2025 (1) TMI 1295 - HC - Income Tax

Levy interest u/s 234B - addition made in Book Profit under MAT being provision for doubtful debts - HELD THAT - In this case at least three Coordinate Benches have taken the view that where an assessee computed book profits as per the prevailing law no interest u/s 234B could have been levied consequent to the inclusion of various items in computing book profits as per explanation to Section 115JB which were brought on the statute by the Finance Act 2008 with retrospective effect from 1 April 2001. While it is correct that no question of equity is involved in taxing matters this principle does not obviate the necessity of the revenue being fair to the Court and it points out that identical questions were decided against it. Mr Chhotaray could not or perhaps would not say whether the revenue has challenged the decisions in the case of Mangalore Refinery Petrochemicals Ltd 2020 (6) TMI 587 - BOMBAY HIGH COURT Prime Securities Ltd. 2010 (12) TMI 475 - BOMBAY HIGH COURT and JSW Energy Ltd. 2015 (5) TMI 823 - BOMBAY HIGH COURT These decisions were delivered in 2020 2011 and 2015. Undoubtedly the departments whom Mr Chhotaray represents would know whether the revenue challenged these matters before the Hon ble Supreme Court. Still this appeal was instituted and Mr Chhotaray insisted and argued the matter for a long time. There is no difficulty hearing long arguments but we expect greater fairness from the revenue in pointing out contrary and binding decisions directly on the issue. Based on a serious argument an attempt could also be made to distinguish or seek a reference. But binding precedents should not be suppressed or attempted to be attacked so casually. Appeal dismissed.

ISSUES PRESENTED and CONSIDERED

The primary legal issue considered in this judgment is whether the Income Tax Appellate Tribunal (ITAT) was correct in directing not to levy interest under Section 234B of the Income Tax Act on the addition made in Book Profit under Minimum Alternate Tax (MAT) due to the provision for doubtful debts. This issue arises in light of the retrospective amendment to Explanation 1 of Section 115JB by the Finance (No. 2) Act, which took effect from April 1, 2001. The question also involves the interpretation of the Supreme Court's decision in Anjum M.H. Ghaswala and Others and the applicability of the Circulars issued by the Central Board of Direct Taxes (CBDT).

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The legal framework involves Section 234B of the Income Tax Act, which mandates the payment of interest on underpayment of advance tax, and Section 115JB, which deals with the computation of book profits under MAT. The retrospective amendment to Explanation 1 of Section 115JB by the Finance (No. 2) Act is central to the issue. The Supreme Court's decision in Anjum M.H. Ghaswala and Others, which held that statutory interest under Sections 234A, 234B, and 234C cannot be waived by the Settlement Commission, is also a key precedent.

Court's Interpretation and Reasoning

The Court noted that the issue had been previously decided against the revenue by the Bombay High Court in the cases of Mangalore Refinery & Petrochemicals Ltd and JSW Energy Ltd. These decisions considered the Supreme Court's ruling in Anjum M.H. Ghaswala and Others and concluded that the retrospective amendment could not justify the levy of interest under Section 234B for book profits computed as per the law prevailing before the amendment.

Key Evidence and Findings

The Court found that the decisions in Mangalore Refinery & Petrochemicals Ltd and JSW Energy Ltd explicitly considered the Supreme Court's decision in Anjum M.H. Ghaswala and Others. The Court also noted that the revenue's argument that these decisions were obtained by suppressing CBDT circulars was unfounded, as the circulars were considered in the relevant judgments.

Application of Law to Facts

The Court applied the law as interpreted in the previous decisions of the Coordinate Benches, which were binding on the present case. It concluded that the retrospective amendment could not lead to the imposition of interest under Section 234B for the assessment year in question, as the assessee had computed book profits according to the law as it stood before the amendment.

Treatment of Competing Arguments

The Court addressed the revenue's argument that the imposition of interest was mandatory and that there was no equity in tax matters. However, it emphasized the need for fairness and the importance of adhering to binding precedents. The Court also dismissed the argument that the assessee should have approached the Chief Commissioner for redressal, as this point was not raised before the ITAT or framed in the memo of appeal.

Conclusions

The Court concluded that the substantial question of law was answered against the revenue and in favor of the assessee, based on the binding decisions of the Coordinate Benches.

SIGNIFICANT HOLDINGS

The Court held that the ITAT was correct in its decision not to levy interest under Section 234B on the addition made in Book Profit under MAT due to the provision for doubtful debts. The Court emphasized that the retrospective amendment could not be applied to impose such interest, as the assessee had computed book profits according to the law as it stood before the amendment.

In its reasoning, the Court stated: "We cannot bypass or ignore the decisions of the Coordinate Benches, which, according to us, answer the substantial question of law proposed by Mr Chhotaray against the revenue and in favor of the assessee."

The Court also criticized the revenue for not pointing out contrary and binding decisions and for attempting to attack these decisions without substantial grounds. It highlighted the importance of fairness in legal proceedings and the necessity of adhering to established precedents.

The appeal was dismissed without costs, as the Court noted that imposing costs would ultimately burden the taxpayers, who should not bear the consequences of the department's actions.

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