COMMISSIONER OF INCOME TAX-II, CHANDIGARH V. M/S SAB INDUSTRIES, SCO NO. 49-50, SECTOR 26, CHAN DIGARH

ITA/15/2012

AI Insights

The case revolves around the appeal by the Commissioner of Income Tax-II, Chandigarh against M/s SAB Industries concerning the applicability of interest under Section 234B of the Income Tax Act on deductions claimed under Section 80-IA. The primary legal questions addressed were whether the ITAT was justified in not treating a certain amount as income of the assessee and whether interest under Section 234B was chargeable despite the disallowance of the deduction under Section 80-IA. The CIT(A) and ITAT had previously ruled in favor of the assessee, citing a bonafide belief in the validity of the deduction claim, which was later found to be incorrect due to a retrospective amendment in the Finance Act, 2007.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 717905 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 22-10-2013
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax Chandigarh-II V/s M/s SAB Industries Limited, The Commissioner of Income Tax, Panchkula V/s M/s Haryana Warehousing Corporation
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: ALOK MITTAL
• Assessee Lawyers: URVASHI DHUGGA
• Keywords: Advance tax; Bonafide belief; Deduction claim; Income Tax; Interest Charge
• Section: 80-IA; 80-IA; 234 B

Judgement Text

"ITA No.15 of 2012 [1] IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.15 of 2012 (O&M) Pronounced on:22 nd October, 2013 Commissioner of Income Tax-II, Chandigarh ..... Appellant VERSUS M/s SAB Industries, Chandigarh ..... Respondent CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE DR. BHARAT BHUSHAN PARSOON Present: Ms.Urvashi Dhugga, Advocate, for the appellant. Mr.Alok Mittal, Advocate, for the respondent. ******* RAJIVE BHALLA, J. The revenue lays challenge to orders dated 16.02.2010 and 24.06.2011, passed by the Commissioner of Income Tax (Appeals), Chandigarh (hereinafter referred to as the 'CIT(A)'), and the Income Tax Appellate Tribunal, Chandigarh Bench 'A' (hereinafter referred to as the 'ITAT'), on the following substantial questions of law: - “1. Whether on the facts and in the circumstances of the case, the Hon'ble ITAT was justified in law in holding that the amount of Rs.9,71,360/- retained by the authorities, could not be treated as assessee's income for the year despite the fact that income was being assessed on accrual basis? 2. Whether on the facts and in the circumstances of the ITA No.15 of 2012 [2] case, the Hon'ble ITAT was justified in holding that interest u/s 234-B of the I.T.Act was not chargeable on the amount of deduction claimed u/s 80-IA notwithstanding the fact that the Hon'ble ITAT had upheld the disallowance of deduction u/s 80-IA?” Counsel for the revenue fairly concedes that the first substantial question of law is covered against the revenue by judgment of this Court in ITA No.148 of 2007 “Commissioner of Income Tax Chandigarh-II V/s M/s SAB Industries Limited, Sector- 26, Chandigarh”, decided on 06.05.2013. As regards the second question of law, counsel for the appellant submits that the CIT(A) and the ITAT have erred in deleting interest charged by the Assessing Officer. The assessee intentionally claimed deduction of income under Section 80-IA of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') so as to evade income tax. The ITAT and the CIT(A) have wrongly held that the assessee was under a bonafide belief that the claim of deduction under Section 80-IA of the Act was available. Counsel for the revenue further submits that as default relating to deposit of advance tax has been affirmed, the CIT(A) and the ITAT could not have deleted the interest. It is further submitted that interest under Section 234B of the Act is mandatory and unlike in the case of penalty, does not confer discretion on the Assessing Officer or the ITA No.15 of 2012 [3] Appellate Authorities to set aside the interest. Counsel for the assessee submits that the assessee was under an erroneous but bonafide belief that deduction under Section 80-IA of the Act is available. It is further submitted that as it was not possible for the assessee to foresee the amendment in the Finance Act, the CIT(A) and the ITAT have rightly held that interest could not be levied. It is further submitted that as the controversy relating to interest is covered against the revenue by a Division Bench of this Court in ITA No.242 of 2006 “The Commissioner of Income Tax, Panchkula V/s M/s Haryana Warehousing Corporation, Panchkula”, decided on 20.04.2007, and the CIT(A) and the ITAT have relied upon the above judgment while holding in favour of the assess, the appeal may be dismissed. We have heard counsel for the parties and perused the impugned orders. Admittedly, explanation to Section 80-IA of the Act came into force under Finance Act, 2007 but with retrospective effect. The assessee was, therefore, liable to deposit advance tax. The question that arises is whether the assessee is liable to pay interest? The CIT (A) has, while setting aside interest levied by the Assessing Officer, held as follows: - “19. Regarding this issue, the judgement of the jurisdictional High Court in the Haryana Warehousing ITA No.15 of 2012 [4] Corporation (supra) is very relevant. The Hon'ble Court held that “the assessee acted bonafide in conformity with the decision of the High Court, just because the decision was reversed by the Apex Court liability to pay advance tax cannot fastened on the assessee. At the relevant point of time, it was not possible for the assessee to foresee the decision of the Supreme Court on the point. 'Lex non go co git ad impossibilla' (Law cannot compel you to do the impossible). Before invoking section 234B of the Act, it is essential to see whether the assessee comes within the sweep of this section. The pre-condition for invoking Section 234B of the Act is that the assessee must be fastened with the liability to pay advance tax. As the assessee was not liable to make the payment of advance tax, the case of the assessee would not come within the ambit of Section 234B of the Act. 20. Since this amendment/clarification was given in Finance Bill, 2007, it is quite clear that before this date, there was some ambiguity which was sought to be clarified. The assessee was under a bonafide belief that this claim for deduction u/s 80IA is valid. In J.K.Synthetics vs. CTO (1994) 4 Supreme Court 276, it was held that where claim for exemption was bonafide ITA No.15 of 2012 [5] but disallowed, tax can be levied but no interest can be charged. 21. In my considered opinion, the interest was not leviable, allowing assessee's ground on this issue.” The ITAT has affirmed the findings recorded by the CIT (A). The situation in the present case is more or less similar. 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. The CIT(A) and the ITAT have rightly relied 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 (supra). The discretion exercised is neither perverse nor arbitrary and, therefore, does not call for any interference. In view of what has been stated hereinabove, the second question of law is answered against the revenue and the appeal is ITA No.15 of 2012 [6] dismissed. [ RAJIVE BHALLA ] JUDGE 22nd October, 2013 [ DR. BHARAT BHUSHAN PARSOON ] shamsher JUDGE Singh Shemsher 2013.10.23 14:24 I attest to the accuracy and integrity of this document Chandigarh "