Solectron EMS India Ltd, Bangalore V. DCIT, Bangalore

ITA 168/BANG/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 68313 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-08-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 21-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIMAL ANAND
• Assessee Lawyers: RAMASUBRAMANYAM
• Keywords: Question of law
• Section: 234B; 139

Judgement Text

PAGE 1 OF 8 ITA NO.168/BANG/2011 1 INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES B BEFORE SHRI N BHARATHVAJASANKAR, VICE PRESIDENT AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.168/BANG/2011 (ASST. YEAR 2007-08) SOLECTRON EMS INDIA LIMITED, NO.44, KHB INDUSTRIAL AREA, YELAHANKA NEW TOWN, BANGALORE-560 106. PAN NO.AAKCS7429L VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(3), BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING : 12/08/2013 DATE OF PRONOUNCEMENT : 14/08/2013 APPELLANT BY : SHRI RAMASUBRAMANYAM, C.A. RESPONDENT BY : SHRI VIMAL ANAND, JCIT O R D E R PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTE D AGAINST THE ORDER OF THE CIT(A)-III, BANGALORE DATED 17/01/2011 . THE RELEVANT ASST. YEAR IS 2007-08. 2. THE SOLITARY ISSUE THAT IS RAISED IN THIS APPEA L IS WHETHER THE CIT(A) IS JUSTIFIED IN CONFIRMING THE LEVY OF INTER EST U/S 234B AND 234C OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT WAS INCORPORATED O N 27.9.2006. EARLIER, THE ASSESSEE WAS A DIVISION OF SOLECTRON CENTUM PAGE 2 OF 8 ITA NO.168/BANG/2011 2 ELECTRONICS LTD. THERE WAS A DEMERGER OF SOLECTRON CENTUM ELECTRONICS LTD. BY VIRTUE OF THE ORDER OF THE HONBLE KARNATAK A HIGH COURT DATED 13.7.2007. THE DEMERGER WAS EFFECTIVE FROM 1.10.20 06. THE ASSESSEE WAS ASSESSED TO INCOME TAX FOR THE ASST. YEAR 2007- 08 AS A SEPARATE ENTITY. THE AO DETERMINED THE TOTAL INCOME AT RS.2 ,01,27,753/-. IN ADDITION TO THE NORMAL TAX, THE AO LEVIED INTEREST U/S 234B AND 234C OF THE ACT AMOUNTING TO RS.9,66,745/- AND RS.2,45,281/ - RESPECTIVELY. 4. AGGRIEVED BY THE LEVY OF INTEREST U/S 234B AND 234C OF THE ACT, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) . 5. THE CIT(A) DISMISSED THE APPEAL ON THE GROUND T HAT THE INTEREST IS COMPENSATORY AND THEREFORE, AUTOMATIC A ND ALSO ON THE GROUND THAT THE PARENT COMPANY HAS ALSO NOT PAID AD VANCE TAX ON THE PROFITS OF DEMERGED COMPANY. THE RELEVANT FINDING OF THE CIT(A) AT PARA 7 READS AS FOLLOWS:- 7. I HAVE CONSIDERED THE SUBMISSIONS. IT IS AN UNDISPUTED FACT THAT THE ASSESSMENT HAS BEEN MADE O N THE APPELLANT. IT IS WELL SETTLED THAT THE INTERES T UNDER SECTIONS 234B AND 234C OF THE ACT ARE COMPENSATORY IN NATURE. ONCE IT IS ESTABLISHED THAT THE ADVANCE TA X IS NOT PAID, THE LEVY OF INTEREST IS AUTOMATIC. PERHA PS THE APPELLANTS CLAIM FOR NON LEVY OF INTEREST UNDER SE CTIONS 234B AND 234C OF THE ACT WOULD STAND ON A BETTER FOOTING IF THE PARENT COMPANY HAD PAID THE ADVANCE TAX ON THE INCOME WHICH IS ASSESSED IN THE HANDS OF THE APPELLANT. WHEN NEITHER THE PARENT COMPANY NOR THE APPELLANT HAVE PAID ANY ADVANCE TAX, INTEREST U/S 2 34B AND 234C IS TO BE CHARGED. ON THESE FACTS, I AM OF THE CONSIDERED OPINION THAT THE INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT HAVE BEEN CORRECTLY CHARGE D BY THE AO. 6. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES AND STRONGLY RELIED PAGE 3 OF 8 ITA NO.168/BANG/2011 3 ON THE ORDER OF THE TRIBUNAL IN THE CASE OF M/S ULT RATECH CEMENTS LTD. (ITA NO.7646 & 7647/07 DATED 20/8/2009). THE LEARNE D COUNSEL ALSO RELIED ON THE JUDGMENT OF THE HON'BLE JURISDICTIONA L HIGH COURT IN THE CASE OF T.P. INDRAKUMAR VS. INCOME TAX OFFICER 322 ITR 454 (KARN). 7. THE LEARNED DR ON THE OTHER HAND SUPPORTED THE FINDING/CONCLUSION GIVEN BY THE FIRST APPELLATE AUT HORITY. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS ON RECORD. THE SOLE ISSUE THAT ARISES FO R OUR CONSIDERATION IS WHETHER THE ASSESSEE IS LIABLE TO PAY INTEREST U/S 234B AND 234C OF THE ACT, AS ACCORDING TO THE ASSESSEE, IT WAS NOT IN EX ISTENCE DURING THE FINANCIAL YEAR 2006-07. 8.1 IN THE INSTANT CASE, THE UNDISPUTED FACT IS TH AT NEITHER THE PARENT COMPANY NOR THE ASSESSEE COMPANY HAD PAID AN Y ADVANCE TAX. FURTHER, THE ASSESSMENT MADE ON THE ASSESSEE COMPAN Y HAS NOT BEEN DISPUTED. IN FACT, THE ASSESSEE ADMITTED THAT THE ASSESSMENT IS AS PER LAW. THE CHALLENGE IS ONLY WITH REFERENCE TO LEVY OF INTEREST U/S 234B AND 234C OF THE ACT. IT IS A WELL SETTLED POSITION OF LAW THAT LEVY OF INTEREST U/S 234B AND 234C IS COMPENSATORY, MANDATO RY AND AUTOMATIC. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F DR. S REDDAPPA AND OTHERS V UNION OF INDIA AND OTHERS (232 ITR 62) WHI LE UPHOLDING THE VALIDITY OF PROVISIONS OF SECTION 234A, 234B AND 23 4C, HELD THAT INTEREST FOR DEFAULTS IN FURNISHING RETURN, THE PAYMENT OF A DVANCE TAX AND DEFERMENT OF ADVANCE TAX ARE COMPENSATORY IN NATURE . IN THE CASE OF CIT V ANJUM M H GHASWALA AND OTHERS (252 ITR 1), TH E HONBLE APEX COURT HELD THAT LEVY OF INTEREST FOR DEFICIENCY OR DEFERMENT OF ADVANCE TAX, IS MANDATORY. FURTHER, THE HONBLE KERALA HIGH COUR T IN THE CASE OF CIT V R RAMALINGAIR (241 ITR 753) HELD THAT LEVY OF INTER EST U/S 234B IS PAGE 4 OF 8 ITA NO.168/BANG/2011 4 MANDATORY AND NO NOTICE IS REQUIRED TO BE GIVEN TO THE ASSESSEE BEFORE THE LEVY OF INTEREST. IT WAS CONCLUDED THAT LIABIL ITY TO PAY INTEREST IS AUTOMATIC AND ARISES BY OPERATION OF LAW. 8.2 IT IS THE CASE OF THE ASSESSEE THAT THOUGH THE ASSESSMENT IS MADE AS PER THE LAW, IT COULD NOT HAVE PAID THE ADV ANCE TAX ON THE DUE DATE SPECIFIED, AS IT CAME INTO EXISTENCE ONLY AFTE R THE HONBLE HIGH COURT HAD SANCTIONED THE SCHEME BY ITS JUDGMENT DATED 13. 7.2006 W.E.F. 1/10/2006. THE HONBLE SUPREME COURT IN THE CASE O F CENTRAL PROVINCES MANGANESE ORE CO. LTD. (160 ITR 961) HAS HELD THAT LEVY OF INTEREST IS PART OF THE PROCESS OF ASSESSMENT. THE FINDING OF THE HONBLE SUPREME COURT AT PAGE 967READS AS UNDER:- IT IS THEREFORE CLEAR THAT LEVY OF PENAL INTEREST UNDER SECTIONS 139 AND 215 IS PART OF THE ASSESSMENT. WH EN SUCH PENAL INTEREST IS LEVIED, THE ASSESSEE IS ASS ESSED, MEANING THEREBY, HE IS SUBJECTED TO THE PROCEDURE F OR ASCERTAINING AND IMPOSING LIABILITY ON HIM. THE ASSESSEE DOES NOT HAVE ANY OBJECTION TO THE ASS ESSMENT OF INCOME IN HIS HANDS. WHEN ASSESSMENT HAS BEEN CONCLUDED RIGH TLY IN THE HANDS OF THE ASSESSEE AND WHEN THE LEVY OF INTEREST IS FORMI NG PART OF THE ASSESSMENT, WE DO NOT SEE ANY INFIRMITY IN CHARGING INTEREST ON THE ASSESSEE U/S 234B AND 234C OF THE ACT, ESPECIALLY, WHEN INTEREST U/S 234B AND 234C IS COMPENSATORY, MANDATORY AND AUTOMA TIC. 8.3 MOREOVER, SECTION 170(2) OF THE ACT STATES THA T ASSESSMENT OF INCOME IN WHICH THE SUCCESSION TOOK PLACE SHALL BE MADE ON THE SUCCESSOR IN LIKE MANNER AND TO THE SAME EXTENT AS IT WOULD HAVE BEEN MADE ON THE SUCCESSOR, AND ALL THE PROVISIONS OF TH IS ACT SHALL, SO FAR AS MAY BE , APPLY ACCORDINGLY. THE HONBLE SUPREME COURT IN THE CASE OF C A ABRAHAM V ITO (41 ITR 425) INTERPRETED THE PARAMA TERIA PROVISIONS, PAGE 5 OF 8 ITA NO.168/BANG/2011 5 NAMELY, SECTION 44 OF 1922 ACT. THE HONBLE APEX C OURT EXAMINING THE EXPRESSION SO FAR AS MAY BE OBSERVED THUS :- THE EXPRESSION ASSESSMENT USED IN THE SECTIONS O F CHAPTER IV OF THE INCOME-TAX ACT IS NOT USED MERELY IN THE SENSE OF COMPUTATION OF INCOME AND WHEN SECTION 44 DECLARES THAT THE PARTNERS OR MEMBERS OF THE FIR M OR ASSOCIATION SHALL BE JOINTLY AND SEVERALLY LIABLE T O ASSESSMENT, IT REFERS TO THE LIABILITY TO COMPUTATI ON OF INCOME U/S 23 AS WELL AS THE APPLICATION OF THE PROCEDURE FOR DECLARATION AND IMPOSITION OF TAX LIA BILITY AND THE MACHINERY FOR ENFORCEMENT THEREOF. NOR HAS THE EXPRESSION, ALL THE PROVISIONS OF CHAPTER IV SHALL SO FAR AS MAY BE APPLY TO SUCH ASSESSMENT A RESTRICTED CONTENT; IN TERMS IT SAYS THAT ALL THE PROVISIONS O F CHAPTER IV SHALL APPLY, SO FAR AS MAY BE, TO ASSESS MENT OF FIRMS WHICH HAVE DISCONTINUED THEIR BUSINESS. B Y SECTION 28, THE LIABILITY TO PAY ADDITIONAL TAX WHI CH IS DESIGNATED PENALTY IS IMPOSED IN VIEW OF THE DISHON EST CONTUMACIOUS CONDUCT OF THE ASSESSEE. THIS LIABIL ITY ARISES ONLY IF THE INCOME-TAX OFFICER IS SATISFIED ABOUT THE EXISTENCE OF THE CONDITIONS WHICH GIVE HIM JURISDICTION AND THE QUANTUM THEREOF DEPENDS UPON T HE CIRCUMSTANCES OF THE CASE. THE PENALTY IS NOT UNI FORM AND ITS IMPOSITION DEPENDS UPON THE EXERCISE OF DISCRETION BY THE TAXING AUTHORITIES; BUT IT IS IMP OSED AS A PART OF THE MACHINERY FOR ASSESSMENT OF TAX LIABI LITY. THE USE OF THE EXPRESSION SO FAR AS MAY BE IN THE LAST CLAUSE OF SECTION 44 ALSO DOES NOT RESTRICT THE APPLICATION OF THE PROVISIONS OF CHAPTER IV ONLY TO THOSE WHICH PROVIDE FOR COMPUTATION OF INCOME. BY THE US E OF THE EXPRESSION SO FAR AS MAY BE IT IS MERELY INTE NDED TO ENACT THAT THE PROVISIONS IN CHAPTER IV WHICH FR OM THEIR NATURE HAVE NO APPLICATION TO FIRMS WILL NOT APPLY THERETO BY VIRTUE OF SECTION 44. IN EFFECT, THE LE GISLATURE HAS ENACTED BY SECTION 44 THAT THE ASSESSMENT PROCEEDINGS MAY BE COMMENCED AND CONTINUED AGAINST A FIRM WHOSE BUSINESS IS DISCONTINUED AS IF DISCONTINUANCE HAS NOT TAKEN PLACE. IT IS ENACTED MANIFESTLY WITH A VIEW TO ENSURE CONTINUITY IN THE APPLICATION OF THE MACHINERY PROVIDED FOR ASSESSMEN T PAGE 6 OF 8 ITA NO.168/BANG/2011 6 AND IMPOSITION OF TAX LIABILITY NOTWITHSTANDING DISCONTINUANCE OF THE BUSINESS OF THE FIRM. 8.4 THE ORDER OF THE TRIBUNAL RELIED ON THE ASSESS EE, NAMELY, M/S ULTRATECH CEMENTS LTD. (SUPRA), IS DISTINGUISHA BLE ON THE FACTS. IN THAT CASE, THE PARENT COMPANY, NAMELY, L&T LTD., HA D PAID ADVANCE TAX AND CLAIMED REFUND. THE JUDGMENT OF THE HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF T.P. INDRAKUMAR VS. INCOME TAX OFFICER (SUPRA) IS ALSO DISTINGUISHABLE AND IS NOT ANYWAY RELATED TO T HE FACTS OF THIS CASE. IN THAT CASE THE HON'BLE HIGH COURT HELD THAT INTEREST U/S 234A AND 234B IS NOT TO BE LEVIED FOR THE PERIOD OF DELAY ATTRIBU TABLE TO THE REVENUE AUTHORITIES IN COMPLETING THE ASSESSMENT PROCEEDING S. THEIR LORDSHIPS OF THE HON'BLE HIGH COURT CONFINED THE FINDING TO THE PECULIAR FACTS AND CIRCUMSTANCES OF THAT CASE. IN THAT CASE FIVE SUBST ANTIAL QUESTION OF LAW WAS RAISED BEFORE THE HON'BLE HIGH COURT. THE HON'B LE HIGH COURT DECIDED THE FIRST FOUR SUBSTANTIAL QUESTION OF LAW IN FAVOUR OF THE REVENUE. HOWEVER, QUESTION NO.5 RELATING TO LEVY OF INTEREST U/S 234A & 234B WAS ANSWERED IN FAVOUR OF THE ASSESSEE. THE FI FTH QUESTION OF LAW RAISED BEFORE THE HON'BLE HIGH COURT READ AS FOLLOW S: (E) WHETHER IT IS JUSTIFIED IN LAW IN HOLDING THAT INTEREST U/S 234A AND 234B IS LEVIABLE FOR THE PERIOD OF DELAY A TTRIBUTABLE TO REVENUE AUTHORITIES IN COMPLETING THE ASSESSMENT PROCEEDINGS? THE RELEVANT FINDINGS OF THE HON'BLE JURISDICTIONAL HIGH COURT WITH REGARD TO ABOVE QUESTION IS AS FOLLOWS: THE VALIDITY OF THE ASSESSMENT PROCEDURE BEING UPH ELD, IT COULD HAVE BEEN INFERRED THAT ALL THE QUESTIONS ARE ANSWERED AGAINST THE APPELLANT-ASSESSEE. ON FURTHER EXAMINAT ION, WE ARE OF THE VIEW THAT WHILE THE FIRST FOUR QUESTIONS ARE PAGE 7 OF 8 ITA NO.168/BANG/2011 7 REQUIRED TO BE ANSWERED, BEING ANSWERED IN FAVOUR O F THE REVENUE, SO FAR AS THE FIFTH QUESTION RELATING TO T HE JUSTIFICATION OF LEVY OF INTEREST U/S 234A AND 234B OF THE ACT IS CONCERNED, AS THIS QUESTION IS ALSO REQUIRED TO BE EXAMINED IN THE CONTEXT OF THE PECULIAR FACTS AND CIRCUMSTANCES OF THIS CASE AS WE HAVE UPHELD THE VA LIDITY OF THE ASSESSMENT ORDER PASSED BY THE APPELLATE AUTHOR ITY AND THE TRIBUNAL HAVING REGARD TO THE PECULIAR FACTS AN D CIRCUMSTANCES OF THE CASE AND ON DOING SO, WE FIND THAT QUESTION NO.5 IS REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAD OFFER ED A SUM OF RS.10,00,000 AS AN ADDITIONAL INCOME IN ADDITION TO THE INCOME ALREADY OFFERED IN HIS RETURN AND ONLY TO BU Y PEACE WITH THE DEPARTMENT AND THAT HAS BEEN ACCEPTED BY T HE ASSESSING OFFICER WITHOUT FURTHER SCRUTINY. IN SUCH A SITUATION, IT CANNOT BE HELD THAT THE ASSESSEE HAD DEFAULTED IN PAYMENT OF INSTALLMENT OF ADVANCE TAX, AS THE AM OUNT OF RS.10 LAKHS WAS OFFERED BY WAY OF INCOME FOR THE FI RST TIME AS PER THE ASSESSEES LETTER DATED FEBRUARY 28, 200 0 TO BUY PEACE AND AVOID FURTHER ADVERSE CONSEQUENCES AND TH E ASSESSING AUTHORITY HAVING ACTED UPON THIS PROPOSIT ION OF THE ASSESSEE AND HAVING REGARD TO THE PECULIAR FACTS AN D CIRCUMSTANCES OF THIS CASE, WE DIRECT THAT THE ADDI TION OF INCOME U/S 234A AND 234B IN THE CASE OF THE PRESENT APPELLANT-ASSESSEE IS NOT NECESSARY AND NOT JUSTIFI ED AND THUS THE FIFTH QUESTION IS ANSWERED IN FAVOUR OF TH E APPELLANT-ASSESSEE AND THE APPEAL IS ALLOWED ONLY T O THIS EXTENT IN PART . FROM THE ABOVE FINDINGS OF THE HON'BLE JURISDICTION AL HIGH COURT IT IS CLEAR UNDER THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, THE HON'BLE COURT DIRECTED THAT INTEREST U/S 234A AND 234B HAS TO BE WAIVED FOR THE PERIOD OF DELAY ATTRIBUTABLE TO THE REVENUE AUTHORI TIES IN COMPLETING THE ASSESSMENT PROCEEDINGS. THE FACT OF THE INSTANT CAS E IS NOWHERE CONNECTED WITH THE FACTS OF THE ABOVE MENTIONED CAS E CONSIDERED BY THE HON'BLE JURISDICTIONAL HIGH COURT. IN THIS CASE NEI THER THE PARENT COMPANY NOR THE ASSESSEE HAD PAID THE ADVANCE TAX. AS STATED EARLIER, WHEN LEVY OF INTEREST IS PART OF THE PROCESS OF ASS ESSMENT, WE SEE NO PAGE 8 OF 8 ITA NO.168/BANG/2011 8 REASON WHY INTEREST U/S 234B AND 234C COULD NOT BE CHARGED ON THE ASSESSEE COMPANY WHEN THE ASSESSMENT IS NOT DISPUTE D BY IT. IN THE LIGHT OF THE ABOVE REASONING, WE UPHOLD THE ORDERS OF THE INCOME TAX AUTHORITIES AS CORRECT AND IN ACCORDANCE WITH LAW. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED AT THE END OF THE HEARING ON 14 TH AUGUST, 2013 SD/- SD/- (N BHARATHVAJASANKAR) (GEORGE GEORGE K) VICE PRESIDENT JUDICIAL MEMBER DATED:14 TH AUGUST, 2013 VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCHES, BANGALORE