2020 (2) TMI 729 - HC - Income Tax

Waiver of interest u/s 234B - failure to pay advance tax by wrongly claiming business loss/depreciation loss - contention of the petitioner that the levy of interest on the petitioner u/s 234 B is purely on account of recasting of the taxable income for the assessment years 1988-89 and 1989-90 and not because of any fresh income being assessed to tax which the petitioner had failed to return - HELD THAT - In the present case, it is not as if amounts were not paid under the JV agreement or amounts due were written off by the petitioner. The petitioner however claimed higher business loss and the depreciation loss during the assessment years 1988-89 to 1990-91 as the amount was not paid by the developer in time as per the JV agreement dated 30.8.1986. However, the JV agreement dated 30.8.1986 was not frustrated as was projected. The project was delayed and during the course of time there were further payments made by the developer to the petitioner and therefore there was accrual of income in the books of account of the petitioner and therefore the petitioner was liable to that extent. The assessments for the assessment years 1988-89 to 1990-91 were reopened/rectified as the petitioner had wrongly claimed business loss and depreciation loss. The re-assessments were completed for the assessment years 1991-92 and 1992-93 on 22.11.1996 and on 22.3.1999 which resulted in the increase of the positive income of the petitioner. The petitioner had however failed to pay advance tax by wrongly claiming business loss/depreciation loss during the assessment years 1988-89 to 1990-91. Therefore it cannot be stated that the petitioner was entitled to the benefit of the above notification issued under section 119 (2) (a) of the Income Tax Act, 1961. None of the situation contemplated under the attracted the CBDT Notification dated 23.05.1996 As a passing reference it may also be relevant to refer to the decision cited by the learned counsel for the respondent in Chief Commissioner of Income Tax Versus Ranjinikant and Sons 2017 (6) TMI 922 - MADRAS HIGH COURT . A division bench of this court held that since the tax was paid only after the revenue had passed the reassessment order, waiver from payment of interest cannot be allowed . This is similar to the present case. We do not find any reasons to interfere with the impugned order passed by the 1st respondent while rejecting the application filed with the petitioner for waiver of interest u/s 234 B of the Income Tax Act, 1961 in terms of Notification No.400/234/95-IT (B) dated 23.5.1996. Therefore, these writ petitions are hereby dismissed

Summary

Issues Involved:
1. Waiver of Interest under Section 234B of the Income Tax Act, 1961 for Assessment Years 1990-91 and 1991-92.
2. Reopening and Recasting of Assessments for earlier years (1988-89 to 1990-91).
3. Application of CBDT Notification No.400/234/95-IT (B) dated 23.5.1996 for Waiver of Interest.
4. Validity of Joint Venture Agreement and Memorandum of Understanding.

Issue-wise Detailed Analysis:

1. Waiver of Interest under Section 234B of the Income Tax Act, 1961 for Assessment Years 1990-91 and 1991-92:
The petitioner sought waiver of interest levied under Section 234B for the assessment years 1990-91 and 1991-92, arguing that the interest was due to the recasting of taxable income for years 1988-89 and 1989-90, not due to any fresh income. The petitioner had filed an application for waiver of interest on 16.2.2001, which was rejected by the Chief Commissioner of Income Tax on 13.9.2002. The court examined whether the petitioner was entitled to a waiver under the guidelines provided in Notification No.400/234/95-IT (B) dated 23.5.1996.

2. Reopening and Recasting of Assessments for earlier years (1988-89 to 1990-91):
The assessments for the years 1988-89 and 1989-90 were reopened, and reassessment orders were passed, treating a sum of ?31,22,667/- as income earned from the joint venture on an accrual basis. This resulted in the reduction of carry-forward losses, impacting the assessments for 1990-91, 1991-92, and 1992-93. The petitioner contended that the reassessments were unjustified and that the interest levied was due to the cascading effect of these reassessments.

3. Application of CBDT Notification No.400/234/95-IT (B) dated 23.5.1996 for Waiver of Interest:
The petitioner argued that they were entitled to a waiver under clause (e) of the notification, which allows for waiver in cases where the return of income could not be filed due to unavoidable circumstances. The court, however, found that the petitioner had accepted the revised assessments for the years 1988-89, 1989-90, and 1990-91, and had not appealed against the assessments for 1991-92 and 1992-93. The court held that the petitioner failed to pay advance tax due to wrongly claiming business and depreciation losses, and thus, the conditions for waiver under the notification were not met.

4. Validity of Joint Venture Agreement and Memorandum of Understanding:
The petitioner claimed that the JV agreement dated 30.08.1987 was not acted upon, and the MOU dated 7.3.1992 altered the arrangement, affecting the accrual of income. The court found that the JV agreement was not rescinded but only slightly altered by the MOU. Payments were made under the JV agreement, and income accrued in the petitioner’s books, making the petitioner liable for the tax. The court also referenced the Supreme Court’s ruling in CIT vs. Ashok Bhai Chimanbhai, which held that income is taxable when it accrues or arises, not just when received.

Conclusion:
The court concluded that the petitioner was not entitled to a waiver of interest under Section 234B, as the conditions of the CBDT notification were not met. The petitioner had wrongly claimed losses, leading to a failure to pay advance tax. The writ petitions were dismissed, and the impugned order rejecting the waiver application was upheld.