Hariom Gupta , Bharatpur vs Assessee

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 447/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2006-07

Hari Om Gupta cuke I.T.O. S/o- Late Shri Murari Lal Gupta, Vs. Ward-2, Bharatpur. Gudri Mohalla, Village- Kumher, Bharatpur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABTPG 9596 P vihykFkhZ@Appellant izR;FkhZ@Respondent

fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal jktLo dh vksj ls@ Revenue by: Shri Rajesh Ojha

lquokbZ dh rkjh[k@ Date of Hearing : 28/05/2015 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 05/06/2015

vkns'k@ ORDER

PER: R.P. TOLANI, J.M.

This is an assessee's appeal challenging the order of the learned

CIT(A), Alwar, dated 14/02/2012 for A.Y.2006-07, raising following

grounds:

"1 That the lower authorities has grossly erred in holding that the appellant is liable to pay tax during the year on 2 ITA 447/JP/2012_ Hari Om Gupta Vs. ITO

interest income of Rs. 540069/- on refund amount which is duly adjusted and assessable during the year 2006-07.

2 That the lower authorities has grossly erred in legal and on facts, Treating refund adjustment of Rs. 17,64,477/- of the assessee by the ACIT, Bharatpur, without consent of the assessee in the demand of his late father Shri Murari Lal Gupta as received and thereby holding that interest allowed U/s 244A of the IT Act therein of 540069/- is also received by the assessee and assessable under the IT Act during the assessment year 2006-07.

3. That the lower authorities has grossly erred in holding that refund of interest of Rs. 540069/- on refund U/s 244A of the Act has been accrued/received to the appellant, and liable to be taxed.

4. That the lower authorities has grossly erred in charging tax on an interest on refund U/s 244A of the Act in reassessment proceedings U/s 147/143(3) of the Act when the original assessment was completed on 26/03/2007 and this fact was duly declared in the return filed by the appellant.

5. That the assessee has right to add alter or amend any ground of appeal on or before the date of hearing."

2. Brief facts are that the assessee and his father Shri Murari Lal

Gupta were subjected to assessments U/s 158BD of the Income Tax

Act, 1961 (in short the Act), which resulted in high demands. The

assessee carried the matter for A Y 2006-07 up to ITAT, which by order 3 ITA 447/JP/2012_ Hari Om Gupta Vs. ITO

dated 07/02/2005 deleted many additions. The Assessing Officer gave

effect to the order of the ITAT, which resulted in the refund of taxes

paid and entitlement of interest amounting to Rs. 5,40,069/- U/s 244A

of the Act.

3. It so happened that some unpaid tax demand from his late father

Shri Murarilal was outstanding and the assesse being legal heir was

liable for payment thereof. Consequently on 09/6/2005, AO issued

proposal to the to the assessee that the total amount consisting of tax

refund and the interest U/s 244A will be adjusted against the

outstanding demand of his deceased father for which assesse was liable

as a legal heir. The assessee objected to this proposal Assessing Officer,

however, adjusted the tax refund including interest in question thereon

towards outstanding demand of deceased father. This issue is not a

matter of adjudication.

The dispute pertains to the Assessing Officer's holding that the

interest earned by the assessee U/s 244A amounting to Rs. 5,40,069/-

was his income for A.Y. 2006-07.

4. Aggrieved on this addition, the assessee preferred first appeal

assessee's submissions in this behalf and ld. CIT(A)'s order thereon is

as under:-

4 ITA 447/JP/2012_ Hari Om Gupta Vs. ITO

"With regard to interest received, it is respectfully submitted that the assessee has adopted cash system. Further, it is submitted that the then A.O. (ACIT, Bharatpur) made an addition of Rs.

278161/- on a/c of accrued interest on these pawned ornaments, while passing order U/s 158BC of IT Act. The aggrieved assessee went in appeal against the addition before Hon'ble CIT(A). The addition made was deleted and relief was allowed vide order dt. 13.08.2003, in the order CIT(A) mentioned his inference that "I have considered this issue and I am of the opinion that there is no certainty of realization of interest all the times in pawned advances. In such a situation right to received interest does not vest in the assessee on the advances as the borrower may not come forward within reasonable time period to get back his pawned items after making payments of principal and interest thereon. The income tax is charge on real income as held by Hon'ble Supreme Court 1 236 ITR 315 and 225 ITR 746. Otherwise also no proper books of pawning advances were maintained; such income has to be taxed on cash basis as held by Gauhati High Court in the case of NR Sirkar. The choice of adopting system accounting is on the assessee and he can to be compelled to disclose income from interest on accrual basis. Further ITAT in the case of assessee's brother Sh. Kapoor Chand Khandelwal in appeal No. ITSSA 54/JP/02 vide order dt. 30/12/2002 in similar circumstances held that interest on pawning advances has to be taxed on cash basis. In view of these facts, the addition for accrued interest amounting to Rs.

5 ITA 447/JP/2012_ Hari Om Gupta Vs. ITO

2,78,161/- does not appear to be justified and therefore the same is deleted.

The Income tax Deptt. accepted the relief allowed and it did not aggrieved with the decision of CIT(A). Therefore, appeal before Hon'ble ITAT was not made on this ground. The copy of order of CIT(A) and copy of departmental appeal memo as received (form No. 36) is enclosed. Therefore, seized jewellery is with IT Department and facts of the case remain unchanged, the interest on pawned advances needs to be taxed on cash basis not on accrual basis as mentioned in your letter.

2. The assessee has furnished his justification with regards to house hold expenses vide letter dt. 06/11/2009 and further submitted that the family is living in their own house in small village, Kumher, Bharatpur where living expenses are always less in comparison to cities. The family is having in their house on basic families. The family has incurred house hold expenses Rs. 48000/- in immediate preceding year. There was no function or ceremony took place during the year under consideration."

Considering the above submission and fact of the case, no adverse inference is called for in respect of interest income on "Girvi Assets" and house hold expenses incurred by the assessee also appears to be reasonable.

In respect of interest allowed u/s 244A on income tax refund, the contention of assessee is not acceptable as discussed 6 ITA 447/JP/2012_ Hari Om Gupta Vs. ITO

above. Therefore, interest of Rs. 540069/- allowed to the assessee is added to the total income of the assessee."

5. Aggrieved, the assessee is in appeal before us. The ld A.R. for the

assessee made following submissions:-

(i) The refund and interest thereon has arisen because of the order of ITAT dt. 07.02.2005 i.e. in FY 04-05 relevant to AY 05-06 and not AY 2006-07. Therefore, the right to interest income accrued to the assessee on the date on which the ITAT order is passed. If there is delay on part of the department in giving the appeal effect, the accrual of interest cannot be accordingly postponed. Hence, the interest u/s 244A calculated by the department cannot be said to have accrued in A.Y. 2006-07.

(ii) Against the order of ITAT granting relief, the department has filed an appeal to the High Court. Thus, the refund and interest thereon calculated by the department is contingent upon the decision of Hon'ble High Court. Therefore, till the matter is finally decided by the Hon'ble High Court and no further appeal is filed to the Hon'ble Supreme Court, no interest can be said to have accrued on arisen to the assessee as the assessee does not get a vested right in such refund/interest. Hence, for this reason also interest U/s 244A cannot be taxed in the year under consideration.

7 ITA 447/JP/2012_ Hari Om Gupta Vs. ITO

(iii) The interest is calculated by the department from the date of payment of the demand till the date on which appeal effect of the ITAT order is given. The calculation of interest is spread over to number of years. The details of the amount of interest earned deferent year has not been provided to assessee. It is a settled law that interest accrues on day to day basis. Consequently the entire amount of interest cannot be taxed in the year in which the department gave the appeal effect.

In his connection reliance is placed on the decision in the case of Shri M. Jaffer Saheb (Deed) Vs. CIT (2014) 361 ITR 25 (AP) (HC) holding that the stand of the department that interest u/s 244(1A) accrues to the assessee only when it is granted to the assessee along with refund order issued U/s 240 is not correct. Interest accrues on a day to day basis on the excess amount paid by the assessee. The entitlement of interest is a right conferred by the statute and it does not depend on the order for the refund being made. An order for the refund is only consequential order which in law is required to be made more in the nature of complying with the procedural requirement, but the right to claim interest of the assessee is statutory right conferred by the Act. Accordingly, the interest has to be spread over and taxed in the respective years."

8 ITA 447/JP/2012_ Hari Om Gupta Vs. ITO

6. The ld DR on the other hand, contends that the case of Shri M.

Jaffer Saheb (Deed) Vs. CIT (supra) as relied on by the assessee is not

applicable to assessee's case inasmuch as:

(i) This is the case pertaining to A.Y. 1990-91 whereas the

assessee's case is for A.Y. 2006-07.

(ii) Section wording of sec. 244A has under gone various

amendments after this assessment year.

(iii) Section 244(A)(i) reads as under:-

"244A(1) [Where refund of any amount becomes due to the assessee under this Act], he shall. Subject to the provisions of this section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely ...............

(iv) Section neither refers to any period nor refers to any right to

receive but the words used are 'entitled to receive'. In view

thereof the interest in question was undoubtedly received by the

assessee u/s 244A in A Y 06-07 by a valid order in consonance

with sec 156 r/w sec 244A.

(v) Relevant part of section 156, reads as under:-

"156. When any tax, interest, penalty, fine or any other sum [***] is payable in consequence of any order passed under this Act, the [Assessing] Officer shall serve upon the assessee a 9 ITA 447/JP/2012_ Hari Om Gupta Vs. ITO

notice of demand in the prescribed form specifying the sum so payable:"

(vi) Similarly refund also is worked out on same footing by a

demand notice in Form 7 which alone creates a right to refund

and interest which also is undisputedly passed in AY 2006-07. A

combined reading of these provisions clearly spell that the

assessee was entitled to refund and interest U/s 244A by passing

of valid order by the Assessing Officer in AY 2006-07. In these

circumstances, the interest has been rightly taxed as income on

the assessee in AY 2006-07.

(vii) There is difference between commercial interest and

statutory interest under income tax law. Interest u/s 244A is a

certain and crystallized statutory entitlement consequent to a

refund and is not contingent in nature. If assessee's contention of

its being contingent is accepted than the interest though earned

is to be deferred for indefinite period which is not the mandate of

the literal interpretation in this behalf.

7. We have heard the rival contentions of both the parties and

perused the material available on the record. We find merit in the

contentions of the ld DR that by plain reading of Section 156 and 244A, 10 ITA 447/JP/2012_ Hari Om Gupta Vs. ITO

the assessee is eligible for statutory interest income which crystalizes

only after a valid order of the Assessing Officer giving effect to the ITAT

order is passed i.e. AY 06-07 in this case. Consequently the impugned

income tax refund interest income has been rightly taxed in A.Y. 2006-

07. The case law cited by assesse is distinguishable in view of the plain

reading of Sections 156, 244A and Shri M. Jaffer Saheb (Deed) Vs. CIT

(supra) which pertains to A.Y. 1990-91. Section 244A having been

amended thereafter, the case law cannot be applied to the case of the

assessee, therefore, we uphold the order of the lower authorities in

brining to tax the impugned amount of income tax interest for the year

in question.

8. In the result, the assessee appeal is dismissed.

Order pronounced in the open court on 05/06/2015.

Sd/- Sd/- ¼Vh-vkj-ehuk½ ¼vkj-ih-rksykuh½ (T.R. Meena) (R.P.Tolani) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member

Tk;iqj@Jaipur fnukad@Dated:- 05th June, 2015 *Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- Hari Om Gupta, Bharatpur.

2. izR;FkhZ@ The Respondent- I.T.O., Ward-2, Bharatpur.

11 ITA 447/JP/2012_ Hari Om Gupta Vs. ITO

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr@ CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 447/JP/2012)

vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar