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K Kachradas Patel Specific Family Trust and Others Versus ITO 12 (2) (1) , Mumbai

2015 (10) TMI 1079 - ITAT MUMBAI

Entitlement to interest on refund - Held that:- There is no substance in the argument of the Revenue that the delay n the refund was caused because of the conduct of the assessees. In fact, the assessee was questioning the proposition of the Revenue to assess the income in the hands of the Main Trusts. That is why the beneficiary trusts have filed their individual returns of income disclosing the benefits received from the main trusts also. But when KVSS was pronounced by the Government of India .....

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unds due to them.

Assessee is not entitled to interest on interest - See Hon’ble Supreme Court in the case of CIT vs. Gujarat Flouro Chemicals (2013 (10) TMI 117 - SUPREME COURT) - Decided in favour of assessee in part. - 6090, 6091, 6092, 6093, 6094, 6095, 6096, 6097, 6098, 6099, 6100, 6101, 6102, 6103, 6104, 6105, 6106, 6107, 6108, 6109, 6110, 6111, 6112, 6113, 6114, 6115, 6116, 6117, 6118, 6119, 6120, 6121, 6122, 6123, 6124/Mum/20 - Dated:- 7-9-2015 - Sh. Rajendra,Accountant Member .....

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of the Appellant s case, the learned CIT(A) has grossly erred in holding that appellant is not entitled to interest on refund of ₹ 40,442/-. 3) In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in holding that appellant is not eligible for interest on refund of Rs.l 1,138/-. 4) In law and in facts and circumstances of the Appellant s case, the learned CIT(A) has grossly erred in holding that appellant is not eligible for interest on interes .....

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AY.under appeal,return was filed with on 23/6/1984,showing total income of ₹ 1,10,335/- .The returned income was accepted vide order,dated 27/2/1987,passed under section 143(3) of the Act.However,the assessment was made on protective basis as the income was assessed to tax on substantive basis in the case of main-trust.The main-trust,namely KKPSFT,was agitating the matter in further appeals.Later on, KKPSFT settled the dispute under Kar Vivad Samadhan Scheme(KVSS).In that background,the i .....

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also interest on interest.It filed a rectification application for interest on refund under section 244A of the Act till the date of refund.As per assessee,it had paid advance tax of ₹ 31,780/- and self assessment tax of ₹ 19,800/-.Thus,the the total amount of tax paid by it was a sum of ₹ 51,580/-.In pursuance to order passed under section 155(2) of the Act and as per said computation a refund of ₹ 40,442/- was granted to the assessee and the balance amount of ₹ 1 .....

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Tribunal in other group cases,following the order of the Special Bench,that the Hon ble Gujarat High Court had upheld the order of the Special Bench on 26.06.2008 in IT appeal Nos.1514 to 1795of 2006(Punitaben K.Patel OSFDT and 284 other cases),Nos.573-618and1216-1233of 2007 (Manjulaben Pramodbhai & Ors)and Nos.182,204 of 2002,No.27-30 of 2004(Janak Pramodbhai Patel & Ors).Dimissing the appeals filed by the Revenue,the Hon ble High Court observed as under : As regards grant of interest .....

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the main Trust no income is assessable in the hands of these assessees. Thus, it is the case of the assessee that whatever tax is refunded to the assessee, the assessee is entitled to get interest on the said refund under the provisions of section 244(1A) of the Act. It is the case of the assessee that on similar facts and circumstances in the cases of other beneficiaries there is decision of Special Bench, which is dated 7/7/2006, copy of which is filed at pages 33 to 63 of the paper book and .....

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s made to the following observations of the Special Bench. 27.We heard both sides in detail and considered the matter in the light of the earlier orders of the different benches of the Tribunal on the subject and the plethora of materials placed before us along with assessment, appeal and revision orders. 28.the first issue that came up for consideration is whether the dispute regarding the issue involved in these appeals were continued to exist at that point, of time. We find that this question .....

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rther find that the answer to the controversy cropped up in these cases is available in the relevant instructions issued by the CBDJ in the context of Kar Vivad Samadhan Scheme, 1998.We have already seen the relevant question and answer to the question. The CBDT has stated in unequivocal terms that declarations are to be made in respect of substantive assessments. The Board has clarified that the protective demand is not subject to recovery unless it is finally upheld. The Board has further expl .....

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ed in their hands on substantive basis. Therefore, in the light of the circular, the corresponding protective assessments made in the hands of beneficial trusts would fade away and the demand raised in those protective assessment would no longer be valid. When the assessment is not subsisting and the demand is not valid, the amount paid by the assessee along with the return subject to protective assessment becomes refundable to the assessee. Therefore, we are of the considered opinion that the a .....

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ds of the Main Trusts and also considered in the hands of the beneficial trusts. Kar Vivad Samadhan Scheme, 1998 was introduced by Government of India to settle the pending litigations at different levels and collect the tax once for all and reach finalities in the matters connected thereto. Even though KVSS was a special scheme, the KVSS did not propose to tax any income twice. Whether under the regular provisions of the Income-tax Act or under the scheme of KVSS what is to be assessed and subj .....

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turns in their individual hands. This position was not accepted by the Revenue. Therefore, substantive assessments have been made in the hands of Main Trusts. In abundant precaution protective assessments have been made in the hands of the respective beneficiary trusts. Suppose the proposition made out by the department was acceptable to the assessee and the substantive assessments made in the hands of the Main Trusts have been accepted by the assessee, what would be the Position of the correspo .....

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assessments under KVSS which for all practical purposes is equivalent to finally settling the substantive assessments in their hands. The final outcome of the whole process is not different from the substantive assessments having been accepted by the assessees as such or having been settled under an available scheme known as Kar Vivad Samadhan Scheme, 1995. In either case the protective assessments become invalid whereby no demand can be enforced against those protective assessments. The consequ .....

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rom the present case. The income involved in the substantive assessment as well as in the protective assessments are one and the same. The income has been assessed substantively in the hands of the Main Trusts and the demand subsequently settled under KVSS. It is quite unnecessary to repeat that the income has already been assessed in the hands of the Main Trusts. Therefore, nothing remains thereafter to be assessed in the hands of the beneficiary trusts, as far as the income of Main Trust is co .....

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les a return of income and where tax is due as per the said return, the tax shall be paid by the assessee before filing the return of income and the proof of such payment of tax proof of such payment of tax shall be accompanied alongwith the return of income. This is called selfassessment. When an assessee files a return with positive income and remits tax thereon u/s 140A, in fact, an assessment is being contemplated even though it is a self-assessment . Later on, when it is found that the inco .....

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is compensatory in nature. It always moves with the principle amount. 34.There is no substance in the argument of the Revenue that the delay n the refund was caused because of the conduct of the assessees. In fact, the assessee was questioning the proposition of the Revenue to assess the income in the hands of the Main Trusts. That is why the beneficiary trusts have filed their individual returns of income disclosing the benefits received from the main trusts also. But when KVSS was pronounced .....

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the assessees on refunds due to them. XXXXXXXXXXXXXXXXXXX 3.5.It was further submitted that in one of the cases interest has already been granted by the Revenue and said grant of interest has not been reversed. Reference in this regard was made to the case of M/s.Vruti Discretionary Family Trust, in respect of which AO disallowed the application of the assessee for grant of interest and Ld. CIT(A) restored the matter back to the file of AO to allow the interest as per law and AO vide his order d .....

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pages 113 to 114 of the paper book. 3.6.Thus, it was pleaded by Ld. AR that in view of above submissions the necessary relief should be granted to the assessee. In this manner ground No.2 and 3 were argued by Ld. AR. 4.So far as it relates to Ground No.4, it was submitted by AR that since Revenue has deprived the assessee for long time for granting the interest or refund without any just cause, assessee should also be held entitled for receiving interest on interest. 5.On the other hand, after n .....

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uted position of the AO being that income on which the tax was paid by the assessee did not belong to it and hence, the assessee was not liable to the demand on the income of the main Trust. Since the assessee has disclosed the income as its own and had paid the tax on its own volition, and in order to protect interest of Revenue the AO only made the protective assessment. No enforceable demand was created on the assessee. According to well settled position of law, in protective assessment deman .....

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ed tax determined on regular assessment and further no interest can be claimed under section 214 beyond the date of regular assessment. In this manner Ld. DR pleaded that interest has rightly been denied by Ld. CIT(A). 6.So far as it relates to ground No.4, it was submitted by Ld. DR that according to decision of Hon ble Supreme Court in the case of CIT vs. Gujarat Flouro Chemicals, 358 ITR 291 (SC)w.e.f. 1/4/1989 the interest which can be granted to the assessee on refund as per section 244A wo .....

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ecial Bench order was on the merits of the issue as well as on the validity or otherwise of section 263 of the Act which was invoked by the CIT to deny these assesses benefit of interest which was already granted by the AO. Special Bench has decided this issue in favour of the assessee and relevant observation of Special Bench have already been reproduced above. 7.1.The Revenue challenged the aforementioned order of Special Bench before Hon ble Gujarat High Court and Gujarat High Court has not o .....

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is made clear that the facts of the present cases and those which were decided by the Special Bench and Hon ble Gujarat High Court are pari-materia and this fact was not disputed by the Revenue. The AO has adopted a view which is contrary to the decision of Special Bench and the decision of the Hon ble Gujarat High Court and as he has again made the disallowance by rejecting the rectification application of the assessee.Thus, the conduct of the AO is against the decision rendered by Special Ben .....

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rt has already directed the Revenue not to drag the assessee in unnecessary avoidable litigation. 7.2.The issue regarding grant of interest to the assessees is clearly covered by the decision of the Special Bench as well as Hon ble Gujarat High Court which have not been contended to be reversed or modified.Therefore, we direct the Revenue to grant the interest to the assessee and Ground No.2 & 3 are allowed. 7.3.Before parting with Ground Nos. 2 & 3 of the assessee s appeal, we may menti .....

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