2010 (1) TMI 705 - AT - Income Tax

Interest on refund - application of seized cash or requisitioned asset u/s 132B -AO allowed interest under section 244A to the extent of Rs.6, 34, 707. - Later AO issued a notice under section 154 to withdraw the interest under section 244A - Held that - it is settled law that the order under section 154 cannot be made on the debatable issue of facts and law. The Assessing Officer can have jurisdiction under section 154 in case the mistake is clear distinct and apparent from record - It is true that the learned CIT(A) has directed the Assessing Officer to adjust the self assessment tax and pay the interest under section 244A(1) of the Income Tax Act 1961 - Assessing Officer was not justified in withdrawing the interest under section 244A(1) because the seized cash was adjusted against the existing liability and interest under section 244A was liable from the date on which the amount was adjusted against the existing liability to the date when the amount was refunded - Decided in favor of assessee.

Summary

Issues:
1. Rectification under section 154 on debatable issues.
2. Interpretation of law regarding interest under section 244A.
3. Adjustment of seized cash against self-assessment tax.
4. Application of seized cash under section 132B.
5. Jurisdiction under section 154 for rectification.

Issue 1: Rectification under section 154 on debatable issues:
The Assessing Officer proposed to withdraw interest under section 244A allowed on self-assessment tax, leading to a dispute with the assessee. The assessee argued that section 154 cannot be invoked on debatable issues, citing various case laws. The Assessing Officer contended that the withdrawal of interest was rectifying a mistake apparent on record, as interest on self-assessment tax was not mentioned in section 244A. The CIT(A) also noted that the mistake in the assessment order was a mistake of law, leading to a debate on the issue.

Issue 2: Interpretation of law regarding interest under section 244A:
The CIT(A) referred to a decision by the Karnataka High Court in CIT vs. NGEF Ltd., holding that self-assessment tax should be considered for allowing interest under section 244A. The CIT(A) directed the Assessing Officer to adjust the self-assessment tax against the demand raised and compute interest under section 244A accordingly, based on a purposive interpretation of the law over literal interpretation.

Issue 3: Adjustment of seized cash against self-assessment tax:
During a search, cash was seized, and the assessee requested its adjustment against self-assessment tax. The Assessing Officer's order did not specify when the seized cash was adjusted against the tax liability. The assessment order detailed additional income disclosed by the assessee, including unexplained donations, creditors, and expenditure, leading to a discussion on the treatment of seized cash as undisclosed income.

Issue 4: Application of seized cash under section 132B:
Section 132B provides for the application of seized cash against existing liabilities or liabilities determined post-assessment. The seized cash should be adjusted against liabilities, and if not, released to the assessee with interest. The order under section 154 mistakenly treated the seized cash as self-assessment tax, leading to a conclusion that the Assessing Officer was not justified in withdrawing interest under section 244A.

Issue 5: Jurisdiction under section 154 for rectification:
The Tribunal found that the Assessing Officer's withdrawal of interest under section 244A was not justified as the issue was debatable. It was emphasized that rectification under section 154 should only occur for clear, distinct, and apparent mistakes on record. The Tribunal dismissed the revenue's appeal and upheld the assessee's appeal, concluding that the Assessing Officer erred in passing the order under section 154 of the Income Tax Act, 1961.

This detailed analysis of the judgment highlights the complex legal issues surrounding rectification, interpretation of tax laws, adjustment of seized assets, and the jurisdiction of the Assessing Officer under the Income Tax Act, 1961.