In CIVIL APPEAL No.3704 of 2012-SC- Assessees other than searched persons would be liable to pay interest on late filing of return of income for block period u/s 158BC of Income Tax Act even in absence of notice: SC 
Justices M.R.Shah & C.T. Ravikumar [13-01-2023]

Read Judgment: K.L. Swamy v. The Commissioner of Income Tax & Anr 

Tulip Kanth 

New Delhi, January 25, 2023: While observing that there shall be liability to pay interest leviable under Section 158BFA(1) of Income Tax Act on delay in filing return, the Supreme Court has observed that the interest under such provision is leviable on standalone basis for late or non-filing of return, which ceases on the day return is filed. 

“Therefore, in case of the person other than searched person the notice under Section 158BD would be required/sufficient and in case of late filing of the return under Section 158BC, the interest will be leviable under Section 158BFA, the Division Bench of Justice M.R.Shah and Justice C.T. Ravikumar clarified.

The appellant was a Director Partner in Khoday Group of Company concerns. A search under Section 132 was conducted in the residential premises of the family members of Khoday Group and the warrant was issued in the name of M/s. Khoday India Limited. The appellant was served with the notice under Section 158BD to file the return of income for the block period of April 1, 1986 to February 13, 1997. 

The appellant filed a return for the block period in response to notice under Section 158BD by including the undisclosed income of Rs 45,00,000 for the block period. The Assessing Officer levied interest u/s 158BFA(1) for the period from January 18,1998 to January 19,1999 at the rate of 2% per month for 13 months and levied interest of Rs.7,12,296 on the tax amount of Rs 27,49,600.

The appellant being aggrieved by the order of the Assessing Officer filed an appeal before the CIT (A) where it was opined that Section 158BFA provides for levy of interest for late filing of return of block assessment in response to the notice under Section 158BC similar to the provisions of Section 234A. 

The appellant – assessee being aggrieved by the order of CIT(A) filed an appeal before the ITAT, Bangalore whereby it was observed that the return was filed on January 19, 1999 and at the relevant point of time there was no provision to pay self- assessment tax along with the return of income and therefore no interest was leviable under Section 158BFA(1). Thereafter, the Revenue’s appeal was before the High Court was allowed and the decision of the ITAT was reversed. Thus, the appellant approached the Apex Court.

On the issue of levy of the surcharge under proviso to Section 113 of the Income Tax Act, the Bench referred to the Top Court’s judgment in  Commissioner of Income Tax (Central)-I, New Delhi Vs. Vatika Township Private Limited whereby it was opined that the Finance Act, 2003, made it clear that surcharge in respect of block assessment of undisclosed income was made prospective.

Hence, the Bench held the question with respect to levy of the surcharge under proviso to Section 113 in favour of the assessee and against the revenue. It was asserted that in the present case the assessee was not liable to pay the surcharge under proviso to Section 113. 

The Bench dealt with the next issue of levy of the interest under Section 158BFA(1) of the Income Tax Act in absence of any notice served upon the assessee under Section 158BC and the liability to pay the interest under said provision for the period prior to June 1,1999.

Highlighting the concept of block assessment, the Top Court again referred to the judgment in Vatika Township Private Limited (supra)  wherein it was observed that a separate return covering the years of the block period is a pre-requisite for making block assessment.

Noting that the assessment of undisclosed income for the block period including the filing of the return etc., the normal assessment proceedings including under Section 140 shall not be applicable , the Bench refused to accept the assessee's submission that interest u/s 158BFA for the period prior to June 1,1999 shall not be chargeable.

“Liability to deposit the tax along with return arises only under Section 140A. However, at the relevant point of time Section 140A did not apply to Section 158BC and hence there was no liability to deposit tax along with the return”,the Bench said while also adding that the said lacunae was noticed by the Parliament and by the Finance Act, 1999, the words Section 158BC had been inserted in Section 140A w.e.f. June 1, 1999.

 “The return under Section 158BC was required to be filed as per Chapter XIV-B and on the delay in filing the return, there shall be liability to pay interest leviable under Section 158BFA(1)”, the Bench further clarified.

Considering the fact that prior to amendment in Section 158BD vide Finance Act, 2002 and even thereafter, the provisions of Section 158BC would be applicable in case of searched persons, the Bench held that in case of a person other than searched person, no notice under Section 158BC which is required to be issued in case of searched persons was required to be issued. For a person other than the searched person, notice under Section 158BD is sufficient, the Bench added.

The Bench held that  the respective assessees were not liable to pay the surcharge under proviso to Section 113 and also opined, “The impugned judgment and order passed by the High Court is hereby confirmed and it is observed and held that the assessee – persons other than searched persons shall be liable to pay the interest on late filing of the return under Section 158BC even in absence of a notice under Section 158BC of the Income Tax Act and even for the period prior to 01.06.1999.”