D.b. Income Tax Appeal v. I.t.o. Ward-1

39 // 1 // D.B. INCOME TAX APPEAL NO. 57/2009. M/s Mewar Polytex Limited Vs. I.T.O. Ward-1 .. Date of Judgment :: 4[th]March 2014. HON'BLE MR. JUSTICE DINESH MAHESHWARIHON'BLE MR. JUSTICE P.K. LOHRA Mr. Vikas Balia, for the appellant.Mr. K.K. Bissa, for the respondent. <><><> ReportableBY THE COURT:(Per Dinesh Maheshwari,J.) This appeal by the assessee under Section 260-A of theIncome Tax Act, 1961 ('the Act') is directed against the order dated20.03.2009 passed in ITA No. 187/Ju/2008 by the Income TaxAppellate Tribunal, Jodhpur Bench, Jodhpur ('ITAT') for theAssessment Year 2003-04 whereby, the ITAT has allowed the appealfiled by the Revenue and, while reversing the order dated06.12.2007 passed by the Commissioner of Income Tax (Appeals),Udaipur ['CIT(A)'] in Appeal No. 23/ITA/UDR/2006-07, has restoredthe order of the Assessing Officer ('AO') dated 03.03.2006, whichwas passed on an application under Section 154 of the Act. This appeal has been admitted for consideration on thefollowing questions of law:- “(1) – Whether the judgment of the Hon'ble Supreme Court in CITVs. Xpro India Ltd. (2008) 300 ITR 337 (SC) has rightly beeninterpreted by the learned Tribunal on the aspect about entitlementto allow credit for MAT under Section 115 JAA and Sections 115JA/115 JB of the Act before charging interest under Sections 234Band 234D and withdrawal under Section 244A?Vs. Xpro India Ltd. (2008) 300 ITR 337 (SC) has rightly beeninterpreted by the learned Tribunal on the aspect about entitlementto allow credit for MAT under Section 115 JAA and Sections 115JA/115 JB of the Act before charging interest under Sections 234Band 234D and withdrawal under Section 244A? // 2 // (2) – Whether in view of the fact that at the time of passing of theorder of the authorities below there were clear judgments in favourof the assessee to allow credit for MAT under Sections 115 JA /115 JB before charging interest under Sections 234B and 234Dand therefore, this question about permissibility of entertainingrectification application was never raised, whether the learnedTribunal was correct in holding that still the question wasdepatable one and not rectifiable under Section 154. Moreso,when the question about non-rectifiability of the order was notraised by the revenue before the Tribunal.” The questions aforesaid have arisen in the backdrop of thefollowing facts and circumstances: The appellant-assessee filed thereturn of income for the Assessment Year 2003-04 on 02.12.2003declaring loss of Rs. 4,03,413/-, which was processed under Section143(1) of the Act and the refund claim was allowed to the assessee.The case was, however, selected for scrutiny and notice underSection 143 (2) was issued. In the assessment order passed underSection 143(3) of the Act, the AO dealt with an issue concerning theclaimed deduction under Section 80HHC of the Act and thededuction was allowed to the tune of Rs. 13,56,083/- as against thatof Rs. 26,56,291/- claimed by the assessee. Deduction underSection 80IA was also allowed. The assessee had received interestunder Section 244A on the refund for the assessment years 2001-02and 2002-03 but had not shown as income in the computation. Theinterest received during the year was taken as income of theassessee and addition of Rs.40,714/- was made on that account inthe total income. Ultimately, the assessee was assessed for anincome of Rs. 19,13,490/-; and the AO ordered as under:- “Assessed. Issue demand notice and Challan. Charge interestu/s 234B, u/s 234D and interest allowed u/s 244A is withdrawn asper rule. Issue penalty notice u/s 271(1)(c) separately for filing ofinaccurate particulars of income.”u/s 234B, u/s 234D and interest allowed u/s 244A is withdrawn asper rule. Issue penalty notice u/s 271(1)(c) separately for filing ofinaccurate particulars of income.” // 3 // “Assessed. Issue demand notice and Challan. Charge interestu/s 234B, u/s 234D and interest allowed u/s 244A is withdrawn asper rule. Issue penalty notice u/s 271(1)(c) separately for filing ofinaccurate particulars of income.”u/s 234B, u/s 234D and interest allowed u/s 244A is withdrawn asper rule. Issue penalty notice u/s 271(1)(c) separately for filing ofinaccurate particulars of income.” // 3 // The assessee, thereafter, moved an application under Section154 of the Act seeking rectification of three alleged mistakes. In this application, the assessee claimed as under:- “1. That deduction claimed u/s 80IA has been allowed 25%while it was entitled to deduction u/s 80IA @ 30%, as its unit II atvillage Nai has started production on 27.3.1995: therefore it waseligible for deduction u/s 80IA for ten years beginning from A.Y.1995-96 to A.Y. 2004-05.2.Credit of tax paid u/s 115JA may be allowed as companyhad paid MAT under Section 115JA. w.e.f. A.Y. 1997-98 to 2000-01 and under section 115JB during A.Y. 2001-02 to 2002-03.3.Interest charged u/s 234B, u/s 234D and interestwithdrawan u/s 244A will not be charged as assessee has paid taxu/s 115JA & 115JB.” The AO found the claim as regards deduction under Section80IA of the Act @ 30% justified and allowed the same, with which weare not concerned in this appeal. Significantly, the AO allowed thesecond ground raised by the assessee after finding that the credit oftax paid under Sections 115JA and 115JB was allowable underSection 115JAA. The AO, however, rejected the third ground asregards the interest charged. The AO, inter alia, observed and heldas under:- “Secondly tax paid u/s 115JA & 115JB are allowable u/s115JA A, therefore credit of tax paid is allowed up to the extent isavailable for setoff. The third point raised by the learned AR, regardingcharging of interest u/s 234B, 234D and withdrawal of interest u/s244A is consequently, therefore interest will be charged u/s 234B,u/s 234D and interest will be withdrawn before giving credit of taxpaid u/s 115JA & 115JB under section 115JA. Therefore on thispoint assessee ARs plea is rejected. Issue revised ITNS 150demand notice & Challan.” The CIT(A) found the approach of the AO not justified andproceeded to allow the appeal filed by the assessee; and directedgranting Minimum Alternate Tax (‘MAT’) credit under Section 115JAAfirst, before charging of interest under Section 234B and Section // 4 // 234D of the Act. The CIT(A), inter alia, observed and held asunder:- “5. Decision: I have considered the observations of the AO and thecontentions of the appellant. The appellant is a limited company.The appellant had paid the tax u/s 115JA of the Act. Therefore,credit u/s 115JA for tax paid was available to the appellant. Theappellant has claimed set off MAT credit before calculating theinterest under section 234B & 243D of the I.T. Act, 1961. The AOhas computed the interest under sections 234B & 234D on thebasis of tax payable determined u/s 143 (3) of the Act withoutgiving effect to the set off claimed u/s 115JAA. AO has chargedinterest under section 234B and 234D on the total amount of taxwithout giving effect to the tax credit claimed u/s 115JAA. In thecase of Chemplast Sanmar Ltd Vs. DCIT (2004) 83 TTJ(Chennai) 427 the Hon'ble ITAT, Chennai Bench held as under:- I have considered the observations of the AO and thecontentions of the appellant. The appellant is a limited company.The appellant had paid the tax u/s 115JA of the Act. Therefore,credit u/s 115JA for tax paid was available to the appellant. Theappellant has claimed set off MAT credit before calculating theinterest under section 234B & 243D of the I.T. Act, 1961. The AOhas computed the interest under sections 234B & 234D on thebasis of tax payable determined u/s 143 (3) of the Act withoutgiving effect to the set off claimed u/s 115JAA. AO has chargedinterest under section 234B and 234D on the total amount of taxwithout giving effect to the tax credit claimed u/s 115JAA. In thecase of Chemplast Sanmar Ltd Vs. DCIT (2004) 83 TTJ(Chennai) 427 the Hon'ble ITAT, Chennai Bench held as under:- “Therefore, under the scheme of things, tax paid under s.115JA, as computed under s. 115JAA is advance tax retained bythe Department itself for setting off against the tax liability offuture years. Carry forward and set off of the tax credit isstatutorily provided and is mandatory. The set off of credit undersub. s.(5) of s. 115JAA is against the difference between the taxpayable under normal computation and the tax payable on bookprofits. Again, under sub.s. (6) credit is to be increased ordecreased on the basis of increase or decrease of the tax liability.Thus, the set off of credit is against the tax computed, or , as thecase may be, increase or decrease thereof and not against thebalance of tax payable after deducting the advance tax and TDS.Thus, the tax credit is the first amount to be set off against the taxpayable and not after advance tax and TDS. Therefore, for thepurpose of s. 234B also the tax credit is to be adjusted evenbefore reducing the advance tax and TDS. The phrase used is‘set off’ and not ‘deduction’ the tax credit is set off against the taxpayable and hence the tax payable in any year is only the amountafter set off of the credit under s. 115JAA. For the purpose ofcomputing the interest the amount of tax payable after the set offonly should be taken. 6.Respectfully following the above decision of the Hon'bleITAT Chennai Bench, it is held that the appellant is entitled to setoff MAT credit first before charging of interest under section 234B& 234D of the I.T. Act, 1961. Therefore, the AO was not justifiedin rejecting the application u/s 154 of the Act, 1961 of theappellant. The AO is directed to allow MAT credit accordingly. 7.In the result, the appeal is allowed.” The ITAT, however, referred to the decision of the Hon'bleSupreme Court in the case of CIT Vs. Xpro India Ltd.: [2008] 300ITR 337 (SC) with the observations and therein, the Hon'bleSupreme Court had entertained the view that charging of interest D.B. INCOME TAX APPEAL NO. 57/2009. M/s Mewar Polytex LimitedVs. I.T.O. Ward-1 // 5 // under Section 234B and 234C in the context of short payment ofadvance tax called for interpretation of Section 115JAA read withSections 234B and 234C of the Act. The ITAT, thus, took the viewthat such charging of interest was a debatable issue and could nothave been considered to be a mistake apparent from the recordrectifiable under Section 154 of the Act because the decision of theHon'ble Apex Court was not available before the Chennai Bench ofthe Tribunal whose judgment was followed by the CIT(A). The ITATallowed the appeal of the Revenue in the following:- D.B. INCOME TAX APPEAL NO. 57/2009. M/s Mewar Polytex LimitedVs. I.T.O. Ward-1 // 5 // under Section 234B and 234C in the context of short payment ofadvance tax called for interpretation of Section 115JAA read withSections 234B and 234C of the Act. The ITAT, thus, took the viewthat such charging of interest was a debatable issue and could nothave been considered to be a mistake apparent from the recordrectifiable under Section 154 of the Act because the decision of theHon'ble Apex Court was not available before the Chennai Bench ofthe Tribunal whose judgment was followed by the CIT(A). The ITATallowed the appeal of the Revenue in the following:- “4.We have heard the parties and have carefully perused thematerial on record in terms of Sub Rule (6) of Rule 18 of theTribunal Rules, 1963 and in the light of judgment rendered byHon'ble Apex Court in CIT Vs. Xpro India Ltd (2008) 300 ITR 337(S.C.) where the Hon'ble Apex Court has entertained the viewthat charging of interest under section 234B and 234C in thecontext of short payment of advance tax warrants interpretation ofSec 115 JAA read with Sec 234B and 234C of the Act. In thislight, we hold that the issue of allowing credit of MAT undersection 115 JAA and 115JA/115JB of the Act before charging ofinterest under section 234B and 234D is a debatable issue andnot a mistake apparent from record rectifiable under section 154of the Act in particular when the judgment of Hon'ble Apex Courtas aforesaid, was not available before Chennai Bench of theTribunal followed by the Ld. CIT (A). Accordingly we set aside thedecision taken by the Ld. CIT (A) and restore the order passed bythe Assessing Officer.” Aggrieved by the aforesaid, the assessee has filed this appealwhich has been admitted on the substantial questions of law, asnoticed at the outset. Assailing the order passed by the ITAT, it has strenuously beenargued on behalf of the appellant-assessee that when aftercompleting the assessment under Section 143(3) of the Act, interestwas sought to be charged under Section 234B and 234D andwithdrawal of the interest was also ordered under Section 244A of D.B. INCOME TAX APPEAL NO. 57/2009. M/s Mewar Polytex LimitedVs. I.T.O. Ward-1 the Act without considering the credit of tax paid under Sections115JA and 115JB of the Act, the assessee had rightly filed therectification application and the same had rightly been allowed bythe CIT (A). It is contended that it was never the case of theRevenue, whether before the AO or before CIT(A) or even before theITAT that the application under Section 154 of the Act was notmaintainable in this case. According to the learned counsel for theappellant, the ground on which the ITAT has reversed the order ofthe CIT(A) that the matter was not rectifiable under Section 154 ofthe Act, was not even urged by the Revenue; and the ITAT was notjustified in carving out this ground without any basis. It is submittedthat the AO himself did not reject the application as not maintainablebut rejected it on the other considerations; and had he rejected theapplication as not maintainable, may be, at the relevant point of time,the assessee would have taken recourse to the appropriate remedy.It is also submitted that per the requirement of Section 115JA (3)read with Section 115JAA (4) of the Act, the credit of MAT has to beallowed in the year when the tax becomes payable and hence, theprovisions of Section 115JAA have to be applied before charging ofinterest under Sections 234B and 234D and withdrawal of interestunder Section 244A of the Act. The learned counsel has particularlyreferred to the decision of the Hon'ble Supreme Court in the case ofCommissioner of Income-Tax Vs. Tulsyan NEC Ltd.: [2011] 330 ITR226 (SC) and submitted that point of law as considered by the CIT(A)with reference to the decision of Chennai Bench of the ITATultimately stands approved with this decision of the Hon'ble Supreme Court wherein it has conclusively been laid down that the MAT creditadmissible in terms of Section 115 JAA of the Act is to be set-offagainst the assessed tax payable, before calculating interest underSection 234A, 234B and 234C of the Act. Per contra, the learned counsel for the Revenue hasstrenuously argued that in view of the decision of the Hon'bleSupreme Court in the case of Xpro India (supra), the matter wasclearly a debatable one and when a long process of reasoning wasrequired, the matter could not have been considered as a rectifiablemistake and hence, the application under Section 154 of the Act wasnot maintainable. The learned counsel has referred to the decisionof the Hon'ble Supreme Court in the case of Mepco Industries Ltd.Vs. Commissioner of Income-Tax & Anr.: [2009] 319 ITR 208 (SC).According to the learned counsel for Revenue, in the given set offacts and circumstances, the ITAT has rightly allowed the appeal andhas rightly rejected the application of the assessee filed underSection 154 of the Act. The learned counsel for the Revenue has also strenuouslyargued that the question of calculating the amount of interest in suchmatters, where the set-off under Section 115JAA was to be given,came to be settled only with the decision of the Hon'ble SupremeCourt in the case of Commissioner of Income-Tax Vs. Tulsyan NecLtd. (supra) and, therefore, at the given point of time, it was adebatable issue; and hence, the assessee was not entitled to seekan order by way of an application for rectification under Section 154of the Act. Having given thoughtful consideration to the rival submissionsand having examined the record, we are clearly of the view that theformulated questions deserve to be answered in favour of theassessee and this appeal deserves to be allowed with setting asidethe order of the ITAT and with restoring the order of CIT(A). In view of the subject-matter of this appeal, it appearsappropriate to take up formulated question No.2 at the first. Asnoticed, the ITAT has proceeded to reverse the order passed by theCIT(A) only on the ground that in its view, the matter was adebatable one and hence, was not that of a mistake apparent fromthe record rectifiable under Section 154 of the Act. We find theapproach of the ITAT entirely unjustified and the fundamental factsavailable on record having escaped attention of the ITAT. During the course of submissions, in response to our queries,the learned counsel for the appellant has placed on record a copy ofthe assessment order dated 25.01.2006. It is noticed that the AO haddrawn the said assessment order under Section 143(3) of the Act.Therein, the quantum of deduction as claimed under Section 80HHC was not approved and lesser amount of deduction was allowed.The assessee had received interest under Section 244A on therefund for the assessment years 2001-02 and 2002-03 but had notshown the same as income in the computation and hence, interestreceived during the year was taken as income and addition wasmade on that account in the total income. With such modifications,the AO proceeded to assess the total income of the assessee atRs.19,13,490/-. D.B. INCOME TAX APPEAL NO. 57/2009. M/s Mewar Polytex LimitedVs. I.T.O. Ward-1 D.B. INCOME TAX APPEAL NO. 57/2009. M/s Mewar Polytex LimitedVs. I.T.O. Ward-1 It is, at once, clear that the fact of deposit of MAT did not evenenter into the consideration of the learned AO; and it was not evenconsidered that the tax paid under Sections 115JA and 115JB was tobe allowed as set off. The omission to provide for the treatment ofMAT was itself the basic error apparent on the face of record; and itcannot be said that the same was not rectifiable under Section 154of the Act. The requirements of Section 115JAA were altogetheromitted by the AO from consideration; and it was not the case thatthe set off under Section 115JAA was allowed and only the point ofits allowability i.e., before or after charging of interest, remained inquestion. Hence, it could not have been considered to be a matter ofdecision on a debatable issue one way or the other. It is also apparent from a bare look at the order passed by theAO under Section 154 of the Act that he realised the mistake ofomission to provide set off for MAT and hence, the second pointraised in the application, of allowability of set off, was indeeddecided in favour of the assessee. Viewed in this context, it is ofsignificance to notice that the issue as regards maintainability ofapplication under Section 154 of the Act was never raised by theRevenue nor the application was rejected as not maintainable by theAO. In fact, such a ground as regards non-maintainability of theapplication was not urged even before the Appellate Authorities. Thecontentions of the Revenue before the Appellate Authorities hadbeen on the merits of the case and it was sought to be argued thatsuch a set off was not allowable before charging of interest underSection 234B and 234D of the Act. D.B. INCOME TAX APPEAL NO. 57/2009. M/s Mewar Polytex LimitedVs. I.T.O. Ward-1 In the given set of facts and circumstances, we are clearly ofthe view that the ITAT was not justified in holding that the mistakewas not rectifiable under Section 154 of the Act. The formulatedquestion No.2 is answered in favour of the assessee accordingly. Coming to the formulated question No.1, it may be noticed inthe first place that in Xpro India Ltd. (supra), the Hon'ble SupremeCourt considered that the question of interpretation of Section 234Bin the context of the position that short payment of interest onadvance tax arose for determination before the High Court thatwarranted interpretation of Section 115JAA of the Act. The Hon'bleSupreme Court held that the High Court was required to decide thenature of levy under Section 234B and found that the High Courthad also not considered the judgment of other High Court. Thus, theHon'ble Apex Court set aside the order of the High Court withdirections for consideration of the question in accordance with law.In our view, it is difficult to deduce from the decision in Xpro IndiaLtd. (supra) that for the reason of this order alone, the issue was tobe considered as the one which was not open for rectification underSection 154 of the Act So far the merits of the issue are concerned, there does notappear any requirement of much dilatation on the same because ofthe authoritative pronouncement of the Hon'ble Supreme Court in thecase of Commissioner of Income-Tax Vs. Tulsyan NEC Ltd (supra)wherein, after taking note of the relevant provisions and particularlySection 115JAA of the Act, the Hon'ble Supreme Court has observedand held as under:- // 11 // “The issue which crops up for decision is - how should theadvance tax be calculated when the company has MAT credit? So far the merits of the issue are concerned, there does notappear any requirement of much dilatation on the same because ofthe authoritative pronouncement of the Hon'ble Supreme Court in thecase of Commissioner of Income-Tax Vs. Tulsyan NEC Ltd (supra)wherein, after taking note of the relevant provisions and particularlySection 115JAA of the Act, the Hon'ble Supreme Court has observedand held as under:- // 11 // “The issue which crops up for decision is - how should theadvance tax be calculated when the company has MAT credit? To answer, we need to look at section 234B. Under thatsection, “assessed tax” means the tax on the total incomedetermined under section 143(1) or on regular assessment undersection 143(3) as reduced by the amount of tax deducted orcollected at source in accordance with the provisions of ChapterXVII on any income which is subject to such deduction orcollection and which is taken into account in computing such totalincome. The definition, thus, at the relevant time excluded theMAT credit for arriving at assessed tax. This led to immensehardship. The position which emerged was that due to omissionon one hand the MAT credit was available for set off for five yearsunder section 115JAA but the same was not available for set offwhile calculating advance tax. This dichotomy was more spelt outbecause section 115JAA did not provide for payment of interest onthe MAT credit. To avoid this situation, Parliament amendedExplanation 1 to section 234B by Finance Act, 2006 w.e.f. April 1,2007 to provide along with tax deducted or collected at source,MAT credit under section 115JAA also to be excluded whilecalculating assessed tax. From the above, it is evident that any tax paid inadvance/pre-assessed tax paid can be taken into account incomputing the tax payable subject to one caveat, viz, that wherethe assessee on the basis of self computation unilaterally claimsset off or the MAT credit, the assessee does so at its risk as incase it is ultimately found that the amount of tax credit availed ofwas not lawfully available, the assessee would be exposed to levyof interest under section 234B on the shortfall in the payment ofadvance tax. We reiterate that we cannot accept the case of theDepartment because it would mean that even if the assesseedoes not have to pay advance tax in the current year, because ofhis brought forward MAT credit balance, he would nevertheless berequired to pay advance tax, and if he fails, interest under section234B would be chargeable. The consequence of adopting thecase of the Department would mean that the MAT credit wouldlapse after five succeeding assessment years under section115JAA(3); that no interest would be payable on such credit bythe Government under the proviso to section 115JAA(2) and thatthe assessee would be liable to pay interest under sections 234Band 234C on the shortfall in the payment of advance tax despiteexistence of the MAT credit standing to the account of theassessee. Thus, despite the MAT credit standing to the account ofthe assessee, the liability of the assessee gets increased insteadof it getting reduced. Lastly, it is immaterial that the relevant form prescribedunder Income Tax Rules, at the relevant time (i.e. before April 1,2007), provided for set off of the MAT credit balance against theamount of tax plus interest i.e. after the computation of interestunder section 234B. This was directly contrary to a plain readingof section 115JAA(4). Further, a form prescribed under the rulescan never have any effect on the interpretation or operation of theparent statute.” // 12 // the question of operation of Section 115JAA of the Act and has alsonoticed that for the dichotomy arising, for want of total clarity in thestatutory provision, Explanation 1 to Section 234B was amended bythe Finance Act of 2006, to provide that alongwith tax deduced orcollected at source, the MAT credit under Section 115JAA was alsoto be excluded while calculating assessed tax. // 12 // the question of operation of Section 115JAA of the Act and has alsonoticed that for the dichotomy arising, for want of total clarity in thestatutory provision, Explanation 1 to Section 234B was amended bythe Finance Act of 2006, to provide that alongwith tax deduced orcollected at source, the MAT credit under Section 115JAA was alsoto be excluded while calculating assessed tax. The Hon'ble Supreme Court in the said decision has held in nouncertain terms that MAT credit admissible under Section 115JAA ofthe Income Tax Act has to be set off against the tax beforecalculating interest under Section 234B and 234C of the Act. In ourview, the principles therein equally apply to the interest calculatedunder Section 234D of the Act as also to the interest withdrawnunder Section 244A of the Act. The amount of MAT lying in creditwith the Department is definitely required to be set off beforeimposition of any liability under the aforesaid provisions of Section234B, 234D and 244A of the Act. In view of the above, the formulated question No.1 is alsorequired to be, and is, answered in favour of the assessee. Consequent to the findings foregoing, this appeal is allowed;the impugned order dated 20.03.2009 as passed by the ITAT is setaside and that of the CIT dated 06.12.2007 is restored. (P.K. LOHRA),J. (DINESH MAHESHWARI),J.