2011 (12) TMI 319 - AT - Income Tax

Interest under 234B & 234C is payable on Advance Tax OR Assessed Income - Held That - In view of Jacob Export House v. CIT 2010 (7) TMI 394 - Punjab and Haryana High Court tax payable on 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.

Summary

Issues Involved:

1. Sustaining interest charged under sections 234B and 234C of the Income Tax Act.
2. Applicability of the Supreme Court decision in CIT v. Anjum M.H. Ghaswala.
3. Existence of advance tax liability under sections 208 and 207 of the IT Act.
4. Impact of the retrospective amendment by Finance Act, 2007 on section 80IA.
5. Bona fide belief of the assessee regarding eligibility for deduction under section 80IA.
6. Reliance on various judicial precedents by the assessee.

Detailed Analysis:

1. Sustaining Interest Charged Under Sections 234B and 234C:

The assessee contested the interest charges of Rs. 2,13,98,072 under section 234B and Rs. 76,44,765 under section 234C, arguing that the tax payable on the originally returned income was adequately covered by TDS, and there was no advance tax liability. The income increased due to a clarificatory explanation under section 80IA by the Finance Act, 2007, which led to higher income by denial of exemption under section 80IA. The CIT(A) relied on the Supreme Court judgment in CIT v. Anjum M.H. Ghaswala, confirming the Assessing Officer's order.

2. Applicability of the Supreme Court Decision in CIT v. Anjum M.H. Ghaswala:

The assessee argued that the CIT(A) erred in applying the Supreme Court decision, which addressed the Settlement Commission's power to waive interest under section 234B. The Supreme Court held that section 234B is mandatory, using "shall" instead of "may." The assessee contended that the issue was the applicability of section 234B, not its mandatory nature.

3. Existence of Advance Tax Liability Under Sections 208 and 207:

The assessee claimed that the advance tax liability under section 208 read with section 207 arises only if the "current income" is subject to advance tax liability. Since the tax on "current income" was fully covered by TDS, there was no advance tax liability. The eligibility for deduction under section 80IA was considered while estimating advance tax payable, and no advance tax was found payable.

4. Impact of the Retrospective Amendment by Finance Act, 2007 on Section 80IA:

The assessee filed the return of income before the insertion of the explanation under section 80IA by Finance Act, 2007, claiming deduction under section 80IA(4). The explanation clarified that a contractor of the eligible enterprise would not be eligible for deduction under section 80IA, effective retrospectively from 1.4.2001. The return was called for scrutiny after the explanation came into effect, impacting the assessee's liability.

5. Bona Fide Belief of the Assessee Regarding Eligibility for Deduction Under Section 80IA:

The assessee argued that it acted under a bona fide belief based on various Tribunal and High Court decisions that a contractor of works is a developer eligible for deduction under section 80IA(4). The reliance on judicial precedents was cited to support the claim that no advance tax was payable, and thus, interest under section 234B was not chargeable.

6. Reliance on Various Judicial Precedents by the Assessee:

The assessee cited several judicial precedents, including Emami Ltd. v. CIT, Sun Petro Chemicals (P.) Ltd. v. ITO, and Royal Jordanian Airlines v. Dy. DIT, arguing that section 234B cannot be invoked when the assessee was under a bona fide belief based on existing judicial decisions. The assessee also referenced decisions from the Delhi Bench and Pune Bench of the Tribunal, which supported the view that interest under sections 234B and 234C cannot be charged due to retrospective amendments affecting advance tax liability.

Tribunal's Findings:

The Tribunal held that the assessee is liable for interest under sections 234B and 234C based on the assessed income, not the income declared in the return. The retrospective amendment to Explanation 1 of section 234B clarified that interest is leviable on the income determined by the assessing authority minus the income on which tax has been paid or deducted. The Tribunal distinguished the judgments relied upon by the assessee, noting that they did not consider the effect of the amendment by Finance Act, 2001. The Tribunal cited the judgments in Parkash Agro Industries v. Dy. CIT and Jacob Export House v. CIT, which upheld the chargeability of interest under section 234B on assessed income. Consequently, the appeal was dismissed.

Conclusion:

The Tribunal dismissed the appeal, affirming the liability for interest under sections 234B and 234C on the assessed income, considering the retrospective amendment to Explanation 1 of section 234B and relevant judicial precedents.