Ita/384/2010 Of The Commissioner Of Income-Tax v. M/S Jsw Steel Limited

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 13 DAY OF FEBRUARY 2020. PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE RAVI V.HOSMANL 1LT.A. NO.384 OF 2010 BEI|WEEN 1.THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD BANGALORE. 2).THE ASST. COMMISSIONER OF INCOME-TA® CIRCLE-11(5), C.R. BUILDING QUEENS ROAD, BANGALORE. ... APPELLANTS (By Sri.K.V.ARAVIND, ADV.) AND M/S. JSW STEEL LIMITED(FORMERLY KNOWN AS JINDALVIJAYANAGAR STEEL LIMITED)JINDAL MANSION, 51)DR. G. DESHMUKH MARG|MUMBAI-400 O76.| ... RESPONDENT (By Sri.A.SHANKAR, SENIOR COUNSEL FOR SRI.VENKATESHK. PANI, ADV.) THIS I.T.A IS FILED UNDER SECTION 260-A OF I...ACT, 1961, ARISING OUT OF ORDER DATED 31/5/2010|PASSED IN ITA NO.924/BANG/2009, FOR THE ASSESSMENTYEAR 2005-06, PARYING TO FORMULATE THE SUBSTANTIAL|QUESTIONS OF LAW STATED THEREIN. ALLOW THE APPEAL|AND SEI ASIDE THE ORDERS PASSED BY THE IIAT,)BANGALORE IN ITA NO.924/BANG/2009 DATED 31/5/2010|ANDCONFIRMTHE|ORDER.OF|THE|APPELLATECOMMISSIONER CONFIRMING THE ORDER PASSED BY THE!ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(5),BANGALORE, IN THE INTEREST OF JUSTICE AND EQUIYT. THIS I.T.A. COMING ON FOR HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal which has been preferred under Section260A of the Income Tax Act, 1961 (hereinafter referred to as‘the Act’, for short) by the revenue has been admitted by a.bench of this Court vide order dated 26.03.2012 on followingsubstantial questions of law: (1)Whether tne tribunal was correct in nolding—that a sum of Rs.39,/78,92,211/- snould betreated as a depreciation loss as claimed by|the assessee as arising due to forwardcontracts|dS|thesecontracts|stoodterminated during the current assessment|year anda the corresponding amount wasdeemed to pe added to the value of the. assets even when tnese assets had not!been acguired or payments made?been acguired or payments made? (iI)WhethertheTribunalWascorrect|Inproceeding to hold that no interest under|Section 234B of the Act can pe levied on theamount of tax payable under Section 115JBof tne Act as clause (nN) to Explanation 1 toSection 115JB of the Act was inserted with.retrospective effect by Finance Act, 2008whicn could not naven anticipated during|the current assessment year 2005-06 andconsequently reading the provision wnichnwas not witnin its Jurisdiction?|proceeding to hold that no interest under|Section 234B of the Act can pe levied on theamount of tax payable under Section 115JBof tne Act as clause (nN) to Explanation 1 toSection 115JB of the Act was inserted with.retrospective effect by Finance Act, 2008whicn could not naven anticipated during|the current assessment year 2005-06 andconsequently reading the provision wnichnwas not witnin its Jurisdiction?| 2).Facts leading to the filing of the appeal briefly|Stated are that assessee is engaged in the business ofmanufacturing and selling of pellets, hot/cold rolled coils,Sheets, plates and slag cement. The assessee filed it’s returnof income for assessment year 2005-06 on 29.10.2005.declaring NIL income. Thereafter, the assessee filed a revisedreturn on 06.03.2007. The case of the assessee was selectedfor scrutiny and notice under Section 143(2) of the Act was'issued to the assessee. The Assessing Officer by an orderdated 31.17.2007 it was held that the assessee in the. 2).Facts leading to the filing of the appeal briefly|Stated are that assessee is engaged in the business ofmanufacturing and selling of pellets, hot/cold rolled coils,Sheets, plates and slag cement. The assessee filed it’s returnof income for assessment year 2005-06 on 29.10.2005.declaring NIL income. Thereafter, the assessee filed a revisedreturn on 06.03.2007. The case of the assessee was selectedfor scrutiny and notice under Section 143(2) of the Act was'issued to the assessee. The Assessing Officer by an orderdated 31.17.2007 it was held that the assessee in the. Income Tax depreciation working Nas already adjusted ansamount of Rs.64,29,52,121/- on account of foreign exchangegains as provided under Section 43A of the Act on payment.basis and tnat the assessee had not made any payments andpurchased the assets. It was further held that assessee had.only entered into forward contracts with the dealers forfuture purchase of plant and machinery at a specified rate to.safeguardIts|interest|fromfuture|foreignexchangefluctuation. It was further held that provisions of Section|43A of the Act do not apply to the case of the assessee. The.loss claimed.bytheaSSeSSECCTO thetuneof|Rs.39,/78,92,211/- on account of settlement of forwardcontracts in the previous year, which was shown as lIosswhile computing the taxable income of the assessee was_disallowed by the Assessing Officer. ‘3.The aforesaid order passed by the Assessing_Officer was upheld by the Commissioner of Income Tax!(Appeals) by an order dated 10.07.2009. Being aggrieved,|the assessee as well as the revenue filed appeals before the|Income Tax Appellate Tribunal (hereinafter referred to as. ‘the tribunal’ for short). The Tribunal by order dated31.05.2010.inter allaneld that adjustment of the liability nasto be allowed even in a case where the payment was notactually made. It was furtner held that such adjustment canbe made only in the previous year, in which the foreignaccount was settled by the assessee. It was also held thatcase of the assessee is squarely covered by a decision of theSupremeCourtIntheCaSe of|‘ASSISTANTCOMMISSIONEROF|INCOMETAXVS,ELECONENGINEER CoO. LTD.,’, (2010) 322 ITR 20It was furtherheld that even though Section 43A was incorporated in theyear 2002, nowever, the dispute in this case pertains toAssessment Year 2004-05 and therefore, the assessee hadno occasion to add back the deferred tax provision tocompute the book profits under Section 115JB of the Act andtneaSSeSSECCcouldnotnavepaidadvance|Cax|retrospectively. It was also held that the law does notcommand to do anything, whicn is impossible to do.|Accordingly, it was held that the Assessing Officer as well asthe Commissioner of Income Tax (Appeals) erred in allowingthe assessee to deduct Rs.25 Crores from computation of book profits under Section 115JB of the Act. Accordingly, theorder of Commissioner of Income Tax (Appeals) wasreversed. Being aggrieved, the revenue has filed this appeal. 4 iLearned counsel for the revenue while inviting)the attention of this court to para 8 of the decision in thecase OT ELECON ENGINEERING COMPANY LTD., SUPRA|submitted that under the unamended provision, an assesseewas required to acquire an asset before the change in therate of exchange and since, in the instant case, no actualcost nas been incurred by the assessee therefore, theassessee was not entitled to the benefit to unamendedprovision. It is further submitted that the Tribunal grosslyerred in holding that the case of the assessee is covered by adecision in the case of ELECON ENGINEERING COMPANY LTD., SUPRAand in nolding that amended provisions Viz.,Section 43A of the Act apply to the fact situation of the case.It is further submitted that the decision in the case ofELECON ENGINEERING COMPANY LTD., SUPRA’WaS rendered in the peculiar facts of the case. In this connection,our attention has been invited to para 11 of the aforesaid LTD., SUPRAand in nolding that amended provisions Viz.,Section 43A of the Act apply to the fact situation of the case.It is further submitted that the decision in the case ofELECON ENGINEERING COMPANY LTD., SUPRA’WaS rendered in the peculiar facts of the case. In this connection,our attention has been invited to para 11 of the aforesaid decision. It ts further submitted that interest under Section>234B of the Act was leviable on the amount of tax asexplanation (n) to Section 115JB was incorporated with|effect from 01.04.2007. In Support of his submissions,|reliance has been placed on the decision of the Supreme.Court In ‘ASSISTANT COMMISSIONER OF INCOME TAX|VS. ELECON ENGINEERING CO. LTD.,’, (2010) 322 ITR|20 AND ‘JOINT COMMISSIONER OF INCOME-TAX VS.ROLTA INDIA LTD.,’, (2011) 330 ITR 470. 5.On the other hand, learned counsel for the!assessee submitted that the revenue Nas already adjusted anamount of Rs.64,29,52,121/- on account of foreign exchangegains as per Section 43B of the Act and the entire materialwas produced before the Assessing Officer with regard to theexpenses incurred by the assessee. It is further submittedthat irrespective of the decision of the Supreme Court in.ELECON ENGINEERING COMPANY LTD.,supra, the|assessee is entitled to succeed as in any case, the amount of.loss has to be treated as revenue expenditure. Our attentionhas been invited to para 6 of the order passed by the. Tribunal and it has been submitted that adjustments nave to|be allowed even in a case where tne payment was not!actually made. It is further submitted that the aforesaid.adjustments have to be made on the basis of tne liability as/on the last date of the previous year. It is also urged that theassessee cannot be asked to pay advance tax with)retrospective effect. In Support of aforesaid submission,|reliance has been placed on division bench decision of this|COUTT|In?COMMISSIONEROF|INCOMETAXAND|ANOTHER VS. JUPITER BIO-SCIENCE LTD./,|AND‘COMMISSIONER OF INCOME-TAX AND ANOTHER VS.JUPITER BIO-SCIENCE LTD.’,(2013) 352 ITR 113°(KARN)and ‘STAR INDIA P. LTD. VS, COMMISSIONER|OF CENTRAL EXCISE’, (2006) 280 ITR 321 (SC). 6.|We nave considered the submissions made by.learned counsel for the parties and have perused the record.Section 43A as it is stood before the amendment required anassessee to revalue the foreign exchange liability at the end.of every previous year and provide for the increase ordecrease as a result of foreign exchange fluctuation. The. aforesaid adjustment has to be made even in a case where.the payment was not actually made and the adjustments|have to be made on the basis of the liability as on the last.day of the previous year. By way of an amendment in tne)year 2002, the requirement of making of payment was.inserted. The assessee even under unamended provision isentitled to benefit of the loss claimed by the assessee to the.tune of Rs.39.78,92,211/- on account of settlement of)forward contracts in the previous year, which was shown as/loss while computing the taxable income of the assessee.We agree with the view taken by the Tribunal on this issue.Accordingly, the first substantial question of law is answered.against the revenue and in favour of the assessee. J.The Supreme Court in the case of.Star India P.Ltd.,supra nas held that liability to pay interest arising on)default is in the nature of quasi punishment and even thoughit is permissible for the legislature to retrospectively legislateyet, such retrospectivity is normally not permissible to createan offence retrospectively. It is true that the assessee couldnot have paid advance tax in case of a deferred tax liability J.The Supreme Court in the case of.Star India P.Ltd.,supra nas held that liability to pay interest arising on)default is in the nature of quasi punishment and even thoughit is permissible for the legislature to retrospectively legislateyet, such retrospectivity is normally not permissible to createan offence retrospectively. It is true that the assessee couldnot have paid advance tax in case of a deferred tax liability In,respect.Of|AssessmentYear.2005-06,whenthe.amendment was brought into force in 2008. However, it ispertinent to mention here that clause (nN) to second provisoto Section 115JB(2) of the Act nas been incorporated with|effect from 01.04.2001. The retrospective operation of the.aforesaid provision nas not been challenged by the assessee|and therefore, the aforesaid provision has to be given effect.to. Tne Tribunal clearly acceded to its jurisdiction in holding|tnat no interest could be levied under Section 234B of tneAct. In the result, the second substantial question of law is.answered in favour of the revenue and against the assessee. In view of preceding analysis, the appeal is allowed in. part. Sd/- JUDGE Sd/-|JUDGE