Full Judgment
2. That under the facts of the case, there is no justification for disallowance of Rs. 5,109 under Section 37(2A) as entertainment expenses.
3. That the lower authorities grossly erred in facts in treating the additional sales-tax liability of Rs. 10,580 as in the nature of penalty and consequently grossly erred in law in disallowing the additional sales-tax of Rs. 10,580.
4. That under the facts and circumstances of the case, there is no justification for disallowance of Rs. 6,292 out of travelling expenses under Rule 6D. 5. That under the facts of the case, the lower authorities grossly erred in law as well as on merits in adding Rs. 2,403 as PF and ESI on the ground of being paid during the year but allowed as deduction in earlier year.
6. That under the facts and circumstances of the case, the lower authorities grossly erred in law as well as on merits in adding Rs. 22,185 on the ground that it is the bonus for asst. yr. 1988-89 which has already -been allowed as deduction in the asst. yr.
1988-89.
7. That under the facts and circumstances of the case, the lower authorities erred in adding the cash credits of Rs. 10,000 in the name of Sh. Har Gopal and Rs. 10,000 in the name of Sh. G.S. Grover under Section 68 of the IT Act, 1961." 2. At the time of hearing, the learned counsel stated that he was not pressing for our consideration ground Nos. 1, 2 and 4. These are accordingly rejected.
3. As regards ground No. 3 in the appeal, we have perused the orders passed by the tax authorities and do note that the CIT(A) by means of an ex parte order observed that the payment was in the nature of penalty and the disallowance made by the AO was to be confirmed. As against this, the stand of the assessee is that it is the payment of additional sales-tax and not penalty. The parties, however, agreed and stated before us that the matter could be restored back to the file of the AO for a decision de novo on merits after giving reasonable opportunity to the assessee. In accepting the stand of both the sides we restore the matter back to the file of the AO.4. As regards ground No. 5 in the appeal, the parties were heard and it is noticed from the assessment order that the sum of Rs. 2,403 came to be added on the ground that the amount was paid during the previous year under consideration but allowed as a deduction in the earlier years. The CIT(A) upheld the view taken by the AO.5. Before us, the learned counsel has challenged the aforesaid factual observations of the tax authorities and it is his submission that the AO be asked to verify the assessee's clause and decide the same in accordance with the provisions of law. The learned Departmental Representative did not raise any objection and in view of this accepted position, we restore the matter back to the file of the AO for re-examination.
6. Ground No. 6 is on lines identical to those as raised in ground No.5 and on the same line of reasoning, we set aside the orders of the tax authorities and restore the matter back to the file of the AO for a de novo on merits.
7. As regards ground No. 7, the AO in the assessment order observes that no confirmations were filed and the assessee offered no explanation about the nature and source of the two amounts of Rs. 10,000 each. In the ex parte order, the CIT(A) confirmed the view of the AO.8. The submission before us on the part of the assessee's counsel is that during the course of the hearing, no query was raised by the AO and in case this would have been done, the assessee would have carried out necessary directions in satisfaction of the claim pertaining to the cash credits. The plea of the learned Departmental Representative, on the other hand, was that once a notice had been issued under Section 143(2), it was incumbent on the part of the assessee to substantiate the return of income and this included cash credits vis-a-vis provisions of Section 68. The plea, in other words, was that the assessee could not contend that it was not asked to file any evidence whereas there should have been a voluntary compliances the part of the assessee.
9. We may mention that this appeal was initially heard on 8th March, 2002, and treated as part heard with a direction to the AO to summon the record to enable us to verify the stand taken on behalf of the assessee but on the subsequent and final date of hearing i.e., 2nd April, 2002, the learned Departmental Representative expressed his inability to produce the record on the ground that it was old and not readily traceable.
10. In view of the facts stated aforesaid, we feel that the matter should be restored back to the file of the AO strictly in the interest of justice and if on verification of the earlier record by the AO it transpires that the AO had raised queries in respect of the two cash credits then probably nothing remains to be done on his part and the addition is to be repeated. In case what the assessee states turns out to be correct, their the AO is directed to re-examine the matter de novo on merits. Under these circumstances, the assessee would be entitled to adduce evidence to discharge the onus that lies on it under Section 68.
11. During the course of hearing of this appeal, an additional ground was filed and this read as under: "That under the facts and circumstances of the case, no interest under Sections 234A and 234B should have been charged in view of the fact that no order for charging these interests has been passed." 12. Both the parties were heard on the admission of the aforesaid additional ground, the learned counsel for the assessee placing reliance on the judgment of the Hon'ble Supreme Court in the case of NTPC Ltd. v. CIT (1998) 229 ITR 383 (SC). The learned Departmental Representative did not oppose the admission of the aforesaid additional ground and in this view of the matter, we admit the ground and proceed to adjudicate upon it.
13. The learned counsel relied on the following judgments, the main submission being that no order had been passed for charging the said interest and a reading of the assessment order shows that there was not even an observation or a direction for charging such interest. He, therefore, urged that the levy itself be quashed : (5). Unreported decision of the Delhi Bench of the Tribunal in ITA No. 2664/ Del/95, dt. 27th Sept., 2001, in the case of Nirmal Kumar Jain v. Asstt. CIT; and (6). Unreported decision of the Hon'ble Delhi High Court in the case of CIT v. Multi Chemicals in ITA No. 126/2000.
14. The learned Departmental Representative, on the other hand, placed reliance on the judgment of the Hon'ble Punjab & Haryana High Court in the case of Vinod Khurana v. CIT and Anr. (2002) 253 ITR 578 (P&H), the submission on his part being that a demand notice or a calculation sheet appended .to the assessment order in which the interest had been charged or there was an observation to that effect, constituted sufficient compliance with the provisions of law as also in accordance with the judgment of the Hon'ble Supreme Court in the case of Ranchi Club Ltd. (supra). Our attention was invited to the judgment of the Hon'ble Supreme-Court in the case of Kalyan Kumar Ray v. CIT (1991) 191 ITR 634 (SC), which had been relied upon by the Hon'ble Punjab & Haryana Court.
15. Another judgment on which the learned Departmental Representative placed reliance was that of Dy. CIT v. Anjum MM. Ghaswalla and Ors.
(2001) 252 ITR 1 (SC). It was emphasized that in the aforesaid judgment, their Lordships had taken the view that levy of interest was mandatory and the assessee could not now contend that a formal order was required.
16. In reply, the learned counsel for the assessee contended that in the present case, the specific requirements laid down in the case of Kalyan Kumar Ray (supra) had not been fulfilled since ; 2. The demand notice was vague and did not contain any observation or calculation; and 3. The assessee had not been intimated as to whether any interest had been charged and if so under which section.
17. We may mention that during the course of hearing the assessee's counsel placed on record a photocopy of the notice of demand and a perusal thereof shows that there is no mention of any interest figure.
Nothing has been brought to our notice about any calculation sheet having been provided to the assessee since a copy thereof has not been given to us from the side of the assessee and the record of the AO has not been produced before us for verification although the learned Departmental Representative was specifically asked to do so.
18. As regards the judgment of the Hon'ble Supreme Court in the case of Anjum M.H. Ghaswalla and Ors. (supra) the stand of the learned counsel was that the same had been rendered in a different context viz., the powers of the Settlement Commission and further whatever was mandatory could be recovered only by passing an order and not otherwise.
19. After examining the rival contentions, we note that in all the decisions cited on the part of the learned counsel, the view taken is that interest under the relevant sections cannot be levied without a specific order/direction and in the various decisions of the Tribunal both reported and unreported as also in the unreported decision of the Hon'ble Delhi High Court, the judgment of the Hon'ble Supreme Court in the case of Ranchi Club Ltd. (supra) has been followed. The Department has placed heavy reliance on the judgment of the Hon'ble Punjab & Haryana Court in the case of Vinod Khurana (supra) and a reading of the said judgment shows that in the assessment order, the AO had made an observation to the effect that "charge interest as per law. Issue demand notice and challan." But the relevant section under which interest was to be charged was not mentioned but in the demand notice, which was issued by the AO on the same date simultaneously both the quantum of interest and the section under which it was charged viz.
Section 234B was mentioned. It was on those facts, that their Lordships took the view that the judgment of the Hon'ble Supreme Court in the case of Kalyan Kumar Ray (supra) was applicable and resultantly the test as laid down in the case of Ranchi Club Ltd. was fully satisfied.
In the case before us, there is not a word in the assessment order and the demand notice is also silent.
20. We would like to stress at this stage that the Hon'ble Delhi High Court, which is the jurisdictional High Court in the present case has upheld the quashing of the levy of interest in cases where there is no specific order or direction in the assessment order and we have recently come across an unreported decision of the Hon'ble Delhi High Court in the case of CIT v. Gold Tex Furnishing Industries in ITA No.80/2002, wherein their Lordships have observed as under: "We find that while granting relief to the assessee, the Tribunal has relied on the decision of the Supreme Court in CIT and Ors. v. Ranchi Club Ltd. (2001) 247 ITR 209 (SC), wherein two decisions of the Patna High Court in Ranchi Club Ltd. v. CIT (1996) 217 ITR 72 (Pat) and Uday Mistanna Bhandar & Complex v. CIT (1996) 2221TR 44 (Pat) have been affirmed.
In Uday Mistanna Bhandar and Complex (supra), while analysing the provisions of s 234A, 234B and 234C vis-a-vis Section 156 of the Act, it was held that notice of demand claiming interest can be issued only where there is order in the assessment order levying interest. This view has been upheld by the apex Court in Ranchi Club Ltd. (supra). It is pertinent to note that a Full Bench of the Patna High Court in Smt Tej Kumari and Ors. v. CIT and Ors. (2001) 247 FTR 210 (Pat)(FB) has again reiterated the view taken by the Division Benches in the aforenoted cases Admittedly, in the present case there is no direction in the assessment order for charging of interest under Section 234A, 234B of the Act.
In view of the aforenoted authoritative pronouncements, no question of law, much less a substantial question of law, arises from the order of the Tribunal." 21. It is important to note that their Lordships have stressed on a notice of demand, which includes/mentions the amount of interest with a direction for levying interest. In other words, the assessment order precedes the notice of demand under s, 156 although these are prepared and issued simultaneously. Even the judgment of the Hon'ble Punjab & Haryana High Court in the case of Vinod Khurana (supra) took note of an assessment order and a demand notice specifying the quantum of interest being prepared and issued simultaneously and under these circumstances the test laid down by the Hon'ble Supreme Court in the case of Ranchi Club Ltd. (supra) being satisfied, In other words, the views of the Hon'ble Delhi High Court and the Punjab & Haryana High Court are not at variance at all and the reliance by the learned Departmental Representative on the latter is somewhat misconceived as it in fact supports the stand taken on behalf of the assessee. What is emphasized by both Hon'ble High Courts is the application of mind on the part of the AO whether emerging from the assessment order, whether indicated in categorical terms in the assessment order or emerging from the notice of demand or both, for levying interest. In the present case, as already stated, there is not a word mentioned in the assessment order or any indication in the notice of demand about levying of interest.
22. Coming to the judgment of the Supreme Court in the case of Ajum M.H. Ghaswalla (supra) relied upon by the Department, the same pertains to the powers of the Settlement Commission to waive or reduce interest and does not overrule Ranchi Club Ltd. (supra) which is a direct decision on the point at issue. The decision in the case of Anjum M.H.Ghaswalla was delivered on 18th Oct., 2001, whereas in recent decisions the Hon'ble Delhi High Court has upheld orders of the Tribunal quashing levy of interest following Ranchi Club Ltd. The argument of the learned counsel that whatever is mandatory can be recovered only by an order is an attractive one and appears to be plausible.
23. Respectfully following the various judgments, that of the Hon'ble Supreme Court in the case of Ranchi Club Ltd., the judgment of the Hon'ble Delhi High Court in the case of Gold Tex Furnishing Industries (supra) and the judgment of the Hon'ble Punjab & Haryana High Court in the case of Vinod Khurana (supra), we quash the levy of interest on the assessee made by the AO under Section 234A and 234B.24. Before we part with this appeal, we would like to refer to two other decisions relied upon by the learned Departmental Representative and these being the judgment of the Hon'ble Kerala High Court in the case of CIT v. Malaysia Manorama Company Ltd. (2002) 253 ITR 791 (Ker) and the other being the judgment of the Hon'ble Supreme Court in the case of Kalwa Devadattam and Ors. v. Union of India and Ors. (1963) 49 ITR 165 (SC). A close reading of these judgments shows that the points at issue are entirely different since in the matter before the Kerala High Court, the issue was whether failure to levy interest while' completing a regular assessment could be set right by undertaking a rectification. Their Lordships took the view on the aforesaid facts that liability to pay interest was automatic and the same arose by operation of law and, therefore, rectification was permissible. In the case before us, we are dealing with the levy of interest in a regular assessment and in the case of Ranchi Club Ltd. (supra), the Supreme Court has taken the view that the levy cannot be raised without application of mind on the part of the AO as reflected in the assessment order read along with the notice of demand.
25. Similarly in the case of Kalwa Devadattam and Ors. (supra), the issue was as to what point of time the liability to pay income-tax arises whether on the accrual of income or from the computation made by the taxing authorities in the course of assessment proceedings.
26. In our opinion, both the aforesaid decisions do not advance the Revenue's case.