COMMISSIONER OF INCOME TAX CENTRAL-II, V. PRAVIN P CHOKSHI

TAXAP/1063/2008

AI Insights

The case involves the Commissioner of Income Tax Central-II as the appellant and Pravin P Chokshi as the respondent. The dispute arose from a block assessment conducted under Section 132 of the Income Tax Act at the residential premises of the assessee, leading to the declaration of undisclosed income. The Assessing Officer added unaccounted marriage expenses to the declared income, which was partly contested and led to appeals through various levels of the tax authority, culminating in the ITAT's decision to dismiss the revenue's appeal. The revenue challenged the ITAT's decision in the Gujarat High Court, focusing on the legal interpretation of surcharge applicability under the Finance Act.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 728548 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 21-12-2013
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax vs. Suresh N. Gupta
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: RULE SERVED
• Assessee Lawyers: MAUNA BHATT
• Keywords: Block assessment; Income Tax; Surcharge; Undisclosed income
• Section: 143(2); 132; 113; 158BC

Judgement Text

"O/TAXAP/1063/2008 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1063 of 2008 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH ­ sd/­ and HONOURABLE MR.JUSTICE R.D.KOTHARI sd/­ ============================================= 1. Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2. To be referred to the Reporter or not ? NO 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5. Whether it is to be circulated to the civil judge ? NO ============================================= COMMISSIONER OF INCOME TAX CENTRAL­II,....Appellant(s) Versus PRAVIN P CHOKSHI....Opponent(s) ============================================= Appearance: MRS MAUNA M BHATT, ADVOCATE for the Appellant(s) No. 1 RULE SERVED for the Opponent(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE R.D.KOTHARI Date : 21/12/2013 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.0. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 13.07.2007 passed by the Income Tax Appellate Tribunal (hereinafter referred to as the “ITAT”) passed in IT (SS) A. No.25/AHD/2003 for AY 1989­90 to 14.12.1999, revenue has preferred the present Tax Appeal to consider following substantial Page 1 of 6 O/TAXAP/1063/2008 JUDGMENT questions of law: 1.Whether the Appellate Tribunal is right in law and on facts in deleting the surcharge ignoring the fact that provision for levy of surcharge were also applicable prior to insertion of proviso to Section 113 by Finance Act 2000 w.e.f. 1st June 2002, in view of specific provision contained in paragraph A of part I of the First Schedule relating to the levy of surcharge on Income Tax of the relevant Finance Act. The subsequent insertion of the same provision in Section 113 by way of proviso is clarificatory and not with a view to nullify the old provision relating to charge of surcharge? 2.Whether the Appellate Tribunal is right in law and on facts in ignoring the provision of the Finance Act which is a Central Act governing the charge of tax as per Section 4 of the Income Tax Act?” 2.0. A search was conducted under Section 132 of the Income Tax Act (hereinafter referred to as the “Act”) at the residential premises of the assessee. Thereafter, statutory notice as required under Section 158BC of the Act was issued and served on the assessee on 14.6.2000. In response to the statutory notice, the assessee furnished return of undisclosed income in form No.2B declaring therein total undisclosed income of Rs.5,00,000/­ for the block period under reference. Subsequently, notice under Section 143(2) of the Act was issued and served upon the assessee. That during the assessment proceeding, the Assessing Officer directed to make addition of Rs.9,70,750/­ as under: Total undisclosed income declared in return form 2B by the assessee Rs. 5,00,000/­ Add, Unaccounted Marriage expenses Rs. 4,70,750/­ Total undisclosed income for the block period Rs. 9,70,750/­ Page 2 of 6 O/TAXAP/1063/2008 JUDGMENT 2.1. Feeling aggrieved and dissatisfied with the order passed by the Assessing Officer in determining the assessee undisclosed income of Rs. 9,70,750/­ as against the undisclosed income at Rs.5,00,000/­ declared by the assessee and its block return, the assessee preferred appeal before the CIT(A) and the learned CIT(A) partly allowed the said appeal deleting addition of Rs.4,70,750/­. 2..2 Feeling aggrieved and dissatisfied with the order passed by the CIT(A), the revenue preferred appeal before the ITAT and by impugned judgment and order the learned ITAT has dismissed the said appeal confirming the deletion made by the CIT(A). 2.3. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned ITAT, the revenue has preferred present Tax Appeal to consider the following substantial questions of law. 1.Whether the Appellate Tribunal is right in law and on facts in deleting the surcharge ignoring the fact that provision for levy of surcharge were also applicable prior to insertion of proviso to Section 113 by Finance Act 2000 w.e.f. 1st June 2002, in view of specific provision contained in paragraph A of part I of the First Schedule relating to the levy of surcharge on Income Tax of the relevant Finance Act. The subsequent insertion of the same provision in Section 113 by way of proviso is clarificatory and not with a view to nullify the old provision relating to charge of surcharge? 2.Whether the Appellate Tribunal is right in law and on facts in ignoring the provision of the Finance Act which is a Central Act governing the charge of tax as per Section 4 of the Income Tax Act?” Page 3 of 6 O/TAXAP/1063/2008 JUDGMENT 3.0. Learned counsel for the revenue has drawn our attention to the decision of the Division Bench in Tax Appeal No. 823 of 2008 as well as decision of the Apex Court in the case of Commissioner of Income Tax vs. Suresh N. Gupta (Supra), wherein the Apex Court was of the opinion that the proviso to Section 113 of the Act was inserted to indicate that the Finance Act of the year in which the search was initiated would apply. The Apex Court was of the opinion that this proviso was only clarificatory in nature and there was no question of its retrospective operation. The Bench held and observed as under: 22.As stated above, section 158BA(2) read with Section 4 of the 1961 Act looks at section 113 for the imposition rate at which tax has to be imposed in the case of block assessment. That rate is 60 per cent. That rate is fixed by the 1961 Act itself. That rate has been stipulated by Parliament not with a view to oust the levy of surcharge but to make the levy cost effective and easy. Therefore, a flat rate is prescribed. The difficulty in block assessment is that one has to correlate the undisclosed income to different years in which income is earned, hence, Parliament has fixed a flat rate of tax in section 113 [see [1995] 212 (St.)69]. On the contrary, a bare perusal of various Finance Acts starting from 1999 indicates that Parliament was aware of the rate of tax prescribed by section 113 and yet in the various Finance Acts, Parliament has sought to levy surcharge on the tax in the case of block assessment. In the present case, the Assessing Officer has applied the rate of surcharge at 17 per cent. Which rate finds place in paragraph A of Part I of the First Schedule to the said Finance Act of 2001, therefore, surcharge leviable under the Finance Act was a distinct charge, not dependant for its leviability on the assessee’s liability to pay incometax but on assessed tax. 23.For the aforementioned reasons, we hold that even without the proviso to section 113 (inserted vide Finance Act, 2002, with effect from June 1, 2002), the Finance Act 2001, was applicable to block assessment under Chapter XIVB in relation to the search initiated on January 17,2001, and accordingly surcharge was leviable on the tax amounting to Rs.97,456 at 17 percent. Amounting to Rs.16,504. We accordingly answer the above question in favour of the Revenue and against the assessee. Whether insertion of the proviso in section 113 by the Finance Act, 2002 was applicable to search up to May 31, 2002. 24.In view of our findings on the first point, strictly speaking, we are not required to examine this question. However, it has been vehemently urged on behalf of the assessee that the said Page 4 of 6 O/TAXAP/1063/2008 JUDGMENT proviso cannot operate retrospectively. This argument is founded on the basis that until the amendment in section 113 with effect from June 1, 2002, there was inconsistency with regard to levy of surcharge. According to the assessee, the question which usually bothered both the assessee and the Department was whether surcharge was leviable with reference to the rates provided for in the Finance Act of the year in which the search was initiated or the year in which the search was concluded or the year in which the block assessment proceedings under section 158BC were initiated or the year in which block assessment order was passed.According to the assessee, there was a conference of Chief Commissioners which had suggested to the Central Government to amend section 113 with retrospective effect. However, despite such recommendations, the Central Government inserted the proviso in section 113 only with effect from June 1, 2002. Therefore, according to the assessee, the proviso cannot be interpreted as retrospective. 25.We find no merit in the above arguments. Both, the Finance Acts of 2000 and 2001, indicated that a substantive charge was created in respect of the incometax to be levied. Both these Acts prescribed the rates of surcharge. The said surcharge did not depend for its leviability on the assessee’s liability to pay incometax but on the assessed tax. The assessee has relied upon the above anomalies in support of their contention that such anomalies made the charge ineffective. In our view, such submission amounts to begging the question. According to the assessee, prior to June 1, 2002, the position was ambiguous as it was not clear even to the Department as to which year’s Finance Act would be applicable. To clear this doubt precisely, the proviso has been inserted in section 113 by which it is indicated that the Finance Act of the year in which the search was initiated would apply. Therefore, in our view, the said proviso was clarificatory in nature. In taxation, legislation of the type indicated by the proviso has to be read strictly. There is no question of retrospective effect. The proviso only clarifies that out of the four dates, Parliament has opted for the date, namely the year in which the search is initiated, which date would be relevant for applicability of a particular Finance Act. Therefore, we have to read the proviso as it stands. 26.There is one more reason for rejecting the above submission. Prior to June 1, 2002, in several cases, tax was prescribed sometimes in the 1961 Act and sometimes in the Finance Act and often in both. This made liability uncertain. In the present case, however, the rate of tax in case of block assessment at 60 per cent. Was prescribed by section 113 but the year of the Finance Act imposing surcharge was not stipulated. This Page 5 of 6 O/TAXAP/1063/2008 JUDGMENT resulted in the above four ambiguities. Therefore, clarification was needed. The proviso was curative in nature. Hence, the proviso inserted in section 113 merely clarifies that out of the above four dates, the relevant date for applicability of the Finance Act would be the year in which the search stood initiated under section 158BC.” 4.0. The issues arising in the present appeal are thus squarely covered by the above mentioned decision of the Hon’ble Supreme Court in the case of Suresh N. Gupta(Supra) in favour of the revenue. 5.0. Applying ratio / law laid down by the Hon’ble Supreme Court in the case of Suresh N. Gupta (Supra) to the facts of the case on hand, the question / issues arise in the present appeal are required to be answered in favour of the revenue. 6.0. In view of the above, present Tax Appeal is allowed and the question is held in favour of the revenue. To the aforesaid extent, impugned judgment and order passed by the learned ITAT stands reversed. sd/- (M.R.SHAH, J.) sd/­ (R.D.KOTHARI, J.) Kaushik Page 6 of 6 "