N. Barathvaja Sankar, Accountant Member - (1.) AS these two appeals preferred by the revenue for the two consecutive assessment years 1987-88 and 1988-89 in the case of the assessee Smt. P. Thilakavathi of Shanmuganathapuram consist of identical grounds of appeal and arise out of the common appellate order, the same were clubbed together, heard together and are being disposed of by this common and consolidated order for the sake of convenience.
(2.) Briefly stated, the facts of the case are that for the assessment year 1987-88 the assessee originally filed the return of income on 9-2-1988 admitting income of Rs. 13,880. The assessment was completed under Section 143(1) accepting the return. Thereafter a survey under Section 133A was conducted by the AD (I) in the business premises of the assessee on 18-12-1990. During the course of the survey the assessee's husband had admitted that the assessee used to charge interest on pawn inams at 27 per cent per annum and she used to account for interest at 12 per cent per annum. The income that had been earned and kept outside the books of account had been invested in various securities and also utilised for meeting the household expenses etc. She had also given a statement in this regard that the assessee had undertaken to offer a sum of Rs. 6,25,000 as undisclosed income in the last five years returns and also agreed to pay the taxes thereon. Accordingly, the assessee had filed the returns for the assessment years 1987-88 to 1990-91 offering a total sum of Rs. 5 lakhs. For the assessment year 1987-88 the assessee had filed revised return on 15-4-1991 admitting total income of Rs. 1,38,880, i.e. income admitted in the original return being Rs. 13,880 and additional income of Rs. 1,25,000. After discussing with the assessee's representative the assessment was completed under Section 143(3) accepting the returned income of Rs. 1,38,880. While framing the assessment order interest under Section 139(8) of Rs. 4,872 and interest under Section 217 of Rs. 43,948 were charged. Similarly for the assessment year 1988-89 interest under Section 139(8) of Rs. 4,340 and interest under Section 217 of Rs. 37,200 were charged. Aggrieved by this action of the Assessing Officer the assessee moved the matter in appeal before the first appellate authority. The first appellate authority after considering the contentions of the assessee's representative had observed as under :- I have considered the facts of the case. For both assessment years 1987-88 and 1988-89, the original assessments were completed accepting the returned income. No interest was apparently levied either under Section 139(8) or under Section 217 at that stage. Thereafter, in the light of the survey conducted by the department and in pursuance of the statement given by her husband, the appellant offered Rs. 1,25,000 each for five assessment years from 1987-88 to 1991-92. The appellant voluntarily filed returns admitting Rs. 1,25,000 as additional income and the Assessing Officer issued notices under Section 148 just to legitimise those returns. The disputed levy of interest under Sections 139(8) and 217 is part of the reassessments. The appellant totally denies the liability. In my view the appellant is bound to succeed since it has been held that interest under Sections 139(8) and 217 can not be levied in a reassessment vide Karnataka High Court's decision in Charles D'Souza's case reported in 147 ITR 694. The Department's SLP against the decision has been rejected by the Supreme Court vide 186 ITR St. 28. In the light of this, the levy of interest is held unsustainable for both years. The Assessing Officer is directed to modify the tax liability by excluding the interest levied. In the result, appeals are allowed.
(3.) NOW the revenue is aggrieved and is on second appeal before the Tribunal with the following grounds of appeal : 1. The Commissioner (Appeals) erred in deleting the interest levied under Sections 139(8) and 217 of the Income-tax Act. 2. The Appellate Authority ought not have deleted the interest when there was no original assessments made for the assessment years 1987-88 and 1988-89 and the returns were processed under Section 143(1)(a) and thereafter notice issued under Section 148 to bring to tax the income that had escaped and in that sense the assessment under Section 147 only was the regular assessment. 3. The Commissioner (Appeals) ought to have confirmed the levy of interest under Section 139(8) and under Section 217 following the decision of the Kerala High Court in the case of Lally Jacob 197 ITR 439 and the Thekkanatu Firms 202 ITR 389 particularly when it was not a case of reassessment but first assessment under Section 147. The appellate authority erred in not considering the fact that the decision of the Karnataka High Court in 141 ITR 694 does not apply to a case of assessment under Section 147 after processing the return under Section 143(1)(a). At the time of hearing the learned departmental representative contended that the decision of the Karnataka High Court in Charles D'Souza v. CIT [1984] 147 ITR 694, relied upon by the first appellate authority is no more good law in view of the amendments made to Sections 139(8) and 215(3) of the Income-tax Act with effect from 1-4-1985. Specifically he drew our attention to the Explanation 2 to Section 139(8), which reads as under :- 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 purpose of this sub-section. Also Section 215(3) was relied upon by the learned departmental representative.;