Income-tax--

----Return---Reassessment---Interest---Law applicable to assessment---Interest under S.139(8) could not be charged in reassessment proceedings prior to 1-4-1985---Indian Income Tax Act, 1961, Ss.139(8), Expln.2 & 147-- Circular No.397, dated 16-10-1984.

Explanation 2 to section 139(8) of the Income Tax Act, 1961, was amended so that an assessment made under section 147 would be regarded as a regular assessment for purposes of section 139(8). This amendment came into force with effect from April 1, 1985. Hence, prior to April 1, 1985, interest could not have been charged in reassessment proceedings. This is also made clear by the circular of the Central Board of Direct Taxes (1985) 152 ITR (St.) 29, 37.

Metallurgical and Engineering Consultants (India) Ltd. v. CIT (1996) 218 ITR 499 (Pat.) and Prakash Lal Khandelwal v. ITO (1989) 180 ITR 604 (Pat.) fol.

Anup Engineering Ltd. v. ITO (1984) 145 ITR 105 (Guj.); CIT v. Graphite India Ltd. (1994) 209 ITR 88 (Cal.); CIT v. Jagannath Narayan Kutumbik Trust (1983) 144 ITR 526 (MP); CIT v. Jaipur Udyog Ltd. (1987) 167 ITR 306 (Raj.); CIT v. T.T. Investments and Trades (Pvt.) Ltd. (1984) 148 ITR 347 (Mad.) and CIT v. Traub (India) P. Ltd. (1979) 118 ITR 525 (Bom.) ref.

K.K. Vidyarthi and S.K. Sharan for the Commissioner.

L.N. Rastogi, A. Bose Kaushal Kumar and Mukesh Kumar-II for the Assessee.

JUDGMENT

The Income-tax Tribunal, Patna Bench, Patna, at the instance of the Revenue, has referred the following questions for the opinion of this Court under section 256(1) of the Income Tax Act, 1961 (for short, "the Act"):

"(1)Whether, on the facts and in the circumstances of the case, it was permissible to the assessee to challenge the charging of interest when the order passed by the Commissioner of Income-tax under section 263(1) of the Income Tax Act, 1961, setting aside the assessment order with a direction to charge interest was upheld by the Tribunal?

(2)Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that no interest was leviable made under section 147/143(3) and under section 263?"

For the facts of this case we. may refer to paragraph 3 of the statement of the case which is as under:

"(3)While making the original assessment under section 143(3)/148, the Income-tax Officer had not charged any interest under section 139(8). Subsequently, assessment was set aside by the Commissioner of Income-tax under section 263(1) with the direction to the Income-tax Officer to make a fresh assessment and charge interest under section 139(8). The Income-tax Officer made the assessment under section 143(3)/147/263 and also charged interest under sections 139 and 217. The Appellate Assistant Commissioner on appeal confirmed the action of the Income-tax Officer both in respect of the assessment and charging of interest. The assessee not being satisfied took this matter in appeal before the Appellate Tribunal. The Appellate Tribunal passed an order in which it held that no interest could be charged. in reassessment proceedings. Accordingly, it cancelled the interest charged. It is necessary to note that the assessee had also contested the validity of the order setting aside the assessment passed by the Commissioner but the Appellate Tribunal had upheld the order of the Commissioner passed under section 263(1) setting aside the assessment."

Mr. Vidyarthi, learned counsel for the Revenue, submitted that there is divergence of opinion on the question so raised by the different High Courts. He said that the Calcutta High Court in CIT in Graphite Indian Ltd. (1994) 209 ITR 88, the Gujarat High Court in Anup Engineering Ltd. v. ITO (1984) 145 ITR 105 and the Madhya Pradesh High Court in CIT v. Jagannath Narayan Kutumbik Trust (1983) 144 ITR 526 have taken a view in favour of the Revenue, holding that interest will be charged in reassessment proceedings. He further said that the Rajasthan High Court in CIT v. Jaipur Udyog Ltd. (1987) 167 ITR 306, the Bombay High Court in CIT v. Traub (India) P. Ltd. (1979) 118 ITR 525 and the Madras High Court in CIT v. T.T. Investments and Trades (Pvt.) Ltd. (1984) 148 ITR 347 have taken a view in favour of the assessee, holding that no interest could be charged under sections 139(8) and 217 in reassessment proceedings.

Mr. Rastogi, learned counsel, submitted that there is a decision of the Patna High Court in favour of the assessee in Prakash Lal Khandelwal v. ITO (1989) 180 ITR 604 and as recent as in Metallurgical and Engineering Consultants (India) Ltd. v. CIT (1996) 218 ITR 499 (Patna).

Mr. Rastogi has further referred to the amendments made in section 139(8) of the Act by amending Explanation 2 thereto which reads as under:

"Explanation 2.---Where, in relation to an assessment year, an assessment is made for the first time under section 147, the assessment so made shall be regarded as a regular assessment for the purposes of this subsection."

The amending Act by which the aforequoted Explanation 2 has come into force is by the Taxation Laws (Amendment) Act, 1984, with effect from April 1, 1985.

Mr. Rastogi further referred to the circular of the Central Board of Direct Taxes as reported in (1985) 152 ITR (St.) 29, 37 and paragraphs 14.3 and 15.3 thereof. From this circular also it is clear that prior to April 1, 1985, interest could not have been charged in reassessment proceedings.

We therefore find no difficulty in answering both the questions to the affirmative and in favour of the assessee and against the Revenue. We record our appreciation of the assistance rendered to us by Mr. Rastogi.

M.B.A./1541/FCReference answered.