Case Details:
ITA No.6264, 6265& 6266/Del./2013
AY: 2009-10, 2010-11, 2011-12
Sandip Bhagat (Appellant) vs ACIT (Respondent)
Date of Order: 10-09-2015

Grounds of Appeal:

“1. The order passed by the Learned Commissioner of Income Tax (Appeals) is bad on facts and in law.

2. The Learned Commissioner of Income Tax (Appeals) has erred in noting that Circular No. 261 dated 08.08.1979 is not binding and has further erred in noting that OLTAS system has replaced the tax payments and that the circular no. 261 issued in 1979 is not binding on the Department.

3. The Learned Commissioner of Income Tax (Appeals) has further erred in ignoring the facts of the case including the copies of the challan, bank statements to show that the payments were debited in the bank account before the due date and the clarification received from the Ministry of Finance, Department of Revenue produced before the Learned Commissioner of Income Tax (Appeals) that

(i) Circulars are binding on CPC;

(ii) Circular No. 261 of 1979 is still valid and not being over-ruled;

(iii) Officers of Direct Taxes are borne by this circular.

4. The Learned Commissioner of Income Tax (Appeals) has further erred in confirming the interest of Rs.25,512/- levied u/s 234C.”

5. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.

Facts of the case:

The main grievance raised in these appeals was in respect of charging of interest u/s 234C of the Income Tax Act, 1961.  The assessee had filed its return electronically. The assessee had computed the liability for interest u/s 234C at Rs.2,022/- for delay in making payment of advance tax. The return was processed u/s 143(1) of the Act by the Centralized Processing Centre (CPC) located at Bangalore. In the CPC order interest charged u/s 234C was Rs.27,534/- . The sole reason for this difference was that while computing the interest, CPC took the date of clearing of cheque by the bank as the date of payment of advance tax as against the date of tendering of cheque taken by the assessee for computing the interest.

Aggrieved by the order of CPC, the assessee filed a rectification application u/s 154. However it was disposed off by the CPC with the following observation:

“VARIATION DUE TO INTEREST: THE ASSESSEE IS ADVISED TO USE THE SOFTWARE UTILITY AVAILABLE ON THE WEBSITE http:/www.incometaxindiaefiling.gov.in FOR ENTERING AND UPLOADING THE ONLINE RECTIFICATION APPLICATION.”

The assessee filed an appeal before CIT(A) and cited the Central Treasury Rules and the Circular No.261 issued by the Central Board of Direct Taxes (CBDT) and prayed that date of tendering of the cheque for tax payment should be treated as date of tax payment for the purpose of computing interest u/s 234C rather than the date of clearing of the cheque.

However, the CIT(A) , relying on the new procedure of giving tax credit i.e. Online Tax Accounting System (OLTAS) , declined the request of the assessee.

Excerpts from ITAT Order:

The aforesaid controversy has been settled by their lordship in recent judgment in the case of CIT vs. REPCO Home Finance ltd. (Supra). The relevant para of judgment is reproduced as under:-

“5. The issue raised in this appeal is no longer res integra in view of the decision of the Supreme Court in CITv. Ogale Glass Works Ltd. 19541 25 1TR 529, wherein it is held as under:

"11. ...... When it is said that a payment by negotiable instrument is a conditional payment what is meant is that such payment is subject to a condition subsequent that if the negotiable instrument is dishonoured on presentation the creditor may consider it as waste paper and resort to his original demand: (Stedman v. Gooch, ((1791) 1 Esp 5). It is said in Benjamin on Sale, 8th Edn. p. 788: The payment takes effect from the delivery of the bill, but is defeated by the happening of the condition i.e. non-payment at maturity. In Byles on Bills, 20th Edn., p. 23 the position is summarized pithily as follows: 'A cheque, unless dishonoured, is payment.' To the same effect are the passages to be found in Hart on Banking, 4th Edn. Vol. I, p. 342. In Felix Hadley & Co. v. Hadley, [1898] 2 Chd. 680 Byrne, J. expressed the same idea in the following passage in his judgment at p. 682:

'In this case I think what took place amounted to a conditional payment of the debt; the condition being that the cheque or bill should be duly met or honoured at the proper date. If that be the true view, then I think the position is exactly as if an agreement had been expressly made that the bill or cheque should operate as payment unless defeated by dishonour or by not being met; and I think that that agreement is implied from giving and taking the cheques and bills in question. The following observations of Lord Maugham in Rhokana Corpn. v. Inland Revenue Commissioners, 1938 AC 380 are also opposite: 'Apart from the express terms of Section 33 sub-section 1, a similar conclusion might be founded on the well-known common law rules as to the effect of the sending of a cheque in payment of a debt, and in the fact that though the payment is subject to the condition subsequent that the cheque must be met on presentation, the date of payment, if the cheque is duly met, is the date when the cheque was posted.' In the case before us none of the cheques has been dishonoured on presentation and payment cannot, therefore, be said to have been defeated by the happening of the condition subsequent, namely, dishonoured by non-payment and that being so there can be no question, therefore, that the assessee did not receive payment by the receipt of the cheques. The position, therefore, is that in one view of the matter there was, in the circumstances of this case, an implied agreement under which the cheques were accepted unconditionally as payment and on another view, even if the cheques were the payment related back to the dates of the receipt of the cheques and in law the dates of payments were the dates of the delivery of the cheques" (Emphasis supplied)

6. The above said view of the Supreme Court was reiterated by a recent decision of the Supreme Court in DIT (Exemption) v. Raunaq Education Foundation [2013] 350 ITR 420/213 Taxman 19/29 taxmann.com. 150.

7. It is not the case of the department that the cheque issued by the assessee was dishonored. Once the cheque issued by the assessee is encashed, in the light of the decisions referred supra, the payment relates back to the date of receipt of the cheque.”

Thus, the hon‟ble High court of Madras has held that date of tendering of cheque should be taken as the date of payment of tax if the cheque is not dishonoured. The hon‟ble High court has also taken note of the decision of the Supreme Court in the case of DIT( Exemption) v. Raunaq Education Foundation (2013) 350 ITR 420. Coming to the facts of the case in hand, cheques issued have not been dishonored and so the facts of the case are exactly identical to the case cited above, and therefore, respectfully following the judgment of the Hon‟ble High Court of Madras in the case of CIT Vs. REPCO Home Finance Ltd (supra) and DI(Exemption) v. Raunaq Education Foundation , we hold that interest u/s 234C of the Act should be computed from the date of presentation of the cheque of tax payment. We direct the Assessing Officer to compute the interest u/s 234C of the Act, accordingly.

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