Income Tax Appellate Tribunal - Hyderabad
Navayuga Engineering Company Limited, ... vs Assessee on 9 November, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B', HYDERABAD
BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER and
SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
I.T.A. No. 1062/Hyd/2009
(Assessment year : 2006-07)
M/s. Navayuga Engineering Vs. Dy. Commissioner of Income-
Company Ltd., Visakhapatnam tax, Central Circle-1,
PAN: AAACN7396R Hyderabad
Appellant Respondent
Appellant by: Shri V. Raghavendra Rao
Respondent by: Smt. Subhasree Anantha Rama
Krishnan
Date of hearing: 09.11.2011
Date of pronouncement: 14.12.2011
ORDER
PER CHANDRA POOJARI, AM:
This appeal by the assessee is directed against the order of the CIT(A)-I, Hyderabad dated 20th August, 2009 for the assessment year 2006-07.
2. The assessee raised the following grounds of appeal:
"2. The learned CIT(A) has erred in law and on facts in sustaining the interest charged of Rs. 2,13,98,072/- u/s. 234B and Rs. 76,44,765/- u/s. 234C of the IT Act.
3. The learned CIT(A) has erred in law in holding that the decision of the Supreme Court in the case of CIT vs. Anjum M.H. Ghaswala (252 ITR 1) applies to the facts of the case.
4. The learned CIT(A) has failed to appreciate that the provisions of sec. 234B & 234C come into play only if there existed advance tax liability u/s. 208 of the IT Act.
5. Advance tax liability u/s. 208 r.w.s. 207 arises only if the 'current income' and not the assessed income subject to advance tax liability. There existed no advance tax liability as the tax on "current income" is fully covered by TDS.
6. The learned CIT(A) has omitted to consider the fact that the liability to the advance tax arose only on account of the insertion of explanation u/s. 80IA of the IT Act inserted by Finance Act, 2007 after the end of the instant previous year.2 I.T.A. No. 1062/Hyd/2009
M/s. Navayuga Engineering Co. Ltd.
===========================
7. The learned CIT(A) has erred in mechanically concurring with the conclusions of the Assessing Officer that the case law cited was distinguishable.
8. For these and any other grounds that may be urged at/before the date of hearing it is prayed that the interest charged u/s. 234B and 234C be deleted."
3. Brief facts of the issue are that the assessee-company in the business of construction and laying of foundations, marine structures like berths, wharf, jetties etc., had filed its return of income for the assessment year under consideration on 29.11.2006 admitting a taxable income of Rs. 70,79,89,930 under the normal provisions of the Act. Consequent to a search operation conducted u/s. 132 of the I.T. Act in the group cases including the assessee-company, the assessee filed the return of income in response to the notice u/s. 153A of the Act admitting taxable income of Rs. 78,47,78,111. the income returned included the additional income of Rs. 7,67,88,183 offered during the course of search. In course of assessment proceedings, the Assessing Officer noticed that the assessee had remitted the Employee's contribution to PF for the month of March 2006 amounting to Rs. 6,95,232 on 28.4.2006. Accordingly he disallowed the same and added back tothe returned income. The Assessing Officer also rejected the claim of the assessee not to charge interest u/s. 234B and 234C after considering the explanation of the assessee. The income was computed at Rs. 78,54,73,343 and a tax demand of Rs. 1,83,36,216 including interest u/s. 234B and 234C was raised.
3.1 The assessee went in appeal before the CIT(A). Before the CIT(A) the assessee contended that it is not liable to charge of interest u/s. 234B and 234C since the tax payable on the income originally returned was adequately covered by the TDS made and there did not exist any liability to pay advance tax. The income got increased due to clarificatory explanation u/s. 80IA enacted by the Finance Act, 2007 due to which the assessee became liable to higher income by denial of the exemption u/s. 80IA of the Act. However, the CIT(A) placed reliance on the judgement of Supreme Court in the case of CIT vs. Anjum Ghaswala (252 ITR 1) and confirmed 3 I.T.A. No. 1062/Hyd/2009 M/s. Navayuga Engineering Co. Ltd.
=========================== the order of the Assessing Officer. Against this, the assessee is in appeal before us.
4. The learned counsel for the assessee submitted that the learned CIT(A) had erred in sustaining the interest charged of Rs. 2,13,98,072 u/s. 234B and Rs. 76,44,765 u/s. 234C of the Act. He submitted that the decision of Supreme Court, relied on by the CIT(A), in the case CIT vs. Anjum M.H. Ghaswala (252 ITR 1) is far wide of the mark wherein the Court was considering the powers of the Settlement Commission to reduce or waive interest u/s. 234B of the IT Act wherein the Supreme Court held that the Settlement Commission has no power to reduce or waive the interest u/s. 234B of the IT Act as section 234B is mandatory unlike the corresponding earlier provisions. The Supreme Court had observed that u/s. 234B the word used in the provision is "shall" as against the word "may" used in the corresponding sections before the Finance Act, 1987. He submitted that the question in this case is whether the provisions of section 234B are applicable but not about the mandatory nature of the provisions of section 234B of the Act.
4.1 The learned counsel for the assessee submitted that the assessee filed its return of income on 30.11.2006 that is before the insertion of explanation u/s. 80IA by Finance Act 2007 claiming deduction u/s. 80IA(4) of the Act at Rs. 37,20,19,888. By virtue of the Explanation inserted in the Finance Act, 2007 clarification was made that a contractor of the eligible enterprise would not be eligible for deduction u/s. 80IA of the Act. It was stated in the Memorandum explaining the Finance Bill that this explanation was by way of clarification with retrospective effect from 1.4.2001. Before the above return was taken up for scrutiny, there were search proceedings on 10.1.2007 and the pending proceedings abated u/s. 153A of the Act. Therefore, a return was again called for by a notice on 14.9.2007 by which time the explanation came on the statute book.
4.2 The counsel submitted that the eligibility for deduction u/s. 80IA was taken into consideration while estimating the advance tax payable u/s. 207 r.w.s. 208 of the Act. Accordingly, as the tax deducted at source of Rs. 11,27,74,878 was more than the tax payable on the total income computed after claim of deduction of Rs. 37,20,19,888, no advance tax was found payable. The claim of the assessee u/s. 80IA before the amendment was quite correct as held by the Mumbai Bench of the ITAT in the case of Paten Eng. Ltd. vs. DCIT (2005) 94 ITD 411 which 4 I.T.A. No. 1062/Hyd/2009 M/s. Navayuga Engineering Co. Ltd.
=========================== subsequently following by the same Bench in the case of ACIT vs. Bharat Udyog Ltd. (118 ITD 336), wherein it was held that a contractor of works is a developer eligible for deduction u/s. 80IA(4) of the Act. In this view of the matter the assessee was not liable to pay advance tax u/s. 207 r.w.s. 208 of the IT Act. Therefore interest u/s. 234B is not chargeable at all.
4.3 The AR stated that the reliance of the learned CIT(A) on the decision of the Supreme Court in the case of Anjum M.H. Ghaswala (supra) is misplaced. The Supreme Court was only seized of the statutory liability and the powers of the Settlement Commission to reduce or waive the liability u/s. 234B and 234C of the IT Act. In the case of the assessee there is no statutory liability as submitted above unlike in the case of before the Supreme Court where the statutory liability was not denied.
4.4 The learned counsel for the assessee relied on the following decisions which in his opinion are direct on the issue before us. In the case of Emami Ltd vs. CIT (337 ITR 470) the Calcutta High Court dealt with chargeability of interest u/s. 234B and 234C in case where there was an amendment of explanation u/s. 115JB by Finance Act 2002 with retrospective effect from 1.4.2001. The Court held that no advance tax was payable u/s. 207 and 208 before the amendment and that, therefore, interest u/s. 234B and 234C cannot be charged for the financial year before amendment was made albeit retrospective.
4.5 In the case of Sun Petro Chemicals Pvt. Ltd. vs. ITO the ITAT Ahmedabad 'B' Bench considered similar issue in I.T.A. No. 1010/Ahd/2009 for the A.Y. 2006- 07 wherein the amendment of the explanation u/s. 115JB by Finance Act 2008 with retrospective effect from 1.4.2001 was considered. The amendment was regarding the deferred tax debited to Profit and Loss A/c.. The Bench held that the assessee was not liable to interest u/s. 234B of the Act and that administrative relief can be obtained by the assessee cannot erode the powers of the Tribunal while dealing with a valid appeal before it.
4.6 The learned counsel for the assessee further relied on the decision of Delhi Bench of this Tribunal in the case of Royal Jordanian Airlines vs. DDI (115 SOT 270) for the proposition that section 234B cannot be invoked so long as the assessee was under the bona-fide belief on the basis of a decision of the Tribunal before it was reversed. The observations of the Assessing Officer and 5 I.T.A. No. 1062/Hyd/2009 M/s. Navayuga Engineering Co. Ltd.
=========================== mechanical endorsement of the CIT that the decision as not applicable is not correct. The point in issue is that whether the assessee's belief was bona-fide on the basis of the decision of the Tribunal on the applicability of section 44BBA and whether interest u/s. 234B could be charged when advance tax was not paid on the basis of the belief entertained. The provisions of section 234B come into play only if there is a statutory liability for advance tax which can be only u/s 207 r.w.s. 208 of the Act.
4.7 The learned counsel for the assessee also relied on the decisions of Delhi Bench in the case of Priyanka Overseas Ltd vs. DCIT (79 ITD 353) and Pune Bench of this Tribunal in the case of Trinity Forge vs. ACIT (73 TTJ 582). The observation of the ACIT that the decision of the Pune Bench was a case of deduction u/s. 80HHE and endorsed by the CIT(A) is not factually correct. In that case the retrospective amendment was to section 28 roping in the income from cash compensatory support as business income by the Finance Act 1990 with retrospective effect from 1.4.1967 while advance tax estimate was filed on 6.11.1989 before the retrospective amendment. The Bench of the ITAT held that interest u/s. 234B or 234C cannot be charged on account of failure to pay advance tax on the amount of cash compensatory support.
4.8 Regarding charge of interest u/s 234C, the learned counsel for the assessee submitted that the Assessing Officer and the CIT(A) filed to notice that liability arises only if there is shortfall/delay in payment of 'tax due on the returned income' as defined in the explanation. There was no tax due on the returned income since it was fully covered by TDS. The charge of interest u/s. 234C (Rs. 76,44,765) is therefore, in correct and invalid. Accordingly, he prayed that the interest u/s 234B and 234C may be deleted.
5. We have heard both the parties and perused the material available on record. The contention of the assessee counsel is that the assessee has not committed any error in not paying the advance tax as the assessee was under a bona-fide belief that it is entitled for deduction u/s 80IA(4) of the Act on the basis of various orders of the Tribunal and judgements of High Courts. The contention of the Department counsel is that Finance Act, 20801 has amended Explanation (1) to section 234B of the Act retrospectively w.e.f. 1st April, 1989 and has laid down that the assessed tax would be tax on total income determined u/s. 143(1) 6 I.T.A. No. 1062/Hyd/2009 M/s. Navayuga Engineering Co. Ltd.
=========================== or 143(3) of the Act as reduced by certain amount mentioned therein. It would be appropriate to reproduce Explanation (1) to section 234B, which is as under:
[Explanation 1 - In this section, "assessed tax" means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of -
(i) any tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income;
(ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India;
(iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that sections.
(iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and
(v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA.] 5.1 As per this amendment, interest is leviable on the income as determined by the assessing authority minus the income on which tax has been paid or deducted. The amendment is only to clarify the ambiguity that was felt in the original provision. The matter is no longer res integra. In the case of Parkash Agro's [2009] 316 ITR 149 (P&H), while considering the effect of amendment to Explanation 1 retrospectively with effect from April 1, 1989 had held that an assessee is liable to pay interest under section 234B of the Act on the amount of income assessed under section 143(1) or 143(3) of the Act and not on the basis of income declared in the return by the assessee. The relevant observations read as under :
"9. It is no doubt true that prior to the amendment brought by Finance Act, 2001, which has been made effective retrospectively from April 1, 1989, the interest under section 234B of the Act was chargeable with reference to the total income as had been declared by the assessee in its return and not on the assessed income. Explanation 1 to section 234B of the Act was amended by Finance Act, 2001. It reads thus :
'Explanation 1.--In this section, "assessed tax" means the tax on the total income determined under sub-section (1) of section 143 or on regular assessment as reduced by the amount of tax deducted or collected at 7 I.T.A. No. 1062/Hyd/2009 M/s. Navayuga Engineering Co. Ltd.
=========================== source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income.
(b) in sub-section (3), for the words "one and one-half per cent", the words "one and one-fourth per cent" shall be substituted with effect from June 1, 2001."
The said Explanation was subject-matter of challenge before Punjab & Haryana High Court in Raj Kumar Singhal's case [2002] 255 ITR 561 where the Division Bench while upholding the validity of the said provision, interpreted it as under:
'......A comparison of the two provisions shows that under the original provision interest was leviable on the income as declared in the return filed by the assessee. By the amended provision, the interest is leviable on the income as determined by the assessing authority minus the income on which the tax has been paid or deducted. The amendment is only calculated to clarify the ambiguity that was felt in the original provision. It is not arbitrary or unreasonable........'."
The judgments relied upon by the assessee are distinguishable as the effect of amendment by Finance Act, 2001 was not under consideration in those cases. In view of clear provision incorporated in the Explanation and judgment of this Court in Parkash Agro's case [2009] 316 ITR 149 (P&H), chargeability of interest is beyond question.
5.2 Further, in the case of Jacob Export House vs. CIT (330 ITR 53) (P&H) the court held as follows:
"The assessee did not pay advance tax in accordance with the provisions of section 208 of the Income-tax Act, 1961, on the ground that its income was not liable to be taxed in view of the provisions under sections 80HHC and 80-IB of the Act. The claim of the assessee was not accepted by the Assessing Officer and demand of interest was raised under section 234B of the Act. The Commissioner (Appeals) upheld the plea of the assessee that since advance tax was not paid under a bona fide belief, interest under section 234B of the Act was not attracted. The Tribunal held that a bona fide belief of the assessee to estimate the taxability of income could not be a valid ground to avoid liability to pay interest under section 234B of the Act on advance tax ultimately found due. On appeal:
Held, dismissing the appeal, that by the amendment of Explanation 1 to section 234B an assessee was liable to pay interest under section 234B of the Act on the amount of income assessed under section 143(1) or 143(3) of the Act and not on the basis of income declared in the return by the assessee. The chargeability of interest was beyond question."
5.3 The judgement in the case of Ranchi Club Ltd. (247 ITR 209) relate to the cases prior to the aforesaid amendment and thus do not help the assessee. In 8 I.T.A. No. 1062/Hyd/2009 M/s. Navayuga Engineering Co. Ltd.
=========================== view of this matter the assessee is liable for interest u/s 234B and 234C on the assessed income.
5.4 Though the assessee relied on various judgements before us which are not appreciated by us on the reason that the issue before us is squarely covered against the assessee by the judgement cited (supra) in the case of Jacob Export House.
6. In the result, appeal of the assessee is dismissed.
Order pronounced in the open court on 14th December, 2011.
Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (CHANDRA POOJARI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, dated the 14th December, 2011
Copy forwarded to:
1. M/s. Navayuga Engineering Company Ltd., 1259, Laxmi Towers, Road No. 36, Jubilee Hills, Hyderabad.
2. The Deputy Commissioner of Income-tax, Central Circle-1, Aayakar Bhavan, Basheerbagh, Hyderabad.
3. The CIT(A)-I, Hyderabad.
4. The CIT (Central), Hyderabad.
5. The DR - B Bench, ITAT, Hyderabad tprao