2013 (10) TMI 1181 - HC - Income Tax

Interest u/s 234B Tax liability due to retrospective amendment - failure to pay advance tax - Held that - The assessee claimed exemption under Section 81-IA of the Act while filing his return of income in November, 2006. The exemption was nullified by an amendment that came into force under the Finance Act, 2007 with retrospective effect. The assessee, therefore, could not be expected to know on the relevant date, that claim for exemption under Section 81-IA of the Act would not be available in view of the retrospective amendment and though liable to pay tax in view of the retrospective amendment, cannot be held liable to pay interest Reliance has been placed upon ratio recorded by a Division Bench of this Court in The Commissioner of Income Tax, Panchkula V/s M/s Haryana Warehousing Corporation, Panchkula s case 2008 (4) TMI 214 - PUNJAB AND HARYANA HIGH COURT Decided against the Revenue.

Summary

Issues:
1. Whether the amount retained by the authorities could be treated as the assessee's income despite being assessed on an accrual basis?
2. Whether interest under Section 234-B of the Income Tax Act was chargeable on the deduction claimed under Section 80-IA, even though the deduction was disallowed?

Analysis:
1. The first issue revolved around the treatment of an amount retained by the authorities as the assessee's income, despite being assessed on an accrual basis. The Counsel for the revenue conceded that a previous judgment covered this issue against the revenue. The Court noted that the revenue's challenge was covered by a judgment in a similar case, where it was held that the amount retained could not be treated as the assessee's income. Therefore, the Court dismissed the challenge on this issue.

2. The second issue concerned the chargeability of interest under Section 234-B of the Income Tax Act on the deduction claimed under Section 80-IA, even after the deduction was disallowed. The revenue argued that the interest was mandatory and should not have been deleted by the CIT(A) and the ITAT. On the other hand, the assessee contended that they had a bonafide belief that the deduction was available, and the interest should not be levied. The Court examined the retrospective amendment that nullified the exemption claimed by the assessee and held that the assessee could not have foreseen this change. Relying on a previous judgment, the Court found that the assessee acted in good faith and should not be held liable for interest. Therefore, the Court upheld the decision of the CIT(A) and the ITAT, dismissing the appeal on this issue as well.