Research › Search › Judgment

Rajasthan High Court · body

2014 DIGILAW 629 (RAJ)

Mewar Polytex Limited v. I. T. O. Ward-1

2014-03-04

DINESH MAHESHWARI, P.K.LOHRA

body2014
JUDGMENT BY THE COURT : (Per Dinesh Maheshwari, J.) This appeal by the assessee under Section 260-A of the Income Tax Act, 1961 ('the Act') is directed against the order dated 20.03.2009 passed in ITA No. 187/Ju/2008 by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur ('ITAT') for the Assessment Year 2003-04 whereby, the ITAT has allowed the appeal filed by the Revenue and, while reversing the order dated 06.12.2007 passed by the Commissioner of Income Tax (Appeals), Udaipur ['CIT(A)'] in Appeal No. 23/ITA/UDR/2006-07, has restored the order of the Assessing Officer ('AO') dated 03.03.2006, which was passed on an application under Section 154 of the Act. This appeal has been admitted for consideration on the following questions of law :- “(1) – Whether the judgment of the Hon'ble Supreme Court in CIT Vs. Xpro India Ltd. (2008) 300 ITR 337 (SC) has rightly been interpreted by the learned Tribunal on the aspect about entitlement to allow credit for MAT under Section 115 JAA and Sections 115 JA/115 JB of the Act before charging interest under Sections 234B and 234D and withdrawal under Section 244A? (2) – Whether in view of the fact that at the time of passing of the order of the authorities below there were clear judgments in favour of the assessee to allow credit for MAT under Sections 115 JA / 115 JB before charging interest under Sections 234B and 234D and therefore, this question about permissibility of entertaining rectification application was never raised, whether the learned Tribunal was correct in holding that still the question was depatable one and not rectifiable under Section 154. Moreso, when the question about non-rectifiability of the order was not raised by the revenue before the Tribunal.” The questions aforesaid have arisen in the backdrop of the following facts and circumstances: The appellant-assessee filed the return of income for the Assessment Year 2003-04 on 02.12.2003 declaring loss of Rs. 4,03,413/-, which was processed under Section 143(1) of the Act and the refund claim was allowed to the assessee. The case was, however, selected for scrutiny and notice under Section 143 (2) was issued. In the assessment order passed under Section 143(3) of the Act, the AO dealt with an issue concerning the claimed deduction under Section 80HHC of the Act and the deduction was allowed to the tune of Rs. 13,56,083/- as against that of Rs. The case was, however, selected for scrutiny and notice under Section 143 (2) was issued. In the assessment order passed under Section 143(3) of the Act, the AO dealt with an issue concerning the claimed deduction under Section 80HHC of the Act and the deduction was allowed to the tune of Rs. 13,56,083/- as against that of Rs. 26,56,291/- claimed by the assessee. Deduction under Section 80IA was also allowed. The assessee had received interest under Section 244A on the refund for the assessment years 2001-02 and 2002-03 but had not shown as income in the computation. The interest received during the year was taken as income of the assessee and addition of Rs.40,714/- was made on that account in the total income. Ultimately, the assessee was assessed for an income of Rs.19,13,490/-; and the AO ordered as under :- “Assessed. Issue demand notice and Challan. Charge interest u/s 234B, u/s 234D and interest allowed u/s 244A is withdrawn as per rule. Issue penalty notice u/s 271(1)(c) separately for filing of inaccurate particulars of income.” The assessee, thereafter, moved an application under Section 154 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 at village Nai has started production on 27.3.1995: therefore it was eligible 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 company had paid MAT under Section 115JA. w.e.f. A.Y. 1997-98 to 200001 and under section 115JB during A.Y. 2001-02 to 2002-03. 3. Interest charged u/s 234B, u/s 234D and interest withdrawn u/s 244A will not be charged as assessee has paid tax u/s 115JA & 115JB.” The AO found the claim as regards deduction under Section 80IA of the Act @ 30% justified and allowed the same, with which we are not concerned in this appeal. Significantly, the AO allowed the second ground raised by the assessee after finding that the credit of tax paid under Sections 115JA and 115JB was allowable under Section 115JAA. The AO, however, rejected the third ground as regards the interest charged. Significantly, the AO allowed the second ground raised by the assessee after finding that the credit of tax paid under Sections 115JA and 115JB was allowable under Section 115JAA. The AO, however, rejected the third ground as regards the interest charged. The AO, inter alia, observed and held as under :- “Secondly tax paid u/s 115JA & 115JB are allowable u/s 115JA A, therefore credit of tax paid is allowed up to the extent is available for setoff. The third point raised by the learned AR, regarding charging of interest u/s 234B, 234D and withdrawal of interest u/s 244A is consequently, therefore interest will be charged u/s 234B, u/s 234D and interest will be withdrawn before giving credit of tax paid u/s 115JA & 115JB under section 115JA. Therefore on this point assessee ARs plea is rejected. Issue revised ITNS 150 demand notice & Challan.” The CIT(A) found the approach of the AO not justified and proceeded to allow the appeal filed by the assessee; and directed granting Minimum Alternate Tax (‘MAT’) credit under Section 115JAA first, before charging of interest under Section 234B and Section 234D of the Act. The CIT(A), inter alia, observed and held as under :- “5. Decision : I have considered the observations of the AO and the contentions 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. The appellant has claimed set off MAT credit before calculating the interest under section 234B & 243D of the I.T. Act, 1961. The AO has computed the interest under sections 234B & 234D on the basis of tax payable determined u/s 143 (3) of the Act without giving effect to the set off claimed u/s 115JAA. AO has charged interest under section 234B and 234D on the total amount of tax without giving effect to the tax credit claimed u/s 115JAA. In the case 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 by the Department itself for setting off against the tax liability of future years. Carry forward and set off of the tax credit is statutorily provided and is mandatory. Carry forward and set off of the tax credit is statutorily provided and is mandatory. The set off of credit under sub. s.(5) of s. 115JAA is against the difference between the tax payable under normal computation and the tax payable on book profits. Again, under sub.s. (6) credit is to be increased or decreased on the basis of increase or decrease of the tax liability. Thus, the set off of credit is against the tax computed, or , as the case may be, increase or decrease thereof and not against the balance of tax payable after deducting the advance tax and TDS. Thus, the tax credit is the first amount to be set off against the tax payable and not after advance tax and TDS. Therefore, for the purpose of s. 234B also the tax credit is to be adjusted even before reducing the advance tax and TDS. The phrase used is ‘set off’ and not ‘deduction’ the tax credit is set off against the tax payable and hence the tax payable in any year is only the amount after set off of the credit under s. 115JAA. For the purpose of computing the interest the amount of tax payable after the set off only should be taken. 6. Respectfully following the above decision of the Hon'ble ITAT Chennai Bench, it is held that the appellant is entitled to set off MAT credit first before charging of interest under section 234B & 234D of the I.T. Act, 1961. Therefore, the AO was not justified in rejecting the application u/s 154 of the Act, 1961 of the appellant. 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'ble Supreme Court in the case of CIT Vs. Xpro India Ltd.: [2008] 300 ITR 337 (SC) with the observations and therein, the Hon'ble Supreme Court had entertained the view that charging of interest under Section 234B and 234C in the context of short payment of advance tax called for interpretation of Section 115JAA read with Sections 234B and 234C of the Act. Xpro India Ltd.: [2008] 300 ITR 337 (SC) with the observations and therein, the Hon'ble Supreme Court had entertained the view that charging of interest under Section 234B and 234C in the context of short payment of advance tax called for interpretation of Section 115JAA read with Sections 234B and 234C of the Act. The ITAT, thus, took the view that such charging of interest was a debatable issue and could not have been considered to be a mistake apparent from the record rectifiable under Section 154 of the Act because the decision of the Hon'ble Apex Court was not available before the Chennai Bench of the Tribunal whose judgment was followed by the CIT(A). The ITAT allowed the appeal of the Revenue in the following :- “4. We have heard the parties and have carefully perused the material on record in terms of Sub Rule (6) of Rule 18 of the Tribunal Rules, 1963 and in the light of judgment rendered by Hon'ble Apex Court in CIT Vs. Xpro India Ltd (2008) 300 ITR 337 (S.C.) where the Hon'ble Apex Court has entertained the view that charging of interest under section 234B and 234C in the context of short payment of advance tax warrants interpretation of Sec 115 JAA read with Sec 234B and 234C of the Act. In this light, we hold that the issue of allowing credit of MAT under section 115 JAA and 115JA/115JB of the Act before charging of interest under section 234B and 234D is a debatable issue and not a mistake apparent from record rectifiable under section 154 of the Act in particular when the judgment of Hon'ble Apex Court as aforesaid, was not available before Chennai Bench of the Tribunal followed by the Ld. CIT (A). Accordingly we set aside the decision taken by the Ld. CIT (A) and restore the order passed by the Assessing Officer.” Aggrieved by the aforesaid, the assessee has filed this appeal which has been admitted on the substantial questions of law, as noticed at the outset. CIT (A). Accordingly we set aside the decision taken by the Ld. CIT (A) and restore the order passed by the Assessing Officer.” Aggrieved by the aforesaid, the assessee has filed this appeal which has been admitted on the substantial questions of law, as noticed at the outset. Assailing the order passed by the ITAT, it has strenuously been argued on behalf of the appellant-assessee that when after completing the assessment under Section 143(3) of the Act, interest was sought to be charged under Section 234B and 234D and withdrawal of the interest was also ordered under Section 244A of the Act without considering the credit of tax paid under Sections 115JA and 115JB of the Act, the assessee had rightly filed the rectification application and the same had rightly been allowed by the CIT (A). It is contended that it was never the case of the Revenue, whether before the AO or before CIT(A) or even before the ITAT that the application under Section 154 of the Act was not maintainable in this case. According to the learned counsel for the appellant, the ground on which the ITAT has reversed the order of the CIT(A) that the matter was not rectifiable under Section 154 of the Act, was not even urged by the Revenue; and the ITAT was not justified in carving out this ground without any basis. It is submitted that the AO himself did not reject the application as not maintainable but rejected it on the other considerations; and had he rejected the application 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 be allowed in the year when the tax becomes payable and hence, the provisions of Section 115JAA have to be applied before charging of interest under Sections 234B and 234D and withdrawal of interest under Section 244A of the Act. The learned counsel has particularly referred to the decision of the Hon'ble Supreme Court in the case of Commissioner of Income-Tax Vs. The learned counsel has particularly referred to the decision of the Hon'ble Supreme Court in the case of Commissioner of Income-Tax Vs. Tulsyan NEC Ltd.: [2011] 330 ITR 226 (SC) and submitted that point of law as considered by the CIT(A) with reference to the decision of Chennai Bench of the ITAT ultimately stands approved with this decision of the Hon'ble Supreme Court wherein it has conclusively been laid down that the MAT credit admissible in terms of Section 115 JAA of the Act is to be set-off against the assessed tax payable, before calculating interest under Section 234A, 234B and 234C of the Act. Per contra, the learned counsel for the Revenue has strenuously argued that in view of the decision of the Hon'ble Supreme Court in the case of Xpro India (supra), the matter was clearly a debatable one and when a long process of reasoning was required, the matter could not have been considered as a rectifiable mistake and hence, the application under Section 154 of the Act was not maintainable. The learned counsel has referred to the decision of 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 of facts and circumstances, the ITAT has rightly allowed the appeal and has rightly rejected the application of the assessee filed under Section 154 of the Act. The learned counsel for the Revenue has also strenuously argued that the question of calculating the amount of interest in such matters, where the set-off under Section 115JAA was to be given, came to be settled only with the decision of the Hon'ble Supreme Court in the case of Commissioner of Income-Tax Vs. Tulsyan Nec Ltd. (supra) and, therefore, at the given point of time, it was a debatable issue; and hence, the assessee was not entitled to seek an order by way of an application for rectification under Section 154 of the Act. Having given thoughtful consideration to the rival submissions and having examined the record, we are clearly of the view that the formulated questions deserve to be answered in favour of the assessee and this appeal deserves to be allowed with setting aside the order of the ITAT and with restoring the order of CIT(A). Having given thoughtful consideration to the rival submissions and having examined the record, we are clearly of the view that the formulated questions deserve to be answered in favour of the assessee and this appeal deserves to be allowed with setting aside the order of the ITAT and with restoring the order of CIT(A). In view of the subject-matter of this appeal, it appears appropriate to take up formulated question No.2 at the first. As noticed, the ITAT has proceeded to reverse the order passed by the CIT(A) only on the ground that in its view, the matter was a debatable one and hence, was not that of a mistake apparent from the record rectifiable under Section 154 of the Act. We find the approach of the ITAT entirely unjustified and the fundamental facts available 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 of the assessment order dated 25.01.2006. It is noticed that the AO had drawn the said assessment order under Section 143(3) of the Act. Therein, the quantum of deduction as claimed under Section 80 HHC was not approved and lesser amount of deduction was allowed. The assessee had received interest under Section 244A on the refund for the assessment years 2001-02 and 2002-03 but had not shown the same as income in the computation and hence, interest received during the year was taken as income and addition was made on that account in the total income. With such modifications, the AO proceeded to assess the total income of the assessee at Rs.19,13,490/-. It is, at once, clear that the fact of deposit of MAT did not even enter into the consideration of the learned AO; and it was not even considered that the tax paid under Sections 115JA and 115JB was to be allowed as set off. The omission to provide for the treatment of MAT was itself the basic error apparent on the face of record; and it cannot be said that the same was not rectifiable under Section 154 of the Act. The omission to provide for the treatment of MAT was itself the basic error apparent on the face of record; and it cannot be said that the same was not rectifiable under Section 154 of the Act. The requirements of Section 115JAA were altogether omitted by the AO from consideration; and it was not the case that the set off under Section 115JAA was allowed and only the point of its allowability i.e., before or after charging of interest, remained in question. Hence, it could not have been considered to be a matter of decision on a debatable issue one way or the other. It is also apparent from a bare look at the order passed by the AO under Section 154 of the Act that he realised the mistake of omission to provide set off for MAT and hence, the second point raised in the application, of allowability of set off, was indeed decided in favour of the assessee. Viewed in this context, it is of significance to notice that the issue as regards maintainability of application under Section 154 of the Act was never raised by the Revenue nor the application was rejected as not maintainable by the AO. In fact, such a ground as regards non-maintainability of the application was not urged even before the Appellate Authorities. The contentions of the Revenue before the Appellate Authorities had been on the merits of the case and it was sought to be argued that such a set off was not allowable before charging of interest under Section 234B and 234D of the Act. In the given set of facts and circumstances, we are clearly of the view that the ITAT was not justified in holding that the mistake was not rectifiable under Section 154 of the Act. The formulated question No.2 is answered in favour of the assessee accordingly. Coming to the formulated question No.1, it may be noticed in the first place that in Xpro India Ltd. (supra), the Hon'ble Supreme Court considered that the question of interpretation of Section 234B in the context of the position that short payment of interest on advance tax arose for determination before the High Court that warranted interpretation of Section 115JAA of the Act. The Hon'ble Supreme Court held that the High Court was required to decide the nature of levy under Section 234B and found that the High Court had also not considered the judgment of other High Court. Thus, the Hon'ble Apex Court set aside the order of the High Court with directions for consideration of the question in accordance with law. In our view, it is difficult to deduce from the decision in Xpro India Ltd. (supra) that for the reason of this order alone, the issue was to be considered as the one which was not open for rectification under Section 154 of the Act So far the merits of the issue are concerned, there does not appear any requirement of much dilatation on the same because of the authoritative pronouncement of the Hon'ble Supreme Court in the case of Commissioner of Income-Tax Vs. Tulsyan NEC Ltd (supra) wherein, after taking note of the relevant provisions and particularly Section 115JAA of the Act, the Hon'ble Supreme Court has observed and held as under :- “The issue which crops up for decision is -how should the advance tax be calculated when the company has MAT credit? To answer, we need to look at section 234B. Under that section, “assessed tax” means the tax on the total income determined under section 143(1) or on regular assessment under section 143(3) as reduced by the amount of tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income. The definition, thus, at the relevant time excluded the MAT credit for arriving at assessed tax. This led to immense hardship. The position which emerged was that due to omission on one hand the MAT credit was available for set off for five years under section 115JAA but the same was not available for set off while calculating advance tax. This dichotomy was more spelt out because section 115JAA did not provide for payment of interest on the MAT credit. To avoid this situation, Parliament amended Explanation 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 while calculating assessed tax. To avoid this situation, Parliament amended Explanation 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 while calculating assessed tax. From the above, it is evident that any tax paid in advance/pre-assessed tax paid can be taken into account in computing the tax payable subject to one caveat, viz, that where the assessee on the basis of self computation unilaterally claims set off or the MAT credit, the assessee does so at its risk as in case it is ultimately found that the amount of tax credit availed of was not lawfully available, the assessee would be exposed to levy of interest under section 234B on the shortfall in the payment of advance tax. We reiterate that we cannot accept the case of the Department because it would mean that even if the assessee does not have to pay advance tax in the current year, because of his brought forward MAT credit balance, he would nevertheless be required to pay advance tax, and if he fails, interest under section 234B would be chargeable. The consequence of adopting the case of the Department would mean that the MAT credit would lapse after five succeeding assessment years under section 115JAA(3); that no interest would be payable on such credit by the Government under the proviso to section 115JAA(2) and that the assessee would be liable to pay interest under sections 234B and 234C on the shortfall in the payment of advance tax despite existence of the MAT credit standing to the account of the assessee. Thus, despite the MAT credit standing to the account of the assessee, the liability of the assessee gets increased instead of it getting reduced. Lastly, it is immaterial that the relevant form prescribed under Income Tax Rules, at the relevant time (i.e. before April 1, 2007), provided for set off of the MAT credit balance against the amount of tax plus interest i.e. after the computation of interest under section 234B. This was directly contrary to a plain reading of section 115JAA(4). Lastly, it is immaterial that the relevant form prescribed under Income Tax Rules, at the relevant time (i.e. before April 1, 2007), provided for set off of the MAT credit balance against the amount of tax plus interest i.e. after the computation of interest under section 234B. This was directly contrary to a plain reading of section 115JAA(4). Further, a form prescribed under the rules can never have any effect on the interpretation or operation of the parent statute.” Apparent it is that the Hon'ble Supreme Court has considered the question of operation of Section 115JAA of the Act and has also noticed that for the dichotomy arising, for want of total clarity in the statutory provision, Explanation 1 to Section 234B was amended by the Finance Act of 2006, to provide that alongwith tax deduced or collected at source, the MAT credit under Section 115JAA was also to be excluded while calculating assessed tax. The Hon'ble Supreme Court in the said decision has held in no uncertain terms that MAT credit admissible under Section 115JAA of the Income Tax Act has to be set off against the tax before calculating interest under Section 234B and 234C of the Act. In our view, the principles therein equally apply to the interest calculated under Section 234D of the Act as also to the interest withdrawn under Section 244A of the Act. The amount of MAT lying in credit with the Department is definitely required to be set off before imposition of any liability under the aforesaid provisions of Section 234B, 234D and 244A of the Act. In view of the above, the formulated question No.1 is also required 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 set aside and that of the CIT dated 06.12.2007 is restored.