrieved by this order, the present appeal was filed before the Tribunal.
3. The contention raised on behalf of the assessee was that Section 244(1A) provided clearly that if as a consequence of any order passed in appeal or other proceedings, if it is found that the assessee had paid tax in excess, the Central Government shall pay interest on that excess amount and if the Income-tax Officer had failed to allow this interest, that amounted to a mistake apparent from the record notwithstanding the fact that the assessee did not make a claim while making the assessment. This mistake having been brought to the notice of the Income-tax Officer, he rectified it. There was therefore no error in the order passed by the Income-tax Officer nor was there any prejudice caused to the interests of the Revenue. The Commissioner is thus not justified in invoking the provisions of Section 263 and in withdrawing the refund. It was also pointed out that the provisions of Section 244(1A) were withdrawn with effect from 1 -4-1989 or in subsequent years and this amendment having come into force with effect from 1-4-1989. It meant that interest was allowable and the refunds due prior to this date.
4. The learned Departmental Representative opposed these submissions by pointing out that the entire tax due was paid before 31-3-1975 and when the Income-tax Officer issued the refund on his own, a request should have been made to him to grant interest under Section 244(1A) and if no such request was made, such request should not have been made and could not have been entertained by the Income-tax Officer subsequently in the guise of a petition under Section 154. Laying emphasis upon the fact that the payments were made before 31-3-1975, the learned counsel for the department argued that only in cases where the amounts were paid after 31-3-1975, Section 244(1A) would apply and the assessee would be entitled to refund and not for taxes paid before 31 -3-1975. To this the reply of the learned counsel for the assessee was that this was not a point taken up by the Commissioner of Income-tax in his order while invoking his jurisdiction under Section 263 and therefore the department is not prevented from making out a new point and the Tribunal also is not empowered to consider this new point to decide the justification of the order passed under Section 263. For this proposition reliance was placed upon a decision of the Punjab and Haryana High Court in the case of CIT v. Jagadhri Electric Supply & Industrial Co. [1983] 140 ITR 490 at page 502.
5. On a careful consideration of the issues involved we are of the opinion that the assessee is entitled to the interest and the Commissioner was not justified in withdrawing the interest allowed to the assessee even though under a petition made under Section 154.
Section 244(1) provided that : Where a refund is due to the assessee in pursuance of an order referred to in Section 240 and the Assessing Officer does not grant the refund within a period of three months from the end of the month in which such order is passed, the Central Government shall pay to the assessee simple interest at fifteen per cent per annum on the amount of refund due from the date immediately following the expiry of the period of three months aforesaid to the date on which the refund is granted.
By Taxation Laws (Amendment) Act, 1975 a new Section 244(1A) was introduced with effect from 1-10-1975, which provided : (1A) Where the whole or any part of the refund referred to in Sub-section (1) is due to the assessee as a result of any amount having been paid by him after 31st day of March, 1975, in pursuance of any order of assessment or penalty and such amount or any part thereof having been found in appeal or other proceeding under this Act to be in excess of the _ amount which such assessee is liable to pay as tax or penalty, as the case may be, under this Act, the Central Government shall pay to such assessee simple interest at the rate specified in Sub-section (1) on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund is granted.
It was by applying this provision of Section 244(1A) that the assessee made a request to the Income-tax Officer to grant him the interest on the refund due. The refund became due as a consequence of the order passed by the Income-tax Officer under Section 146 cancelling the entire assessment. It must be remembered that the original assessment was made under Section 144 on 26-12-1974 on a total income of Rs. 5,98,398. That assessment was cancelled by reopening the assessment under Section 146 on 9-3-1977. With effect from 9-3-1977 there is no assessment made on the assessee till a fresh assessment was made on 3-9-1979 under Section 143(3) of the Income-tax Act, that is for the period commencing from 9-3-1977 till 3-9-1979 the amount due to the assessee, which was collected on the making of the assessment originally under Section 144 remained with the Central Government. In other words the Central Government detained the money without any authority for it. It should have refunded the money, which was not done. Section 244(1A) provided that where whole or any part of the amount referred to in Sub-section (1) Section 244 became due to the assessee as a result of any amount having been paid after 31-3-1975 pursuant to an order of assessment or penalty passed and if such amount or part thereof was found in appeal or other proceeding under this Act to be in excess of the amount which such assessee is liable to pay as tax or penalty, the Central Government shall pay to such assessee simple interest at the specified rate on the amount so found to be in excess from the date on which such amount was paid to the date on which the refund was granted. For this section to apply whole or any part of the refund must have become due to the assessee pursuant to an order referred to in Section 240. Section 240 refers to orders passed in appeal or other proceedings under this Act. The expression "other proceedings under this Act" have come for interpretation and the Courts have widely interpreted these words as meaning and perhaps including an order passed under Section 146 also. If any authority is needed it can be found in the decision of the Allahabad High Court in the case of Hari Nandan Agarwal (HUF) v. ITO [ 1986] 159 ITR 816. Now therefore as we mentioned earlier the amount became due to the assessee as a consequence of the order passed under Section 146 on 9-3-1977. It is not true that the amounts collected by the department were all prior to 31-3-1975 and for that reason it may not be said that the assessee was not entitled to the interest under Section 244( 1A) but one has to see how the tax was collected in this case. There was a search conducted on the assessee's premises on 22-3-1974 when certain cash was seized, which was appropriated towards tax under Section 132(5) of the Income-tax Act. Another sum of Rs. 90,000 was recovered by the department by issuing garnishee orders. These sums were adjusted against the demands raised and the assessments made under Section 144.
The contention advanced by the learned counsel for the department that they were all paid before 31-3-1975 does not seem to be factually correct. According to the chart filed before us a sum of Rs. 2,46,407 was paid on 14-8-1975 by seizure. Subsequent amounts were paid in 1976 on different dates. Therefore, the submission of the Departmental Representative that the payments were made before 31-3-1975 does not appear to be factually correct. It was perhaps for this reason that the Commissioner did not mention this point in his order. This submission was made merely on the basis of a supposition having regard to the date of assessment and not on any factual data because from the date the assessment was made under Section 144, namely, 26-12-1974 till 31-3-1975, there were only four months left and it was presumed unlikely that within this four months period, the entire tax was adjusted. Moreover as pointed out rightly on behalf of the assessee as per the decision of the Punjab and Haryana High Court in the case of Jagadhri Electric Supply & Industrial Co, (supra) at page 502 it is not open to an appellate authority to take a new point in a proceeding under Section 263. Dealing with such a situation the Punjab and Haryana High Court pointed out: The jurisdiction vested in the Commissioner under Section 263(1) of the Act is of a special nature, or, in other words, the Commissioner has the exclusive jurisdiction under the Act to revise the order of the ITO if he considers that any order passed by him was erroneous insofar as it was prejudicial to the interests of the Revenue.
Before doing so, he is also required to give an opportunity of being heard to the assessee. If after hearing the assessee in pursuance of the notice issued by him under Section 263(1) of the Act, he is not satisfied, he may pass the necessary orders. Of course, the order thus passed will contain the grounds for holding the order of the ITO to be erroneous, as contemplated under Section 263(1) of the Act. Feeling aggrieved therefrom, the assessee may file an appeal against the same, as provided under Section 253( l)(c) of the Act.
In the memorandum of appeal, the assessee is supposed to attack the order of the Commissioner and to challenge the grounds for decision given by him in his order. At the time of the hearing, if the assessee can satisfy the Tribunal that the grounds for decision given in the order by the Commissioner are wrong on facts or are not tenable in law, the Tribunal has no option, but to accept the appeal and to set aside the order of the Commissioner. The Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well. If the Tribunal is allowed to find out the ground available to the Commissioner to pass an order under Section 263(1) of the Act, then it will amount to a sharing of the exclusive jurisdiction vested in the Commissioner, which is not warranted under the Act. It is all the more so, because the Revenue has not been given any right of appeal under the Act against an order of the Commissioner under Section 263(1) of the Act.
Thus this decision is therefore an authority for the proposition that the Tribunal cannot decide an appeal arising out of an order passed by the Commissioner under Section 263 on a ground not referred to or even in the contemplation of the Commissioner. Therefore, this question of payment of taxes before or after 31-3-1975 not being a ground mentioned by the Commissioner in his order cannot now be called in aid by us to adjudicate upon the validity of the order passed by the Commissioner, though factually the payment of taxes was made after 31-3-1975. It is no doubt true that the provisions of this section were not to apply with effect from 1-4-1989 or in subsequent assessment years. The order passed by the Commissioner in this case was on 25-2-1988 i.e., while these provisions were current and in operation. Since under the provisions of this section, the allowance of interest was mandatory and do not admit of any debate, it cannot be said that the Income-tax Officer was precluded from rectifying this mistake under Section 154 when he originally failed to grant the interest, which he ought to have done. It is now a well settled rule of law that the Government shall pay interest for the deprivation of user of money. The use of the money due to the assessee having been deprived by the Government for a period of two and a half years, the Government cannot turn down and say that it would not allow the interest, even though there is a provision specifically made for that purpose. The order of the Commissioner, in our opinion, is therefore not proper and justified. There is no error in the order passed by the Income-tax Officer nor any prejudice was caused to the interest of the Revenue.
6. Besides another point that the Commissioner has taken up was that if the assessment was made under Section 144 and cancelled under Section 146 and till a fresh assessment was made, there was no obligation to refund the tax collected. This does not appear to be a correct view, inasmuch as, the Allahabad High Court in the case of Hart Nandan Agarwal (HUF) (supra) held that where an order of assessment is set aside and the matter is restored to the Income-tax Officer for passing a fresh order of assessment, an assessee is entitled to get a refund of the amount deposited by him in pursuance of the assessment order. In view of this decision, the line of thinking that the Commissioner has adopted does not appear to be a correct view. If refund is due to the assessee as a consequence of the cancellation of the assessment order, the obligation to pay interest had already accrued on the Central Government subject to the provisions of Section 244(1A) and there is nothing for the assessee to do or there is any delay involved in this process to grant the interest.
7. Before we part with this appeal, we would like to add a word about the decision of the Karnataka High Court in the case of CIT v. H.V.Mirchandani [1986] 161 ITR 800, on which reliance was placed by the Commissioner, to enforce his view. A careful reading of that judgment would show that the rectification was made in that case not at the instance of the assessee and secondly there was no claim made by the assessee regarding. interest. On the other hand, in the case before us, the rectification was made at the instance of the assessee and there was a request to grant interest. Moreover the Bombay High Court has taken a contrary view in the case of CIT v. S.C. Shah [1982] 137 ITR 2872 where exactly under similar circumstances as obtaining in our case, the Bombay High Court held that a rectification under Section 154 was permissible and such orders were appealable, meaning thereby that if interest was not granted on the refund, an appeal would lie. But the Karnataka High Court declined to follow that view because as in its opinion the expression "reducing a refund" envisaged under Section 246(1)(f) presupposed that there should have been already an assessment order, in which refund had been ordered and that refund upon rectification should have been reduced. According to the Karnataka High Court an order made for the first time under Section 154 resulting in a refund cannot fall within the fold of Section 246(1)(f) i.e., appealable orders taut here the facts are : the assessee became entitled to the refund as a consequence of the cancellation of the order made by the Income-tax Officer under Section 144. As a consequence of which the entire tax paid became refundable to the assessee. There is no question of making any application under Section 244 for the grant of refund. There is therefore no question of reducing the refund as envisaged by the Karnataka High Court. When the entire amount of tax paid became refundable, interest on such refund became automatically payable by the Government under the obligation it had undertaken under Section 244(1A). Therefore, the reliance placed by the Commissioner on the decision of the Karnataka High Court does not, in our opinion, advance his cause.
8. For the aforesaid reasons, we cancel the order of the Commissioner and allow the appeal.