2017 (12) TMI 930 - HC - Income Tax

Interest charged under Section 234B - AO empowered to invoke the provisions of Section 154 - interest chargeable u/s 234B on tax liability arising on the assessee by virtue of retrospective amendment under Section 115JB - Held that - It the issue relating to deduction of provisions of bad and doubtful debts was the matter which was considered and decided by the CIT(A). In view of Section 154(1A) of the Act an authority can rectify/reappraise an order where there is a mistake apparent from record only on the issues which had not been the subject matter of appeal or revision before the appellate/revisional authority. The provision of Section 154 of the Act had been invoked by the Assessing Officer. In such circumstances the rectification could be carried out by the appellate/revisional authority. Thus the rectification in the present case was within the domain of the appellate authority i.e. CIT(A) only and not by the Assessing Officer as the matter of allowability of provision of bad and doubtful debts while working out book profit tax under Section 115 JB of the Act had already been decided by CIT(A). It has been correctly recorded by the Tribunal that only CIT(A) was competent to assume jurisdiction under Section 154 of the Act. Interest charged under Section 234D and withdrawal of interest under Section 244A - Held that - Firstly once it is held that invoking of power of rectification under Section 154 of the Act was unjustified the consequential conclusion would be that the chargeability of interest under Sections 234B and 234D of the Act would not arise. To put it differently since the Assessing Officer is not empowered to invoke the provisions of Section 154 of the Act on the matter already decided by CIT(A) under Section 154(1A) of the Act therefore interest under Sections 234B and 234D of the Act was consequential in nature. Viewing from another angle Section 234B of the Act provides for recovery of interest for default in payment of advance tax. The assessee is liable to pay simple interest where he is unable to pay advance tax under Section 208 of the Act but has failed to pay such tax or where the advance tax paid is less than 90% of the assessed tax. Where the advance tax is based on the law prevailing on the date on which tax was due and payable then in that eventuality any liability created by way of amended provisions subsequently incorporated would not attract payment of interest as there was no default on the date of payment of advance tax. Thus it cannot be said that the approach of the Tribunal was erroneous or perverse in holding that interest under Section 234B of the Act was not chargeable. The Tribunal placing reliance on the decision of the Bombay High Court in The Commissioner of Income Tax Mumbai Vs. JSW Energy Limited (2015 (5) TMI 823 - BOMBAY HIGH COURT) had correctly decided the issue relating to charging of interest under Section 234B.

Summary

Issues Involved:
1. Justification of invoking power under Section 154 of the Income Tax Act by the Assessing Officer.
2. Chargeability of interest under Sections 234B and 234D of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Justification of Invoking Power under Section 154 of the Income Tax Act by the Assessing Officer:

The primary issue was whether the Assessing Officer was justified in invoking the power under Section 154 of the Income Tax Act to rectify an order on a matter already decided by the Commissioner of Income Tax (Appeals) [CIT(A)], especially given the retrospective amendment made by Finance Act, 2009 to clause (i) in Explanation 1 to Section 115JB of the Act, effective from 1.4.2001.

The court referred to sub-sections (1) and (1A) of Section 154 of the Act, which empower an income tax authority to rectify any mistake apparent from the record. However, this power is restricted by sub-section (1A), which states that any matter considered and decided in any proceeding by way of appeal or revision cannot be reopened or rectified by the authority passing such an order. This principle is based on the doctrine of merger.

In this case, the CIT(A) had already decided the issue of deduction for provisions of bad and doubtful debts. Therefore, the rectification could only be carried out by the appellate authority, i.e., CIT(A), and not by the Assessing Officer. The Tribunal correctly recorded that the rectification provisions invoked by the Assessing Officer were in violation of Section 154(1A) of the Act. The Tribunal's observations were upheld, stating, "Therefore in view of above facts, the issue of provision for deduction of provisions of bad and doubtful debts has been considered and decided by Commissioner of Income Tax (Appeals), then rectification is also required to be made by the Commissioner of Income Tax (Appeals) only and not by the Assessing Officer."

2. Chargeability of Interest under Sections 234B and 234D of the Income Tax Act:

The second issue was whether interest under Sections 234B and 234D could be charged and recovered from the appellant-assessee. The court noted that since the Assessing Officer was not empowered to invoke the provisions of Section 154 of the Act, the chargeability of interest under Sections 234B and 234D, being consequential in nature, would not arise.

Additionally, Section 234B pertains to the recovery of interest for default in payment of advance tax. The court emphasized that any liability created by subsequent amendments would not attract payment of interest if there was no default on the date of payment of advance tax based on the law prevailing at that time. The Tribunal's reliance on the Bombay High Court's decision in The Commissioner of Income Tax, Mumbai Vs. JSW Energy Limited was upheld, which stated that "no interest shall be chargeable under section 234B of the Act on tax liability arising on the assessee by virtue of retrospective amendment under section 115JB of the Act."

The Tribunal's decision was further supported by the Supreme Court's ruling in Star India (P) Limited vs. CCE, which held that liability to pay interest would only arise on default and could not entail the punishment of payment of interest with retrospective effect.

Conclusion:

The court found no illegality or perversity in the Tribunal's findings and concluded that no substantial question of law arose. Consequently, the appeals were dismissed.