ORDER
H.L. Karwa, J.M.
1. These two appeals by the assessee involving common point of dispute against the consolidated order of the CIT(A), Jalandhar, dt. 10th March, 2000, were heard together and are being disposed of by this common order for the sake of convenience.
2. For the asst. yr. 1987-88, the AO charged interest amounting to Rs. 4,11,250 under Section 139(8) and Rs. 3,56,680 under Section 215/217 of the IT Act, 1961. Similarly, the AO has charged interest under Section 139(8) and 215/217 of the Act amounting to Rs. 94,496 and Rs. 80,652, respectively. The main contention of the assessee in these appeals was that they were not at all liable to pay interest under Sections 139(8) and 215/217 of the Act.
3. The relevant facts appearing from the records are that Janak Raj Chauhan, Jagdish Raj Chauhan and Smt. Sohagwanti, residents of Tagore Nagar, Jalandhar, were carrying out the venture of purchase/sale of agricultural land at village Masudabad, New Delhi, during the financial years 1986-87 and 1987-88, relevant to the assessment years under consideration. It is claimed that each of them had equal share in the said venture. The IT Department conducted a search under Section 132 of the Act at the assessees residential/business premises on 31st July, 1992, during the course of which certain incriminating documents, papers, maps, conveyance deeds showing large scale transaction in immovable property, development of residential colonies, etc. were found. The seized documents revealed that an agreement was entered into for purchasing of 8-1/2 acres of land at village Masudabad,
Najafgarh Road, New Delhi, between the owner of the land on one hand as vendor and Janak Raj Chauhan, Jagdish Raj Chauhan and Smt. Sohagwanti on the other hand, as vendees. This land was developed into plots during the accounting periods, relevant to the asst. yrs. 1987-88, 1988-89 and 1989-90. It is apparent that Janak Raj Chauhan filed his return of income for the asst. yrs. 1987-88 and 1988-89 on 17th Dec., 1993, in response to the notices issued under Sections 147/148 of the Act. Similarly, Jagdish Raj Chauhan filed his returns of income in response to the notice under Section 148 on 27th Jan., 1993, for the asst. yrs. 1987-88 and 1988-89. The AO noted that Janak Raj Chauhan and his brother moved applications before the Settlement Commission in their individual cases. The applications filed before the Settlement Commission were rejected. Subsequently, Jagdish Raj Chauhan, Janak Raj Chauhan for himself and as a legal heir of Smt. Sohagwanti moved applications on 5th Aug., 1996, to the ITO, Ward 1(4), Jalandhar, for the asst. yrs. 1987-88, 1988-89 and 1989-90, wherein it was stated that the members of AOP having l/3rd share each purchased the agricultural land measuring 7-1/2 acres in village Masudabad, Najafgarh Road, New Delhi, and the land was sold in the form of plots from June, 1986, to December, 1988. It was further stated in the said application that the members of the AOP declared the income in the petition before the Settlement Commission, which was not admitted and now the Hon’ble Supreme Court as recently held in the case of ITO v. Ch. Atchaiah (1996) 218 ITR 239 (SC) that in the new Act, the AO has an option to assess the income either in the hands of the AOP or in the hands of the individual member, as it was available under the old Act and the AO has to tax only the right person. Jagdish Raj Chauhan declared the income from the sale of plots of Delhi land in the three years as under :
Asst. yrs. Income 1987-88 5,67,963 1988-89 1,69,003 1989-90 23,877
The AO assessed the income of AOP and 1/3rd share of Jagdish Raj Chauhan was determined. Accordingly, the assessee’s 1/3rd share was worked out at Rs. 73,756 and Rs. 2,26,920 for the asst. yrs. 1987-88 and 1988-89, respectively. The AO further noted that the assessee had accounted for only 7-1/2 acres of land when the purchase was made of 8-1/2 acres of land. Applying the average selling rate of the one-acre of land he inferred that the assessee has suppressed the income of Rs. 4,41,020 by not showing the sale of one acre of land. He divided this amount in the same proportion as the sales were shown in the three years and then from that amount, he worked out l/3rd share of Jagdish Raj Chauhan. In other words, he made further addition on the share from the declared profit of the AOP.
4. The AO had added l/3rd share plus l/3rd share of Smt. Sohagwanti in the hands of Janak Raj Chauhan. The additions in this respect for the three assessment years in respect of the profits of the said AOP were made by the AO as under:
Asst.
yrs.
Shares
Of profits in respect of
Janak
Raj Chauhan
Smt
Sohagwanti
Total
1987-88
2,95,548
2,95,548
5,91,096
1988-89
3,72.680
3,72,680
7.45.360
1989-90
33,072
33,072
66,144
4.1. For the assessment years under consideration, the AO framed the
assessments under Section 143(3) in the status of individual. While framing the
assessments, the AO also charged interest under Sections 139(8) and 215/217 of the
Act.
5. When the matter was taken to the CIT(A) in appeal, by Jagdish Raj Chauhan
(Indl.), the learned CIT(A) following the ratio laid down by the Hon’ble Supreme
Court in the case of ITO v. Ch. Atchaiah (supra) accepted this contention of
the assessee that income was earned by the AOP and, therefore, the
assessment has to be made in the hands of the AOP alone. Accordingly, he
directed the AO to initiate the proceedings for the assessment of the AOP for
the assessment years under consideration. The additions made by the AO were
deleted.
5.1. Similarly, while deciding the appeals of Janak Raj Chauhan {Indl.) for the
assessment years under consideration, the learned CIT(A) issued the same
directions to the AO and deleted the additions made by the AO.
6. The AO initiated the assessment proceedings in view of the judgment of the Hon’ble Supreme Court in the case of ITO v. Ch. Atchaiah (supra) as well as in view of the directions of the learned CIT(A) given in the appellate orders dt. 27th June, 1997, in the case of Jagdish Raj Chauhan (Indl.) for the asst. yrs. 1987-88 to 1989-90 and order dt. 20th Aug., 1997, passed in the case of Janak Raj Chauhan (Indl.) for the asst. yrs. 1985-86 to 1989-90. The AO issued notice under Section 148 to the AOP to file return, which was received on 26th Dec., 1997. In response to the said notice, the return was filed on 27th Jan., 1998, i.e., within 31 days in the status of AOP. The AO processed the returns under Section 143(l)(a) (status was taken as AOP) of the Act, and in the intimation sent to the assessee raised a demand of Rs. 4,11,250 being interest charged under Section 139(8) and Rs. 3,56,681 being the interest charged under Sections 215/217 of the Act for the asst. yr. 1987-88. Similarly, for the asst. yr. 1988-89, the AO raised a demand of Rs. 94,496 on account of interest charged under Section 139(8) and Rs. 86,652 on account of interest charged under Sections 215/217 of the Act.
7. Aggrieved by the orders of the AO for both the years under consideration, the assessee preferred appeals before the CIT(A). One of the grounds taken before the CIT(A) was that the AO was not justified in charging interests under Sections 139(8) and 215/217 of the Act.
7.1. The learned CIT(A) discussed this issue vide paras 3 and 4 of his order. For the detailed reasons given in the consolidated order dt. 10th March, 2000, for the asst. yrs. 1987-88 and 1988-89, the learned CIT(A) held that the AO was justified in charging interest under Sections 139{8) and 215/217 of the Act.
8. Aggrieved by the consolidated order of the CIT(A), the assessee is in appeal before the Tribunal.
9. Before us, Ravish Sood, advocate, the learned counsel for the assessee, submitted that till the recent years, the AO had the discretion to assess any income, either in the hands of the AOP or in the hands of the members of the said AOP. The said discretion was duly vested with the AO as per Circular N0.75/19/191/162-ITJ, dt. 24th Aug., 1966 by the CBDT. Accordingly, it was submitted that in view of the said circular the AO, who had exercised option by framing the assessment in the hands of the individual members, was precluded from the proceedings and thereupon framing assessment in the hands of the AOP Ravish Sood, advocate, the learned counsel for the assessee, also referred to the decision of the Hon’ble Supreme Court in the case of ITO v. Ch. Attchaiah (supra) and submitted that the Hon’ble Supreme Court reversing its earlier judgment in the case of State of Uttar Pradesh v. Raza Buland Sugar Co. Ltd (1979) 118 ITR 50 (SC) held that the AO was under an obligation to tax the right person and the right person alone, and therein if the income belonged to an AOP the same has to be taxed in the hands of the AOP alone, and the AO therefore, had no option to assess the same either in the hands of the AOP or in the hands of the members. The aforesaid decision was delivered by the Hon’ble Supreme Court on 11th Dec., 1995. It was also brought to our notice that when the members of the AOP came to know about the aforementioned proposition of law, they voluntarily filed an application on 5th Aug., 1996, to the AO and requested him that in view of the judgment of the Hon’ble Supreme Court in the case of Ch. Attchaiah (supra), the income from the “Venture” of sale of agricultural land at village Masudabad, New Delhi, which was assessed by the AO in the hands of the individual members was to be assessed in the hands of the AOP and consequently, requested the AO that the notice under Section 148 be issued to the AOP in order to enable it to file the return. It was also submitted by the learned counsel for the assessee that at the relevant time, the appeals filed against the order of the AO in the individual cases were fixed for hearing before the CIT(A), Jalandhar. The learned CIT(A) vide his order dt. 27th June, 1997, and 20th June, 1997, in the cases of Janak Raj Chauhan and Jagdish Ra] Chauhan deleted the additions made by the AO pertaining to their shares from the aforesaid venture of purchase/sale of agricultural land in village Masudabad, New Delhi, and directed the AO that income from the aforesaid venture may be assessed in the hands of the AOP alone. It is stated that in pursuance of the directions of the CIT(A), Jalandhar, and in view of the letter, dt. 5th Aug., 1996, filed by the assessee and also in view of the judgment of the Hon’ble Supreme Court, the AO issued notice under Section 148 to the AOP. However, the notices under Section 148 were issued only on 24th Dec., 1997, i.e., after a lapse of about 1-1/4 years after making of the request by the AOP. It was also brought to our notice that the assessee filed the return in response to the notices issued under Section 148 of the Act and the income returned was accepted by the AO. However, the AO was not justified in charging the interest under Sections 139(8) and 215/217 of the IT Act on the AOP, submitted the learned counsel for the assessee. In view of the above, it was contended that no interest was chargeable in the instant case.
9.1. Ravish Sood, advocate, the learned counsel for the assessee, also submitted that the AO has not afforded an opportunity to the assessee-AOP before charging interest under Sections 139(8) and 215/217 of the Act. The assessee
has shown that it was prevented by sufficient cause from filing the return in time and at the same time, the assessee was prevented by sufficient cause from filing of estimating of advance-tax/depositing of advance-tax. In fact, the AO should have given an opportunity of being heard to the assessee-AOP, submitted the learned counsel for the assessee.
In support of the above contentions, reliance was placed on the decision of the Hon’ble Karnataka High Court in the case of S. Govindaraju v. CIT (1982) 138 ITR 495 (Kai) and of the Hon’ble Andhra Pradesh High Court in the case of Ambica Chemical Products v. /TO (1991) 191 ITR 382 (AP). In view of the above, it was submitted that interest under Sections 139(8) and 215/217 of the Act was not leviable on the assessee-AOP. Alternatively, it was contended that the AO was not justified in levying interest under Sections 139(8} and 215/217 of the Act without affording any opportunity to the assessee of being heard in the matter.
9.2. S.C. Pahwa, the learned Departmental Representative strongly supported the orders of the authorities below. He further submitted that the assessee has filed the return in the status of AOP, which was late and, therefore, the AO was justified in levying the interest under Section 139(8) of the Act. Similarly, the interest under Section 215/217 of the Act has rightly been levied by the AO, submitted the learned Departmental Representative.
9.3. We have carefully considered the rival submissions and have also gone through the orders of the authorities below. The decisions relied upon by the learned representatives of both the parties were duly considered. In the instant case, the learned CIT(A) was not justified in stating that no appeal is maintainable against the levy of interest in isolation. In the case of Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 160 ITR 961 (SC) the Hon’ble Supreme Court held (headnotes) as under;
“The levy of interest is part of the process of assessment. Although Sections 143 and
144 do not specifically provide for the levy of interest and the levy is, in fact,
attributable to Section 139(8) or Section 215, it is nevertheless a part of the process of
assessing the tax liability of the assessee. Inasmuch as the levy of interest is a
part of the process of assessment, it is open to an assessee to dispute the levy
in appeal provided he limits himself to the ground that he is not liable to the
levy at all.”
(Emphasis, italicised in print, supplied, by us)
In the instant case, the AO has not afforded an opportunity of being heard to the assessee before charging of interest under Sections 139(8) and 215/217 of the Act. As it is apparent from the facts of the present case that only intimation under Section 143(l)(a) of the Act was sent to the assessee. In the instant case, from the very beginning, the assessee was denying the liability to pay the interest. It was the case of the assessee before the appellate authority below that it was not liable to the levy of interest under Section 139(8) and 215/217 of the Act. In view of the decision of the Hon’ble Supreme Court, referred to above, the appeal was maintainable before the CIT(A) and, therefore, the findings given by the CIT(A) contrary to the settled position of law, is not tenable. Accordingly, we hold that in the facts and the circumstances of the present case, the appeal was maintainable before the CIT(A). The assessee has never admitted at any stage that it was liable for the charging of interest under Section 139(8) and 215/217 of the Act.
9.4. From the above contentions of the assessee, it is clear that as per CBDT Circular No. 75/19/191/162-ITJ, dt. 24th Aug., 1966, the AO has the discretion to assess any income either in the hands of the AOP or in the hands of the members of the AOP. It is true that Board’s circulars are binding on the Revenue authorities. It is an admitted fact that the assessments in the case of individuals were also made under Section 143(3) of the Act, and against the orders of the AO, the assessees filed appeals before the CIT{A), Jalandhar. It is clear that the CIT(A), Jalandhar disposed of the appeals on 20th June, 1997, and 27th June, 1997. The learned CIT{A) directed the AO to assess the income arising out of the purchase/sale of agricultural land at village Masudabad, New Delhi, in the hands of the AOP alone. It seems that the learned CIT(A) has decided the appeals keeping in view the judgment of the Hon’ble Supreme Court in the case of Ch. Attchaiah (supra). An application was moved by the individual members on 5th Aug., 1996, to the AO, who was having jurisdiction in their cases and requested him that in view of the judgment of the Hon’ble Supreme Court the income from the ‘venture’ of sale of agricultural land of village Masudabad, New Delhi, may be assessed in the hands of the AOP independent of individual members. In view of the decision of the Hon’ble Supreme Court in the case of Ch. Attchaiah (supra), the AO issued notice under Section 148 to the assessee. In the case of Ch. Attchaiah (supra) the Hon’ble Supreme Court has held that if it is the income of the AOP in law, the AOP alone has to be taxed, the members of AOP cannot be taxed individually in respect of the income of the AOP. It was also observed by the Hon’ble Supreme Court that consideration of the interests of the Revenue has no place in this scheme. It is noticed that in response to notice issued under Section 148, the assessee-AOP filed its return on 27th Jan., 1998.
9.5. Thus, from the above legal discussion, it is clear that the assessee (AOP) was prevented by sufficient cause from filing the returns of income well within time. As we have already noted that the decision in the case of Ch. Attchaiah (supra) was delivered on 11th Dec., 1995, by the Hon’ble Supreme Court and it was held that it was obligatory for the AOP to file its return of income. Before the said decision, the position of law was quite different. It is worth mentioning that notice under Section 148 was issued by the AO to the assessee-AOP on 24th Dec., 1997, requiring it to file the returns and in response to that, the assessee immediately filed the returns. Even the assessee had made a request to the AO vide its letter dt. 5th Aug., 1996, to issue notice under Section 148 of the Act.
9.6. Considering the above facts, it cannot be said that the assessee had deliberately delayed the filing of the returns.
9.7. In the case of CIT v. Anupinder Singh and Ors. (2000) 243 ITR 686 (P&H) the Hon’ble Punjab and Haryana High Court has held that “The Tribunal was right in holding that assessees were not liable to pay interest under Sections 139(8) and 217 of the Act. The assessees voluntarily filed returns after the order of the High Court granting interest on the enhanced compensation and paid tax on that income. They could not anticipate enhancement of compensation and grant of interest thereon prior to the order of the High Court.” Accordingly, it was held by the Hon’ble High Court that the Tribunal was justified in stating that the assessee was not liable to pay interest
under Sections 139(8) and 217 of the Act. In the instant case also, at the time when the AO has assessed the share income in the hands of the members, he himself had as per law as it was then, precluded himself from proceeding against the AOP. However, no one could have anticipated that the Hon’ble Supreme Court would deliver a judgment as on 11th Dec., 1995, which would make it obligatory on the part of the AO to assess the income in the hands of the AOP, despite the fact that the said income had already been assessed in the hands of the individual members. In our view, there is merit in this contention of the learned counsel for the assessee that the AOP cannot be made liable for chargeability of interest under Sections 139(8) and 215/217 of the Act on the ground that it has failed to anticipate the said subsequent judgment of the Hon’ble Supreme Court. Accordingly, the order of the CIT{A) is against the law and is liable to be reversed.
9.8. In the case of Bharat Conductors (P) Ltd. v. CIT (1999) 238 ITR 89 (Kar), wherein it has been held that “If for any reason the law is amended retrospectively creating liability of tax then, it would be sufficient cause for not charging interest under Section 139(8) of the IT Act, 1961.” It was also held by the Hon’ble Karnataka High Court that “Interest under Section 217 of the Act on the same reasoning was also to be waived in respect of the income derived by the assessee on sale of import entitlement which was made taxable because of retrospective amendment by the Finance Act, 1990.” 9.9. In view of the above, it is clear that no interest under Sections 139(8) and 215/217 of the Act can be levied in the facts and the circumstances of the present case.
9.10. Alternatively, it was submitted before us by the learned counsel for, the assessee that no opportunity has been afforded to the assessee to show sufficient cause for delay in filing the return, filing of estimate of advance-tax/depositing of advance-tax. In the case of Ambica Chemical Products v. ITO (supra), the Hon’ble Andhra Pradesh High Court has held that “Under Rules 40 and 117AA of the IT Rules, 1962, the ITO is vested with discretion to waive or reduce interest levied under Sections 215, 217 and 139 of the IT Act, 1961, under certain circumstances. By implication these reguire that an opportunity must be given to the assessee to show cause why interest should not be levied or to satisfy the ITO that there is a case for waiver or reduction of interest. Where no such opportunity was given to the assessee, the orders levying interest are liable to be quashed.” It is relevant to point out that SLP filed by the Department against the aforesaid judgment of the Hon’ble Andhra Pradesh High Court has been rejected by the Hon’ble Supreme Court in the case of ITO v. Ambica Chemicals Products [SLP (Civil) Nos. 1881-1884 of 1986 : (1991) 187 ITR (St) 162]. In the instant case also, no proper opportunity of being heard was given to the assessee before charging interest under Sections 139(8) and 215/217 of the Act.
9.11. The net result of the above discussion is that the assessee was not at all liable for interest under Sections 139(8) and 215/217 of the IT Act, 1961. Accordingly, we cancel the interest levied by the AO for both the years under consideration under Sections 139(8) and 215/217 of the IT Act, 1961. In other words, we reverse the findings of the CIT(A) on this issue and common ground Nos. 3 and 4 of both the appeals are allowed.
10. Common ground No.2 read as under:
“That the CIT(A) has erred in not dropping proceedings under Section 147 and the notice issued under Section 148 dt. 24th Dec., 1997, because;
(i) The initiation of proceedings and issuance of notice under Section 148 being without jurisdiction is ab initio void.
(ii) The notices has been issued without getting the sanction from the proper authority as envisaged under Section 151 which may be evident from the notice itself where word ‘additional’ has been written before the Dy. CIT by the ITO in his own hand and the CIT(A) has erred in not appreciating that it is not a mere technicality where Section 292B is applicable but it involves a question of jurisdiction.”
10.1. Since we have allowed the appeals of the assessee on merits and, therefore, we do not think it proper to decide this common ground of appeals by which a legal issue has been raised. Therefore, no findings are given on this issue.
11. In the result, both the appeals are allowed partly.
