Income Tax Appellate Tribunal - Cochin
The Fertilizers And Chemicals ... vs The Asstt. Commissioner Of Income-Tax on 24 April, 2007
Equivalent citations: [2007]109ITD56(COCH)
ORDER
Riyaz S. Padvekar, Judicial Member
1. The assessee has filed this appeal challenging the order of the Commissioner of Income-tax(Appeals)-II, Cochin dated 20-9-2004 for the Assessment Year 1996-97.
2. The assessee has taken the following grounds in concise form:
1. The order of the learned CIT(Appeals) is against law, equity and justice
2. (a) The learned CIT(A) erred in confirming the levy of the interest made Under Section 234B(3) beyond the date of payment of tax Under Section 140A of the Act. Levy of interest Under Section 234B(3) is subject to Section 234B(2), hence interest there-under could not be levied beyond the date of payment of tax made Under Section 140A of the Act.
(b) Notwithstanding the above, the question involved is a legal issue debatable in nature and hence cannot be made the subject matter of rectification Under Section 154.
3. The learned CIT(A) erred in the confirming the order of Assessing Officer in recomputing the deduction Under Section 80HHC, by deducting unabsorbed investment allowance from the income eligible for the purpose of deduction Under Section 80HHC. The question involved is a debatable issue and cannot be made the subject matter of rectification Under Section 154.
4. For these and other grounds to be further adduced at the time of hearing the order of the learned CIT(A) requires to be modified to the extent appealed against.
3. The first issue which arises for our consideration is regarding levy of interest Under Section 234B(3) of the Income Tax Act.
4. The facts in brief can be stated as follows: The assessee is a public sector company engaged in the manufacture and sale of fertilizers and chemicals. For the asst. year 1996-97, the original assessment of the assessee was completed Under Section 143(3) on 26-3-1999. Subsequently, re-assessment proceedings Under Section 147 were initiated and assessment Under Section 143(3) read with Section 147 was completed on 18-3-2002. The AO invoked Section 154 for rectifying certain mistakes which as per the Assessing Officer were crept in the assessment order made Under Section 143(3) read with Section 147 of the Act dated 18-3-2002. While completing the original assessment Under Section 143(3), the AO has determined the total tax payable including surcharge at Rs. 3,29,30,379/-. The total tax position of the assessee can be summarized as under:
Total tax including surcharge Rs. 3,29,30,379
Less: (i) TDS Rs. 18,34,793
(ii) Advance-tax Rs. 1,53,30,300 Rs. 1,71.65,093
Rs. 1,57,65,286
Add: Additional tax Rs.________151
Rs. 1,57,65,437
Less: Self assessment tax paid Under Section
140A on 12-6-1996 Rs. 6,20.60,000
5. In the second assessment framed Under Section 143(3) r/w Section 147, the AO determined the total tax including surcharge payable by the assessee at Rs. 4,73,80,327/-. The controversy before us is when the tax payable by the assessee is enhanced in the reassessment proceedings, then whether the self-assessment tax paid by the assessee Under Section 140A is to be ignored for the purpose of computing the interest payable by the assessee Under Section 234B(3) of the Act. The facts of the case are not in dispute.
6. The relevant provisions of section Section140A reads as under:
140A. (1) Where any tax is payable on the basis of any return required to be furnished under Section 115WD or Section 115WH or Section 139 or Section 142 or Section 148 or Section 153A or, as the case may be, Section 158BC, after taking into account the amount of tax, if any, already paid under any provision of this Act, the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest.
Explanation.--Where the amount paid by the assessee under this Sub-section falls short of the aggregate of the tax and interest as aforesaid, the amount so paid shall first be adjusted towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable.
As per the provisions of Section 140A, it is a statutory obligation on the assessee to pay the tax along with interest due if any on the basis of income declared in the return filed Under Sections 139 or 142 or 148 etc. At the same time, the assessee has to take into consideration the pre-paid taxes like TDS and advance-tax. The assessee has to compute the interest Under Section 234B(1) of the Act in case of short payment or non-payment of the advance-tax and accordingly to pay the same.
7. As per the provisions of Section 234B(1) if there is a failure on the part of the assessee to pay the advance-tax as per provisions of Section 208 or advance-tax paid by the assessee as per the provisions of Section 210 is less than 90% of the tax assessed then the assessee is liable to pay simple interest as specified for every month or part of the month from the 1st day of April of the asst. year to the date of determination of total income Under Section 143(1) or if subsequently regular assessment is made then till the date of regular assessment.
8. The controversy before us is in respect of Sub-section (2) to Section 234B. Sub-section (2) to Section 234B provides that if the assessee has paid the tax Under Section l40A which is recognized as a self-assessment tax before the date either of determining the total income Under Section 143(1) or completion of regular assessment then the interest payable Under Section 234B(1) of the Act is to be calculated up to the date on which the tax Under Section 140A is paid. It is further provided that while determining liability to pay the tax Under Section 140A i.e. the self-assessment tax, if the assessee has also paid the interest which he is otherwise required to pay under the provisions of the Act, the same is also to be reduced and the interest is to be calculated on the amount by which tax so paid together with the advance-tax paid falls short of the assessed tax. By way of Explanation 1 to Section 234B(1), the term "assessed tax" has been defined but that is not relevant for us to decide the controversy or issue before us.
9. When subsequently re-assessment is framed or income is recomputed Under Section 147 and in consequence of that the amount of tax on which the assessee is liable to pay interest Under Section 234B(1) is increased, then the assessee is liable to, pay simple interest at the rate prescribed, from the, date of determination of the total income Under Section 143(1) or if the regular assessment is made then from the date of such regular assessment till the date of the reassessment or re-computation Under Section 147. The opinion of the AO for computing the interest payable Under Section 234B(1) of the Act which is in the order passed Under Section 154 is as under:
4. The contentions of the assessee cannot be accepted. Section 234B(1) clearly mentions that where as a result of an order of re-assessment or re-computation under Section 147 the amount on which interest was payable under Section 2343(1) is increased the assessee shall be liable to pay simple interest on the amount by which the tax on the total income determined on the basis of re-assessment or re-computation exceeds the tax on the total income determined on the basis of the regular assessment. Here the amount on which interest was payable under Section 234B(1) has been increased. Hence the assessee is liable to pay the interest as stipulated under Section 234B(3). Whether the assessee has paid tax under Section 140A is immaterial it is based on the enhanced income computed that this interest is chargeable. Accordingly, rejecting the assessee's contentions on the issue, the additional amount of interest leviable i.e. Rs. 77,66,031/- is charged.
10. When the assessee challenged the findings of the AO before the CIT(Appeals), the CIT(Appeals) concurred with the reasoning given by the AO. In the opinion of the CIT(Appeals), the payment of self-assessment tax Under Section 140A has relevance only for the purpose of computing the interest for the purpose of 234B(1) of the Act and levy of interest Under Section 234B(1) proceeds on the basis of the assessed tax determined in the regular assessment. In sum and substance, both the AO as well as the CIT(Appeals) are of the opinion that as in Sub-section (3) to Section 234B reference is made in respect of Sub-section (1) to Section 234B then Sub-section (2) to Section 234B has no relevance and hence ignoring the self-assessment tax paid Under Section 140A, interest is to be worked out Under Section 234B(3) of the Act.
11. We have heard the rival submissions of the parties. We have also given thoughtful consideration to the arguments as well as the provisions of Section 234B of the Act. The limited controversy before us is in respect of the determination of the interest payable by the assessee when while determining the total tax payable under the re-assessment proceedings, if the tax is determined more than what is determined under 143(1) assessment or in the regular assessment, then only Sub-section (1) of Section 234B is to be considered for working out the interest payable Under Section 234B(3). The ld. Chartered Accountant for the assessee submitted that Section 234B(1) is to be read with Section 234B(2) for determining the interest liabilities of the assessee Under Section 234B(1). It is further argued that Sub-section (2) is part and parcel of Section 234B(1) of the Act. Though the legislature has made it a separate Sub-section in the said section, as it is by way of Explanation and the interest liability of the assessee is to be calculated considering Sub-section (2), the reference made in Sub-section (3) to Section 234B is to be read considering the provisions of Sub-section (2). The Id. CA further argued that it is well settled principle that interest liability is compensatory in nature and it is not penal and hence the assessee has paid the tax Under Section 140A that cannot be ignored while computing the interest payable Under Section 234B(3) of the Act.
12. Per contra, the Id. Departmental Representative supported the order of the CIT(A).
13. We have heard the rival submissions of the parties and also gave our thoughtful consideration to the relevant provisions of Section 234B. As far as the liability to pay interest Under Section 234B(1) is concerned, it is for the non-payment of advance-tax as per the provisions of Section 208 and 210 i.e. total nonpayment or short payment. Moreover, Sub-section (2) to Section 234B provides for the situation that if the assessee has paid the self-assessment tax as per the provisions of Section 140A then while determining the amount of tax on which the assessee is required to pay the interest Under Section 234B(1), consideration should be given while computing the interest liability of the assessee in Section 234B(1). As per the provisions of Section 234B(2), if the assessee has paid the tax Under Section 140A before the date of determination of the total income Under Section 143(1) or completion of the regular assessment then interest is to be calculated up to the date on which the tax Under Section 140A is to be paid. There is no controversy on the legal interpretation that if the tax paid Under Section 140A is still short, considering the tax determined in the regular assessment or assessment made Under Section 143(1), then at the first instance interest element is to be adjusted from the said tax and thereafter the interest shall be calculated on the amount by which the tax so paid together with advance-tax paid falls short of the assessed tax.
14. When the re-assessment is made, the situation may be different. In case of a re-assessment made Under Section 147, the liability to pay the tax Under Section 234B(1) will be varied to the extent that the assessee shall be further liable to pay the interest on that element of tax which is increased or in other words, which is additionally determined to be payable by the assessee other than determined in the regular assessment or assessment Under Section 143(1). The liability of the assessee to pay the interest on the additional tax determined is for the period comprised on commencing the day following the determination of the total income under regular assessment or Under Section 143(1) and not on the date of re-assessment or re-computation Under Section 147 i.e. date of passing of the assessment order. On the re-assessment, the AO has to again determine the tax as well as interest liability of the assessee Under Section 234B(3) of the Act.
15. The reasons given by the AO as well as the CIT(Appeals) for charging interest up to the date of re-assessment is that Section 234B(3) speaks about Section 234B(1) only and there is no reference of Section 234B(2). Section 234B(1) and 234B(2) prescribes the mode of working or determining the interest payable by the assessee when there is a situation that tax Under Section 140A is paid. Tax paid Under Section 140A cannot be equated with advance-tax or other pre-paid taxes by the assessee on or before 31st of the relevant previous year. But at the same time, as interest is compensatory in nature, if the assessee has paid the tax Under Section 140A, if he has not paid the tax at all or if there is a short payment of tax as per the income returned by him, then to the extent of the due interest and to compensate the short payment if the assessee has made the payment Under Section 140A, then as per the provisions of Section 234B(2), interest should be computed Under Section 234B(1) up to the date on which the assessee has paid the said tax and also to reduce the interest if any which is paid by the assessee while paying the tax Under Section l40A. Even if there is no specific identity given in the payment and consolidated payment is made then first priority of adjustment will be the interest payable under the Act and balance residue if any is to be adjusted against the regular determination of tax.
16. In the case of Good Year India Ltd. v. State of Haryana 188 ITR 402(SC). the Hon'ble Supreme Court has held that rule of reasonable construction must be applied while construing different provisions of the statute. Literal construction should be avoided if it defeats the manifest purpose and object of the Act. The rule of harmonious construction when there is a conflicting statutory provision is well settled for upholding and giving effect to all the provisions as far as it may be possible and for avoiding the interpretation which may render any of them ineffective or otiose. Any statute should be read as a whole and one provision should be construed with reference to the other provision so as to make the rule consistent and any construction which would bring in inconsistency or repugnancy between one provision and the other should be avoided.
17. If we accept the interpretation given by the AO as well as the CIT(Appeals), it will create a situation which is not contemplated by the Legislature when re-assessment is done after the regular assessment or assessment Under Section 143(1) and where the assessee has paid the tax Under Section 140A. The reference of Section 234B(1) in se 234B(3) is to be read with reference to Section 234B(2) of the Act and applying the rule of harmonious construction on the facts of the present case, interest is to be charged up to 12-6-1997, the date on which the assessee has paid the tax Under Section 140A. In the present case, the income of the assessee is enhanced and due to the enhanced income, additional tax liability is also determined, but at the same time, it is seen that the assessee has paid the self-assessment tax Under Section 140A which is more than even whatever tax is determined after reassessment. At the most, the assessee is liable to pay the interest up to 12-6-1997 i.e. for the period from 1-4-1997 to 12-6-1997 in respect of final determination of tax including surcharge under the re-assessment proceedings. We, therefore, set aside the order of the CIT(Appeals) on this issue and direct the AO to work out the interest liability of the assessee Under Section 234B(3) for the period 1-4-1997 to 12-6-1997.
18. The assessee has also taken a contention that the issue being a debatable one, the AO should not have invoked Section 154 of the Act. As we have decided the issue on merits, we do not consider it necessary to decide this issue on the power and jurisdiction of the AO to levy interest Under Section 234B Under Section 154. Thus, ground No. 2 taken by the assessee is allowed.
19. The next issue which emerges for our consideration from ground No. 3 is whether the CIT(Appeals) is justified in confirming the order of the AO passed Under Section 154 reducing the deduction Under Section 80HHC after adjusting unabsorbed investment allowance relating to the asst. year 1990-91. The assessee has claimed the deduction Under Section 80HHC at Rs. 27,95,18,111 without adjusting the unabsorbed investment allowance brought forward, relating to the asst. year 1990-91. The AO was of the opinion that that the unabsorbed investment allowance is deductible Under Section 32A(3)(ii) and hence adjustment is to be done for computing the income under the head "profits and gains of business or profession" on which deduction Under Section 80HHC is allowable. The assessee relied on the decision of the Hon'ble High Court of Bombay in the case of CIT v. Brihan Mumbai Steel Industries Pvt. Ltd. 173 CTR 192(Bom), but the AO rejected the same.
20. The assessee challenged the action of the AO before the CIT(Appeals) but the CIT(Appeals) rejected the assessee's contention and held as under:
(iii) I have considered the objections of the appellant. It is seen that the Kerala High Court has held in the case of CIT v. Kerala Solvent Extractions Ltd. in 165 ITR 174 that the unabsorbed depreciation and unabsorbed development rebate have to be set off against the current years income of the assessee before the deduction Under Section 80HH. The Hon'ble Supreme Court has held in the case of CIT v. Kotagiri Industrial Co-operative Tea Factory Ltd. in 224 ITR 604 (SC) that the Assessing Officer can set off the carried forward business loss of earlier years in accordance with Section 72 of the I.T. Act before computing the deduction Under Section 80P. The Kerala High Court has again held in the case of CIT v. P.V. Narayanan 233 ITR 330 that the deduction Under Section 80HH should be worked out after reducing the investment allowance from the business income for the purpose of computation of deduction Under Section 80HHC. The above principle applies in the determination of the profits of the business for the purpose of deduction Under Section 80HHC. It is worth, noting that the Section 32A(3) falls in the gamut of Sections 28 to 43D as per which the profits and gains of business or profession are computed. Hence, the Assessing Officer has correctly reduced the profits and gains by the unabsorbed investment allowance Under Section 32A(3) in the computation of profits for the purpose of deduction Under Section 80HHC. The action of the AO in this regard is upheld. In view of the aforesaid decisions of the Kerala High Court and the Supreme Court the issue is no longer a debatable Issue and hence the objection of the appellant that the matter is not subject rectification Under Section 154 is rejected.
21. We have heard the parties. The only argument of the Id. CA is that it is a debatable issue and hence no adjustment can be done Under Section 154 for working out the allowable deduction Under Section 80HHC. As far as deduction Under Section 80HHC is concerned, the term "profits of business" has been defined by Explanation (baa) to Section 80HHC to mean the profits of the business as computed under the head "profits and gains of business or profession". As per Section 29 of the Act, the income under the head "profits and gains of business or profession" shall be computed in accordance with the provisions contained in Sections 30 to 43B and there should not be any controversy in respect of the unabsorbed investment) allowance brought forward from the earlier year that it is to be adjusted from the profits of business. We do not find any merit in the argument of the ld. CA that it is a debatable issue. In our opinion, this is a mistake apparent on the record as the language of the statute is very clear and no interpretation or debate is required on the issue. We, therefore, reject the contention of the assessee and dismiss ground No. 3.
22. In the result, the assessee's appeal is partly allowed.