1. These are three appeals by the different assessees. Since common issues are involved, for the sake of convenience, these are disposed of by this common order.
"1. The order passed by the CIT(A) is illegal, bad in law, ultra vires and contrary to the provisions of law and facts of the case and without appreciating the facts of the case in their proper perspective.
2. (a) The learned CIT(A) erred in confirming addition of Rs. 46,785, Rs. 44,025 and Rs. 15,630 in respective cases being interest granted to the appellant under Section 244A as income of the appellant on receipt basis as against accrual method of accounting following by the appellant.
(b) The learned CIT(A) failed to appreciate that interest granted along with intimation under Section 143(1)(a) is subject to withdrawal when the case is selected for scrutiny and accordingly the recipient has no indefeasible right over the said income, (c) The learned CIT(A) further failed to appreciate that the interest amounting to Rs. 46,785, Rs. 44,025 and Rs. 15,630 in respective cases for asst. yr. 1996-97 accrued and became income of the appellant only during the year ended 31st March, 1999, on receipt of the order under Section 143(3)." 2.1 The brief facts are that the above assessees received interest in income-tax refund of past assessment years in financial year 1996-97 relevant to asst. yr. 1997-98. The assessee had not offered the interest income on refunds for the purpose of tax. The AO issued show-cause notice in this behalf. The assessee submitted its replies on the following lines.
"The interest so received on the refunds issued by the Department on processing return under Section 143(1)(a) has not been offered to tax in the year of its receipts as the regular assessment proceedings are pending under the IT Act for the relevant year and hence the refund so received has not attained finality. That part of the interest which relates to the refund which has attained finality has been offered for tax in the year in which the assessment is finally completed and the refund is final. It is submitted that in a case where the assessment proceedings are still pending, the refund which is received has not attained finality and hence the interest granted on such refund cannot be treated as having accrued to the company and so as to be liable to tax. The interest is liable to tax only when it has accrued or arisen to an assessee and in the given case when the refund which has given rise to the interest income, where regular assessment is pending, the interest thereon cannot be termed to have accrued or arisen to the company. Accordingly the issues on which the refunds have resulted are pending for regular assessment, the interest on such refund cannot be taken as accrued, It is merely provisional receipt as regular assessment may result into withdrawal of the refund and related interest granted under Section 244(1A). In all such cases, there is no absolute right to receive the amount at this stage. This treatment of recognising income only when it has finally accrued or arisen is also in conformity with the Accounting Standard issued by the Institute of Chartered Accountants of India." It was further claimed that the regular assessments have been subsequently finalised and where the assessed income under Section 143(3) was higher, appropriate amount of interest was withdrawn.
Assessee relied on Supreme Court judgment in the case of CIT v.Hindustan Housing & Land Development Trust (1987) 161 ITR 524 (SC), which pertained to enhanced amount of compensation and further in Director of IT (Exemption) v. Goel Charitable Trust (1995) 215 ITR 672 (Del) which related to interest on enhanced compensation. The AO was of the view that the argument of the assessee that the receipt of interest is contingent in nature was not acceptable. The intimation issued under Section 143(1)(a) does not merge with the order under Section 143(3) applies subsequently, Reliance was placed on Tribunal, Allahabad Bench judgment in B.W. Ltd. v. Dy. CIT (1996) 56 TTJ (All) 521 : (1996) 59 ITD 210 (An). The refund was quantified and awarded to the assessee by issue of a valid refund order. The interest income has not only accrued to but also has been received. The assessee are following mercantile system of accounting and consequently, the receipt of interest has to be offered for tax. On the basis of a conjecture that in future, the income may be enhanced under Section 143(3) may only be an apprehension or at best a possibility the income was added.
3. Aggrieved, the assessee preferred first appeal where the CIT(A) observed that the interest income consequent upon the refund under Section 244A not only accrued but was received by the assessees. The assessees were following mercantile system of accounting. The arguments of the assessees were (1) that no income accrued to the assessee in respect of interest under Section 244A, (2) that no real, income arose in the hands of the assessee, (3) that there was no perfection of the right to income represented by the interest under Section 244A, (4) that even though the interest was received, it was accompanied by an obligation to refund it thus making it defeasible; and (5) that the ratio of the Syndicate Bank judgment is not applicable to the facts of the present case. The CIT(A) relied on Karnataka High Court in the case of CIT v. Syndicate Bank (1986) 159 ITR 464 (Kar) holding that a receipt which is of revenue character must remain so even though there may be adverse events happening later on. The assessee's plea that the judgment was rendered as a concession was rejected, the additions were upheld. Aggrieved, the assessee are before us.
4. The learned counsel for the assessee explained the scheme of IT Act contending that after 1st April, 1989, only intimation can be made.
According to him Section 143(1)(a) is a contingent refund because in a specified time the case can be taken up for regular assessment without assigning any reason by issuing notice under Section 143(2). As per the scheme of the Act after the return is filed, an assessment framed under Section 143(3) brings finality to the proceedings. The same is evident from the fact that in above assessees' cases, later on the assessments have been taken up for scrutiny under Section 143(3) and the interest granted has been changed. Reliance was placed on Supreme Court judgment in the case of E.D. Sassoon & Co. v. CIT (1954) 26 ITR 27 (SC) and Union of India and Anr. v. J.K. Synthetics Ltd. (1993) 199 ITR 14 (SC), CIT v. Mysore Sugar Co. Ltd. (1990) 183 ITR 113 (Kar) and (1986) 159 ITR 464 (Kar) (supra).
5. The learned Departmental Representative, on the other hand, contended that Section 244A(1)(b) prescribed a mechanical method for computation of refund. According to Section 237 if the AO is satisfied that the amount of tax paid by the assessee in any assessment year exceeds the amount that which is properly chargeable under this Act for the year, he shall be entitled to the refund of the excess. The AO by statutory powers conferred by the IT Act is empowered to grant refund while processing return under Section 143(1)(a). Having granted the refund, the provisions of Section 244A(1)(b) become automatically and mechanically applicable and the interest is to be worked and granted to the assessee. There is no provision in the Act which says that the interest granted is contingent. There is no provision that every Section 143(1)(a) processing will be subject to scrutiny assessment under Section 143(3). Consequently, the proceedings under Section 143(1)(a) are separate and distinct statutory functions coupled with statutory obligations and entitlements. The assessee's counsel's plea that the interest granted is contingent is countered by this argument.
The learned Departmental Representative further contended that the assessee was following mercantile system of accounting and the interest not only accrued but was received. Even in normal course of business, if there is any interest received by the assessee by mercantile system, he has to account for the same. Any uncertainty attached to it has to be given effect to when the same surfaces. A revenue receipt cannot be deferred on the basis of probabilities. It was further contended that it is not necessary also that in Section 143(3), the assessee will be compulsorily assessed at a higher figure. So the arguments of the assessees are merely probabilities for which there is no legal, sanctity and the apprehensions are being clothed into a legal certainty. The income was ascertained, the tax was ascertained and the assessees' refund was granted and subsequently, the interest was given.
The whole series of events is by way of statutory functions and the objects or arguments of the assessee are nothing but surmises and conjectures as against the statutory events, The Syndicate Bank case (supra) was fully applicable to the case of the assessees. Further reliance was placed on the case laws relied on by the CIT(A).
6. We have heard the rival submissions and perused the material available on record, We find considerable force in the arguments of the learned Departmental Representative that the AO has to perform a statutory duty in processing the return under Section 143(1)(a) as per the provisions of the Act. As a natural corollary, the tax is to be computed and the amount of refund has to be ascertained and as per the provisions applicable, the interest to which the assessee is entitled to the refund has to be granted. The processing of, the return under Section 143(1)(a) and granting of interest are distinct statutory functions which are unfettered and not based on any contingencies in the context of Section 143(3) which may or may not be taken.
Consequently, the arguments of the assessee amount to conjectures and probabilities as against legal provisions.
The case law relied on by the learned counsel for the assessee are based on compensations and other matters which are not on equal footing as the statutory obligations of Sections 237 and 244A, Consequently, much reliance cannot be drawn from such cases. The assessee was following mercantile system of accounting. The intimation has to be considered as demand notice which is an enforceable document and if the refund is not granted or lesser interest is granted, the assessee has a right to "enforce the contents of the intimation. Consequently, the intimation is an independent enforceable statutory demand notice by which the assessee is vested with its right. Looking at the method of accounting of the assessees, the day interest was received by the assessee it became a revenue receipt in their hands and the future probabilities of issuance of notice under Section 143(2) will not have the effect of making the certain receipts as uncertain. As per the scheme of the Act, the matter does not end with Section 143(3) assessment as there may be consequence of Sections 154 or 263. The fact of the matter is all these functions are statutory functions independent of each other and each of it creates set of obligations and entitlements vis-a-vis the assessees and the Department. If we accept the logic of the leaned counsel, then the matter may not become final till it reaches the final stage of Supreme Court and the same cannot be object of the legislature. In fact, the plain and simple reading of provisions makes it very clear that the assessee is entitled to interest which was duly given to them and accepted by them and. looking at the method of accounting of the assessees, we have no hesitation to hold that the interest received by the assessees represented their income and the same has been rightly brought to tax by the AO and upheld by the CIT(A). In view of the above we uphold the action of the lower authorities.