2011 (9) TMI 83 - HC - Income Tax

Waiver of interest - circular dated 23rd May, 1996 as clarified by another circular dated 30th January, 1997 or by the circular No. 2/2006 dated 17th January, 2006 - recomputation of deduction u/s 80HHC - retrospective amendment to secton 80HHC (5th proviso) - Held that - It is clear that as a result of the insertion of the proviso, the petitioner became entitled to deduction under Section 80 HHC of Rs.1,27,292/- The proviso did not act as a detriment or negate or reduce the claim of deduction. - Waiver of interest u/s 234B and 234C denied.

Summary

Issues Involved:
1. Excessive deduction claimed under Section 80 HHC of the Income-Tax Act.
2. Levy of interest under Section 234B and 234C.
3. Applicability of CBDT circulars for waiver of interest.

Detailed Analysis:

1. Excessive Deduction Claimed Under Section 80 HHC:
The petitioner, a sole proprietor, filed a return declaring a total taxable income of Rs. 6,76,660/- after claiming a deduction of Rs. 6,34,503/- under Section 80 HHC of the Income-Tax Act for the assessment year 2002-03. Proceedings under Section 147 were initiated due to the excessive deduction claimed. The petitioner had a business loss in exports of Rs. 7,16,189/- which was ignored in the computation of deduction under Section 80 HHC. The Supreme Court in IPCA Laboratory Limited versus Deputy Commissioner of Income Tax held that profits and losses of both manufactured and trading goods must be considered for deduction under Section 80 HHC. If there is a loss, no deduction is allowed. The Assessing Officer denied the deduction under Section 80 HHC due to the business loss and inclusion of interest and rental income in the computation, assessing the total income at Rs. 13,72,974/-.

2. Levy of Interest Under Section 234B and 234C:
The petitioner filed an appeal which was partly allowed, recognizing the retrospective amendment to Section 80 HHC by the Taxation Laws (Amendment) Act, 2005. The Commissioner of Income-Tax (Appeals) directed to treat 90% of interest income as qualifying for deduction under Section 80HHC but did not interfere with the interest charged under Section 234B. The Income-Tax Appellate Tribunal upheld the levy of interest, stating that interest under Section 234B is mandatory and compensatory. The petitioner's argument that the interest became payable due to an unforeseen Supreme Court decision was rejected.

3. Applicability of CBDT Circulars for Waiver of Interest:
The petitioner filed an application for waiver of interest under Section 234B and 234C, which was rejected by the Commissioner of Income-Tax. The Commissioner held that the petitioner's case was not covered under the CBDT circulars dated 23rd May 1996, 30th January 1997, or Circular No. 2/2006 dated 17th January 2006. The circulars allow for waiver of interest in cases of retrospective amendments or Supreme Court decisions, but the petitioner did not rely on any jurisdictional High Court decision. The decision of the Full Bench of the Tribunal in Lalsons Enterprises was not sufficient to claim waiver. The petitioner's interpretation of Section 80 HHC was debatable and contested by the Revenue, thus not fulfilling the conditions for waiver under the circulars.

Conclusion:
The court dismissed the writ petition, holding that the petitioner was not entitled to waiver of interest under the cited CBDT circulars. The petitioner's claim for deduction under Section 80 HHC was adjusted as per the retrospective amendment, and the levy of interest under Section 234B was upheld as mandatory and compensatory. The court found no merit in the petitioner's arguments and dismissed the petition without costs.