No liability to pay interest u/s 234B in view of retrospective amendment

[pawansingla]

2010-TIOL-521-ITAT-MUM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'C' MUMBAI
ITA No.155/Mum/2008
Assessment Year: 2005-06
M/s PATEL KNR JV
PATEL ESTATE ROAD
JOGESHWARI (WEST)
MUMBAI-400102
PAN NO:AAAAP1496N
Vs
ASST COMMISSIONER OF INCOME TAX
CIRCLE-24(1), PRATYAKSHAKAR BHAVAN
BANDRA KURLA COMPLEX, BANDA
(EAST), MUMBAI-400051
ITA No.7156/Mum/2008
Assessment Year: 2005-06
M/s KNR PATEL JV
PATEL ESTATE ROAD
JOGESHWARI (WEST)
MUMBAI-400102
PAN NO:AAAAK1639A
Vs
ASST COMMISSIONER OF INCOME TAX
CIRCLE-24(1), PRATYAKSHAKAR BHAVAN
BANDRA KURLA COMPLEX, BANDA
(EAST), MUMBAI-400051
R K Gupta, JM and B Ramakotaiah, AM
Dated : January 18, 2010
Appellant Rep by: Shri Vijay Mehta
Respondent Rep by: Shri Ajay Srivastava
Income Tax – Section 80-IA - Whether the execution of civil contracts for construction of roads, highways etc. cannot be said to be the business of developing any infrastructure facility - Whether the assessees are not entitled to Sec 80IA(4) benefits - Whether interest u/s 234B is chargeable on the ground that the claim of the assessee was at that point of time admissible and no advance tax was payable.

These assessees were engaged in the business of civil contracts for construction of roads, highways etc. It was seen by the AO that they were not engaged in the business of developing any infrastructure facility since these assessees were executing works contract taken from NHAI. The AO found that the assessees were to participate in the bidding process for executing contracts if awarded by NHAI. The AO found that the bidding process of NHAI for developers was entirely different from that of contractors. These assessees have the contract works as per technical specifications and descriptions provided by the NHAI. Accordingly, the AO held that deduction u/s 80IA(4) is not allowable to these assessees as these assessees are not carrying on the business of developing or developing and maintaining any infrastructure facility as per the conditions of section 80IA(4), therefore, the AO disallowed the claim of both the assessee. The CIT (A) was in agreement with the finding of AO. The AO also levied  interest u/s 234B.

On appeal, the ITAT held that,

++ in view of the decision of larger Bench in the case of B.T. Patil & Sons Belgaum Construction Private Limited vs ACIT in ITA Nos 1408 & 1409/PN/2003 vide order dated 26th October 2009, it was held that the conditions for claiming deduction u/s 80IA(4) have not been satisfied in these cases. Accordingly, the order of the CIT(A) in case of both these assessees was confirmed;

++ in the present cases the levy of interest u/s 234B was not justified as on the date when the installments of advance tax was due, the decisions were in favour of assessee by which it was held that deduction u/s 80IA(4) is allowable. The assessees acted bona fide in conformity with the earlier decisions of the Tribunal. Just for the reason that now larger Bench has decided the issue in favour of department, liability to pay advance tax could not be fastened on these assessees. At the point of time of making of payment of advance tax it was impossible on part of these assessees that the favourable decision of the Tribunal will be reversed by the larger Bench of the Tribunal. Therefore, it was held that at that point of time, these assessees were not liable to pay advance tax on the amount of profit claimed as deduction u/s 80IA(4). In view of these facts and circumstances, the ITAT cancelled the levy of interest u/s 234B in both the cases.
Assessee's appeal partly allowed.
ORDER
Per: R K Gupta:
These are two appeals by two different assessees against order of CIT (A) relating to assessment year 2005-06. Identical issues are involved in both of the appeals therefore, they are disposed off together.
2. First issue in both these appeals is against denying deduction of Rs 6,86,01,506/- and Rs 4,37,85,291/- respectively claimed u/s 80IA(4) in respect of income derived from the activity of development of eligible infrastructure facilities.
3. The Learned Counsel fairly stated that in view of the decision of the larger Bench in case of B.T. Patil & Sons Belgaum Construction Private Limited vs ACIT in ITA Nos 1408 & 1409/PN/2003 vide order dated 26th October 2009, the issue is liable to be decided against the assessee.
4. Briefly stated the facts of the case are that the Assessing Officer noticed that these assessees were engaged in the business of civil contracts for construction of roads, highways etc. It was seen by him that they are not engaged in the business of developing any infrastructure facility. Since these assessees were executing works contract taken from National Highways Authority of India (NHAI). The Assessing Officer found that these assessee were to participate in the bidding process for executing contracts if awarded by NHAI. The Assessing Officer found that the bidding process of NHAI for developers was entirely different from that of contractors. These assessees have the contract works as per technical specifications and descriptions provided by the NHAI. Accordingly, the Assessing Officer held that deduction u/s 80IA(4) is not allowable to these assessees as these assessees are not carrying on the business of developing or developing and maintaining any infrastructure facility as per the conditions of section 80IA(4), therefore, the Assessing Officer disallowed the claim of both the assessee. The CIT (A) was in agreement with the finding of Assessing Officer. Accordingly, he also confirmed the action of the Assessing Officer. Though various benches have decided earlier the issue in favour of the assessee also, however, now, larger Bench have decided the issue against the assessee and Learned AR fairly stated that in view of the decision of larger Bench in case of B.T. Patil & Sons Belgaum Construction Private Limited (supra) the issue can be decided against these assessees. Therefore, in view of the decision of larger Bench, we hold that the conditions for claiming deduction u/s 80IA(4) have not been satisfied in these cases. Accordingly, we confirm the order of the CIT (A) in case of both these assessees.
5. Second issue in both of these appeals is against levy of interest of Rs 54,72,771/- and Rs 35,39,991/- respectively u/s 234B.
6. The Assessing Officer charged interest u/s 234B on the basis of assessed income. The CIT (A) also confirmed the levy of interest by observing that this is consequential in nature.
7. The Learned Counsel for the assessee who appeared before the Tribunal stated that these assessees claimed deduction in view of the decision of the Tribunal in case of M/s Patel Engineering Ltd (94 ITD 411). It was submitted by Learned AR that this decision was rendered on 22.06.2004, these assessees have filed their returns on 30.10.2005. Thereafter, the decision of the M/s Patel Engineering Ltd was followed by various Benches of the Tribunal for allowing the claim of deduction u/s 80IA(4). The decision of the larger Bench came only on 26.10.2009. It was explained that before this date the issue either was decided in favour of the assessee or was debatable one, therefore, bonafidely both the assessees have not paid the advance tax on the amount of profit claimed as deduction u/s 80IA(4). The first installment was payable on 15.9.2004 and as explained earlier the decision of the Tribunal in case of M/s Patel Engineering Ltd dated 22.6.2004 was available and accordingly the assessee has not paid advance tax on the amount of profit claimed as deduction u/s 80IA(4), therefore, the chargeability of interest u/s 234B is not justified. Reliance was placed on decision of Tribunal in case of M/s Harayana Warehousing Corporation reported in 252 ITR 34 (AT portion), in case of Express Newspaper Ltd (103 TTJ 122), in case of M/s Revathi Equipment Ltd (108 TTJ 429) & on the decision of the Hon'ble Karnataka High Court in case of Kwality Biscuits Ltd (243 ITR 519) which have been affirmed by the Hon'ble Supreme Court. Reliance was also placed in the case of M/s Ultratech Cement Ltd decided in ITA Nos 7646 & 7647/Mum/2007, copies of these decisions are placed on record. On the other hand, Learned Departmental Representative placed reliance on the orders of the Assessing Officer and CIT (A). It was further submitted that the charging of interest u/s 234B is compensatory and mandatory in nature, therefore, the charging of interest u/s 234B is justified. Reliance was placed on the decision of P&H High Court in the case of Upper India Steel Manufacturing Engineering Co 279 ITR 123. Further reliance was placed on the decision of Special Bench in the case of Glaxo reported in 18 ITD 226 (SB). It was submitted that under the provision of law the word is 'impossibility' is not added. In the present case, there was no impossibility in paying the advance tax on the amount of deduction claimed. In reply, the Learned Counsel for the assessee stated that the issue before the Hon'ble P&H High Court was for the purpose of limitation of jurisdiction u/s 143(1) and not on the issue of impossibility of payment of advance tax and the aforesaid reasons explained. Attention of the Bench was drawn to the relevant finding of the Tribunal, which has been reversed by the P&H High Court on page 126 of its order. Regarding the decision of the Special Bench in the 18 ITD, it was submitted that the issue before the Special Bench was not in respect of charging of interest u/s 234A, B & C, therefore, placing reliance on these decisions is misconceived. It was further submitted that the very issue that the provisions of section 234B are mandatory in nature have been considered by the Tribunal in case of Express Newspaper Ltd 103 TTJ 122 relied upon.
8. We have heard rival submissions and considered them carefully. We have also perused the material along with various case laws relied upon by Learned AR, copies of which are placed on record.
9. After considering the submissions and various case laws we are of the view that the chargeability of interest on the facts of the present case is not justified. Before the decision of the larger Bench in case of B.T. Patil & Sons Belgaum Construction Private Limited (supra) which is of dated 26.10.2009 the issue was decided in favour of the assessee. First decision is reported in case of M/s Patel Engineering Ltd (94 ITD 411). This decision was pronounced on 22.6.2004. Due date for paying Ist installment of advance tax was 15.9.2004. These assessee were aware of the decision of M/s Patel Engineering Ltd by which the deduction u/s 80IA(4) on similar facts was held allowable, therefore, these assessees have not paid first installment of advance tax. The decision of M/s Patel Engineering Ltd were followed by various Benches of the Tribunal and allowed the claim u/s 80IA(4) and thereafter there was a divergent view among the Benches of the Tribunal. Accordingly, the Hon'ble President constituted larger Bench to decide the issue. The larger Bench decided the issue against assessee vide order dated 26.10.2009. In view of these facts & circumstances, it is seen that the assessees were under bona fide belief that there was no need to pay advance tax as the deduction u/s 80IA(4) is allowable.
10. In case of Express Newspaper Ltd (103 TTJ 122) by which the Chennai Bench of the Tribunal has held that :
"assessee having received intimation regarding the adjustment of income-tax refund only after the last installment of advance tax was paid which it could not anticipate, interest u/s 234C was not chargeable for the shortfall of payment of advance tax."
While holding so the Bench has taken into consideration the decision of Smt Premlata Jalani 264 ITR 744(Raj). In another case, i.e. in case of M/s Harayana Warehousing Corporation (252 ITR 34)(AT) the third member has concurred with the decision of Accountant Member on holding that though the provision of section 234B as it stood, at that point of time, the assessee was not liable to pay the advance tax. The finding of the third Member concurring with the Accountant Member is given at page 35 of the order by which it was held that :
"...section 234B is mandatory in nature. But before invoking section 234B it is also essential to see whether the assessee comes within the sweep of this section. The condition precedent for invoking the provisions of section 234B is that the assessee must be fastened with the liability to pay advance tax under section 208. Admittedly, up to the assessment year 1991-92, the assessee did get the benefit of section 10(29) of the Act. It was assessed on nil income. The exemption was granted on the basis of Allahabad High Court decision in CIT vs U P State Warehousing Corporation [1992] 195 ITR 273 (All). Till March 31, 1992, this was the only decision available on the point. As no other decision was available, the Department also accepted this decision. The assessee acted bona fide in conformity with the decision of the High Court. Just because the decision was reversed by the Supreme Court liability to pay advance tax could not be fastened on the assessee. At the relevant point of time it was impossible on the part of the assessee to foresee the decision of the Supreme Court on the point. The assessee was not liable to make the payment of advance tax. The case of the assessee fell beyond the ken of section 208 of the Act. As such, it was not within the ambit of section 234B. Interest could not be levied under section 234B."
11. Similarly, the Hon'ble Karnataka High Court in case of Kwality Biscuits Ltd 243 ITR 519 has held that levy of interest u/s 234B and C is not justified as determination of tax u/s 115J is only after end of the relevant year. Accordingly, interest cannot be levied in such a case u/s 234B and C. This decision of the Hon'ble Karnataka High Court is affirmed by the apex court now. Similar view has been taken by the Tribunal in case of M/s Ultratech Cement Ltd (supra).
12. After taking into consideration various aspect of the case and the above decisions of the Tribunal as well decision of the Hon'ble Karnataka High Court we are of the considered view that in the present cases the levy of interest u/s 234B was not justified as on the date when the installments of advance tax was due, the decisions were in favour of assessee by which it was held that deduction u/s 80IA(4) is allowable. The assessees acted bona fide in conformity with the earlier decisions of the Tribunal. Just for the reason that now larger Bench has decided the issue in favour of department, liability to pay advance tax could not be fastened on these assessees. At the point of time of making of payment of advance tax it was impossible on part of these assessees that the favourable decision of the Tribunal will be reversed by the larger Bench of the Tribunal. Therefore, we hold that at that point of time, these assessees were not liable to pay advance tax on the amount of profit claimed as deduction u/s 80IA(4).
13. We have also taken into consideration the decisions relied upon by Learned Departmental Representative in the case of Upper India Engineering Co and Glaxo and found that both the decisions are distinguishable on facts. The facts before P&H High Court were that while making prima facie adjustment u/s 143(1)(a) interest u/s 234B/C can be charged or not. The CIT (A) and the Tribunal has held that while completing the assessment u/s 143(1)(a) interest u/s 234B/C cannot be charged. However, on second appeal by the Department, Hon'ble P&H High Court has said since the charging of interest is mandatory, therefore, while completing the assessment u/s 143(1), interest u/s 234B/C can be charged. Here before us, the facts are totally different. In the present case, the assessee did not pay advance tax on the amount of deduction claimed because of the decision of the Tribunal in the case of Patel Engineering by which deduction u/s 80IA(4) was held allowable. This decision was rendered in the year 2004 and first instalment payable by the assessee was paid on 15.9.2004. Thereafter, in the year of 2009, the larger Bench overruled the decision of Patel Engineering and in view of these facts, the deduction claimed u/s 80IA was held not allowable. However, as stated above, the assessee acted bonafidely because at the time of paying instalment of advance tax in view of the provision of section 208 of the Act, the assessee was entitled for deduction u/s 80IA(4) on the basis of the past history on the basis of decision of Patel Engineering. It was also stated by Learned Authorized Representative of the assessee that deduction u/s 80IA was allowed immediately earlier year claimed on the basis of the decision of the Tribunal in the case of Patel Engineering (supra). Copies of the order are placed on record.
14. In view of these facts and circumstances, we cancel the levy of interest u/s 234B in both the cases.
15. There is one more ground in case of M/s Patel KNR JV i.e. against not granting deduction of tax deducted at source of Rs 34,95,337/-.
16. It was submitted by Learned AR that this ground was taken before Learned CIT (A), however, no findings have been given. Accordingly, it was requested that matter can be sent back to the file of the CIT (A) for deducting the same. The Learned Departmental Representative did not object.
17. Since, this issue was raised before Learned CIT (A), however, Learned CIT (A) has not adjudicated upon this issue therefore, we, restore this issue to the file of the Learned CIT (A) to decide the same after affording opportunity of being heard to the assessee.
18. Both the appeals are allowed in part as mentioned hereinabove.
(Order pronounced on 18.1.2010.)