1980 (12) TMI 92 - AT - Income Tax

Summary

Issues:
1. Jurisdiction of the assessing officer to levy interest under section 201(1A).
2. Time limitation for the Department to recover short deductions at source.
3. Violation of principles of natural justice in levying interest without issuing a show cause notice.

Analysis:
1. The first issue pertains to the jurisdiction of the assessing officer to levy interest under section 201(1A) of the Income Tax Act. The assessee contended that the assessing officer who levied the interest had no jurisdiction as the assessee, being a trust, was being assessed by a different assessing officer. However, it was determined that since the monthly returns for tax deductions were filed with the assessing officer who levied the interest, that officer had the jurisdiction to make the order under section 201(1A). Consequently, the contention of the assessee on this issue was dismissed.

2. The second issue involves the time limitation for the Department to recover short deductions at source. The Department levied interest on the short deductions made by the assessee, which the assessee argued was time-barred as per section 231 of the Income Tax Act. The tribunal disagreed with the assessee, stating that the Department's power to levy interest for the relevant periods was not time-barred. However, it was clarified that interest could only be levied for the period during which the principal arrears were recoverable, limiting the scope of interest recovery. Therefore, the contention of the assessee on the time limitation was partially upheld.

3. The final issue concerns the violation of principles of natural justice in levying interest without issuing a show cause notice. The assessee argued that no show cause notice was issued before levying interest, violating natural justice. The Department contended that issuing a show cause notice was unnecessary as the levy of interest was a calculation matter. The tribunal disagreed with the Department, stating that in cases where the delayed deposit of deducted amounts was not involved, it was necessary for the assessing officer to hear the assessee before levying interest. The tribunal found that the provision under section 201(1A) did not cover situations where the deductions made were inadequate, as long as the employer estimated the income of the employees under the salary head reasonably. As there was no evidence that the deductions were insufficient based on the assessments of the employees, the order of levy of interest was set aside, and the assessee succeeded on this issue.

In conclusion, the appeals were allowed in favor of the assessee based on the analysis of the jurisdiction of the assessing officer, time limitation for interest recovery, and the violation of principles of natural justice in levying interest without issuing a show cause notice.