Commissioner of Income Tax vs Chambal Fertilizers and Chemicals Ltd.

Jainendra Kumar Ranka, J.—Instant appeal has been preferred by the CIT, Kota, for the asst. yr. 2000-01, assailing the order dt. 28th Feb., 2006 passed by the learned income tax Appellate Tribunal, Jaipur Bench, Jaipur (in short the Tribunal'') for quashing the order under s. 263 of the IT Act, 1961, in short (''the Act''). The brief facts of the case are given hereunder:

The respondent-company being a limited company, filed its return on 30th Nov., 2000 declaring nil income and paid taxes of Rs. 17,17,98,327 under (Minimum Alternate Tax) (in short ''MAT) on book profit under s. 115JA of the Act. The return was processed under s. 143(1)(a) by the AO on 30th March, 2001 and the tax/MAT was also computed by AO on the book profit disclosed by the respondent at Rs. 16,03,07,717. In view of the payment of excess tax paid under MAT at Rs. 17,17,98,327 the AO worked out a refund of Rs. 1,74,90,610 (Rs. 17,17,98,327-Rs. 16,03,07,717) and directed for issuing a refund of Rs. 1,95,89,482 to the respondent-company including interest under s. 244A of the Act, accordingly, the refund was issued along with interest.

The respondent-company further moved an application under s. 154 of the Act on 27th Aug., 2001 claiming further interest under s. 244A for the period 1st April, 2001 to 18th July, 2001. The AO, being satisfied, granted further interest under s. 244A amounting to Rs. 6,12,171 for the balance period as claimed.

The learned Commissioner of income tax, Kota, in short ''CIT while issuing notice under s. 263 of the Act, had held that the two orders passed by the AO dt. 30th March, 2001 as well as dt. 13th June, 2002 were erroneous and prejudicial to the interest of Revenue on the basis that tax has been paid by the assessee under MAT on the book profit under s. 115JA of the Act, which cannot be equated with payment of the advance tax by the respondent on its total income/current income which is chargeable to tax following the financial year under consideration and further that proviso to sub-s. (2) of s. 115JAA dealing with the tax credit in respect of tax paid on deemed income relating to certain companies, clearly stated that no interest shall be payable on the tax credit alone under Sub-s. (1) thereof. Accordingly, the CIT by invoking the provisions of s. 263 of the Act directed the AO to withdraw the interest so granted under s. 244A of the Act. amounting to Rs. 21,98,872 and further Rs. 6,12,171 respectively which was allowed vide two orders dt. 30th March, 2001 and 13th June, 2002 referred to hereinabove.

Aggrieved by the order passed by the learned CIT, the respondent-company preferred an appeal before the learned Tribunal who, after detailed examination of facts and various judgments and the scheme of s. 115JA of the Act, allowed the appeal of the respondent-company and quashed the order under s. 263 of the Act passed by the CIT, Kota.

Being aggrieved by the said order passed by the learned Tribunal the appellant preferred the instant appeal under s. 260A of the Act.

The appellant has raised and claimed that the following substantial questions of law arise out of the order of the learned Tribunal:

(1) Whether on the facts and circumstances of the case and in law the Tribunal was legally justified in setting aside the order passed by the learned CIT under s. 263 by holding that the same was not warranted?

(2) whether the findings of the Tribunal are perverse in holding that the proviso to s. 115JAA(2) was not applicable in the facts and circumstances of the case?

(3) whether the Tribunal was legally justified in upholding the order of the AO of allowing interest under s. 244A? and

(4) whether the Tribunal was justified in holding that s. 263 was not warranted as it was simply a case of wrong recomputation of interest and an error apparent from the face of record?

Learned counsel for the appellant, Mrs. Parinitoo Jain, has drawn our attention to the order of the learned Tribunal as well as to the order of learned CIT, Kota and has claimed that substantial questions of law arise out of the order of learned Tribunal and that learned Tribunal was not justified in quashing the order under s. 263 passed by the learned CIT.

At this juncture, it would be appropriate to refer relevant portion of s. 115JA and s. 115JAA of the Act, which reads as under:

115JA (1) Notwithstanding anything contained in any other provisions of this Act, where in the case of an assessee, being a company, the total income, as computed under this Act in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 1997 (but before the 1st day of April, 2001) (hereafter in this section referred to as the relevant previous year) is less than thirty per cent of its book profit, the total income of such assessee chargeable to tax for the relevant previous year shall be deemed to be an amount equal to thirty per cent of such book profit.

(2) Every assessee, being a company, shall, for the purposes of this section prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act, 1956 (1 of 1956) :"

"Sec. 115JAA(1) Where any amount of tax is paid under sub-s. (1) of s. 115JA by an assessee being a company for any assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section.

(1A) Where any amount of tax is paid under sub-s. (1) of s. 115JB by an assessee, being a company for the assessment year commencing on the 1st day of April, 2006 and any subsequent assessment year, then, credit in respect of tax so paid shall be allowed to him in accordance with the provisions of this section.

(2) The tax credit to be allowed under sub-s, (1) shall be the difference of the tax paid for any assessment year under sub-s. (1) of s. 115JA and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act:

Provided that no interest shall be payable on the tax credit allowed under sub-s. (1).

It would also be relevant here to quote relevant sections relating to advance tax payable by assessee namely ss. 207 and 208 of the Act, which reads as under:

Sec. 207. Tax shall be payable in advance during any financial year, in accordance with the provisions of ss. 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this chapter referred to as ''current income''."

"Sec. 208. Advance tax shall be payable during a financial year in every case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this chapter, is ''ten thousand rupees or more.

Sec. 209 of the Act, provides that for making calculation for the purpose of advance tax, the assessee shall first estimate its current income and apply that rate of tax of income on that current income. Sec. 207 as quoted above, provides that advance tax is payable in respect of the "total income" which is also referred as "current income".

In the case of respondent-company itself, the appellant Department in the earlier years was charging interest under s. 234B and s. 234C of the Act, in respect of deemed income under s. 115JA of the Act, in case there was shortfall of taxes and without any demur, the respondent-company was also depositing the interest in case there was delay/short fall in making of instalments of advance tax. Therefore, on this analogy, the Tribunal has rightly come to the conclusion that when interest under ss. 234B and 234C is leviable then on the same analogy interest under s. 244A is equally allowable to the assessee-respondent.

Ultimately, the Tribunal after referring to certain judgments came to the conclusion that when the Department is charging interest on the delayed payment of instalments of MAT which the assessee was under obligation to deposit in advance then the Department is also bound to pay interest on the excess/surplus payment made by the assessee-respondent which the Department has very well enjoyed. It is also observed by the Tribunal that when the amount in advance is deposited by the assessee, the assessee may not be aware that at the end of the financial year, the assessee would fall under s. 115JA of the Act or the amount deposited as an advance tax shall take colour of MAT paid in advance. The liability of depositing MAT became payable only because of the legal fiction created by the said section. It was further observed by the Tribunal that as per its income, the respondent-company was not liable to pay regular tax as there was nil income for the asst. yr. 2000-01 and in fact tax paid was payable as MAT on book profit as per s. 115JA of the Act. Ultimately, the Tribunal came to the conclusion that the MAT payable, on book profit is subject to determination by way of assessment under the provisions of the IT Act and the MAT deposit made in advance under s. 115JA on the basis of book profit is nothing but bearing the character of tax paid in advance and when the Department was charging interest under ss. 234B and 234C of the Act, then on the same analogy the interest ought to have been allowed under s. 244A on the excess deposit. Accordingly, the Tribunal came to the conclusion that granting of interest under s. 244A of the Act, by the AO, as per the two orders were not erroneous and prejudicial to the interest of the Revenue on the above analogy and thus quashed the order under s. 263.

We have heard the learned counsel Mrs. Parinitoo Jain at length and after hearing her, come to the conclusion that no substantial question of law arises out of the order of the learned Tribunal particularly, in view of the fact that the Hon''ble apex Court in the case of Jt. Commissioner of Income Tax, Mumbai Vs. Rolta India Ltd., had considered the issue with reference to interest under s. 234B of the Act on applicability of MAT provisions under s. 115JA of the Act, and after detailed analysis held as under:

''The question which remains to be considered is whether the assessee, which is a MAT company, was not in a position to estimate its profits of the current year prior to the end of the financial year on 31st March. In this connection the assessee placed reliance on the judgment of the Karnataka High Court in the case of Kwality Biscuits Ltd. vs. CIT (supra) and, according to the Karnataka High Court, the profit as computed under the IT Act, 1961 had to be prepared and thereafter the book profit as contemplated under s. 115J of the Act had to be determined and then, the liability of the assessee to pay tax under s. 115J of the Act arose, only if the total income as computed under the provisions of the Act was less than 30 percent of the book profit. According to the Karnataka High Court, this entire exercise of computing income or the book profits of the company could be done only at the end of the financial year and hence the provisions of ss. 207, 208, 209 and 210 (predecessors of ss. 234B and 234C) were not applicable until and unless the accounts stood audited and the balance sheet stood prepared, because till then even the assessee may not know whether the provisions of s. 115J would be applied or not. The Court, therefore, held that the liability would arise only after the profit is determined in accordance with the provisions of the Companies Act, 1956 and, therefore, interest under ss. 234B and 234C is not leviable in cases where s. 115J applied. This view of the Karnataka High Court in Kwality Biscuits Ltd. (supra) was not shared by the Gauhati High Court in Assam Bengal Carriers Limited Vs. Commissioner of Income Tax, and Madhya Pradesh High Court in Itarsi Oils and Flours Pvt. Ltd. Vs. Commissioner of Income Tax, as also by the Bombay High Court in the case of Commissioner of Income Tax Vs. Kotak Mahindra Finance Ltd., which decided the issue in favour of the Department and against the assessee. It appears that none of the assessees challenged the decisions of the Gauhati High Court, Madhya Pradesh High Court as well as Bombay High Court in the Supreme Court. However, it may be noted that the judgment of the Karnataka High Court in Kwality Biscuits Ltd. was confined to s. 115J of the Act. The order of the Supreme Court dismissing the SLP in limine filed by the Department against Quality Biscuits Ltd. (supra) is reported in Commissioner of Income Tax Vs. Kwality Biscuits Ltd., Thus, the judgment of Karnataka High Court in Kwality Biscuits (supra) stood affirmed. However, the Karnataka High Court has thereafter in the case of Jindal Thermal Power Company Limited (Formerly Jindal Tracteble Power Co. Ltd.) Vs. The Deputy Commissioner of Income Tax and Union of India (UOI), distinguished its own decision in case of Kwality Biscuits Ltd. (supra) and held that s. 115JB, with which we are concerned, is a self-contained code pertaining to MAT, which imposed liability for payment of advance tax on MAT companies and, therefore, where such companies defaulted in payment of advance tax in respect of tax payable under s. 115JB, it was liable to pay interest under ss. 234B and 234C of the Act. Thus, it can be concluded that interest under ss. 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable under s. 115JA/115JB. For the aforestated reasons, Circular No. 13 of 2001 dt. 9th Nov., 2001 issued by CBDT reported in (2001) 171 CTR (St) 45. : (2001) 252 ITR (St) 50 has no application. Moreover, in any event, para 2 of that circular itself indicates that a large number of companies liable to be taxed under MAT provisions of s. 115JB were not making advance tax payments. In the said circular, it has been clarified that s. 115JB is a self-contained code and thus, all companies were liable for payment of advance tax under s. 115J and consequently provisions of ss. 234B and 234C imposing interest on default in payment of advance tax were also applicable.

For the aforestated reasons CIT succeeds in the Civil Appeal arising out of Special Leave Petn. (Civil) No. 25746 of 2009 (Jt. CIT vs. Rolta India Ltd.) as also in the Civil Appeal arising out of Special Leave Petn. (Civil) No. 18367 of 2010 (CIT vs. Export Credit Guarantee Corporation of India Ltd.). Consequently, Civil Appeal No. 459 of 2006 (Nahar Exports vs. CIT) and Civil Appeal No. 7429 of 2008 (Lakshmi Precision Screws Ltd. vs. CIT) stand dismissed with no order as to costs.

This authority of the apex Court has already considered the judgment rendered by the Hon''ble apex Court in the case of Commissioner of Income Tax Vs. Kwality Biscuits Ltd., which had dismissed the appeal of the Revenue by affirming the judgment of the Hon''ble High Court in the case of Kwality Biscuits Ltd. Vs. Commissioner of Income Tax,

In the case of 966459--> the Bombay High Court was considering the issue as to whether the Minimum Alternate Tax (MAT) to which the assessee is undisputedly entitled must be given before computing interest payable by the assessee under s. 234B of the Act or whether as contended by the Revenue, the credit is allowable after the liability to pay interest under s. 234B was computed, after considering the various judgments of various Courts, the Bombay High Court, came to the conclusion that MAT credit is to be allowed first and then if at all and in case, even thereafter, there is a shortfall then the interest under s. 234B of the Act, could be charged. In this very case, there is another issue which is before us and that is with regard to allowability of interest under s. 244A on account of excess payment of TDS, advance tax, self-assessment tax etc. the Court in this regard held at page 429 as under:

Insofar the second question is concerned, counsel appearing on behalf of the Revenue has conceded before the Court that it would be consequential to the determination of the first question. As already noted earlier in this judgment, as against the tax payable of Rs. 2.46 crores, the tax paid by the assessee amounted to Rs. 4.24 crores after giving due adjustment for MAT credit, TDS, advance tax and self-assessment tax. The assessee was, therefore, entitled to a refund of excess tax paid for the asst. yr. 2000-01 over and above the tax which was computed as being due and payable. Interest under s. 244A was allowable. As we have already noted, it has been stated on behalf of the Revenue during the course of the hearing that the answer to the second question would be consequential to the determination of the first question. Consequently, the second question shall stand answered in favour of the assessee and against the Revenue.

The Hon''ble Karnataka High Court in the case of The Commissioner of Income Tax and The Addl Commissioner of Income Tax Vs. Vijaya Bank, under identical circumstances held that MAT provisions were applicable and the Hon''ble Court observed as under:

Therefore, the object behind insertion of s. 244A as understood by the Department is that, an assessee is entitled to payment of interest for money remaining with the Government which would be ordered to be refunded. Therefore, if that is the object behind the insertion of s. 244A, the contention of the Revenue that if the case does not fall under either of the clauses in s. 244A, no interest is payable, is without any substance.

Clauses (a) and (b) specifically refer to the instances where interest is paid under the Act. It is not exhaustive. It is possible, in a given case, that after the expiry of the financial year, the assessee may pay tax either along with the self-assessment return or even before the return is filed. If ultimately the said payment is found to be in excess and the Department chooses to refund the said amount, then the question would be, from what date interest is payable since interest is payable on such refunds under s. 244A. In the absence of an express proviso as contained in cl. (a), it cannot be said that the interest is payable from the 1st of April of the assessment year. At the same time, as the said payment of tax was not made in pursuance of a notice of demand issued under s. 156, Explanation to cl. (b) has no application. In such cases, as the opening words of cl. (b) specifically referred to ''as in any other case'', the interest is payable from the dates of payment of the tax. As cl. (b) expressly provides in any other case the payment of tax subsequent to the first day of April of the assessment year, either before or along with filing of the return would squarely fall under cl. (b) and therefore, when the said amount is ordered to be refunded, the interest is to be calculated from the date of such payment of tax. Having regard to the scheme of s. 244A, and the circular issued by the Board which shows how the Department has understood the section coupled with the fact that the principle underlying the said section is that, any excess payment of tax paid by the assessee is not only to be refunded but it has to be refunded with interest, if the case of the assessee does not fall under cl. (a) or the Explanation to cl. (b), the excess tax paid shall be refunded with interest from the date of payment of such tax.

In the instant case, it is not in dispute that the assessee has paid a sum of Rs. 15.5 crores on 29th June, 2002, even before the date of filing of the returns. It is that amount which is ordered to be refunded as excess payment Though the occasion to order for refund arose after the assessment order in which the payment of tax was adjusted towards the tax liability, the case does not fall under cl. (a) or Explanation to cl. (b). The said excess payment is to be refunded with interest from the date of payment of such tax, that is from 29th June, 2002, till the date of refund. This is precisely what the CIT(A) as well as the Tribunal has said. It is in accordance with law. No illegality nor any case for interference is made out. The substantial question of law is answered in favour of the assessee and against the Revenue. Appeal stands dismissed. No costs.

We have gone through the language of s. 234A, 234B and 234C of the Act as well as the language of s. 244A and we feel that the language is almost same in all the above sections, in as much as, while in s. 234A. 234B and 234C, the Department is entitled to charge/levy interest in case there is shortfall of payment of advance tax or otherwise, however, in case, the assessee has deposited the excess amount by way of advance tax or TDS the assessee thus, become entitled to grant of interest under s. 244A of the Act.

Revisional power conferred on the CIT under s. 263 of the Act is wide, it enables the CIT to call for and examine the record of the case or pass any order under the Act and also empowers him to make or cause to be made such an inquiry as he deems fit and necessary in order to find out, if the order passed by the AO is erroneous insofar as it is prejudicial to the interest of Revenue, however, he has to have certain material to come to the conclusion. Once, he comes to the above conclusion that there is material, the CIT is empowered to pass an order as per the circumstances of the case which may warrant as he is empowered to take recourse to any of the three courses indicated in s. 263 only. Therefore, it is clear that CIT does not have unfettered and unchequered discretion/power to reverse the order. He can do so within the bounds of the law and has to satisfy the need of fairness in action and fair play with due respect to the principle of audi alteram partem as envisaged in the Constitution. The law is well settled that the CIT cannot invoke the powers to correct each and every mistake or error committed by the AO. Every loss to the Revenue cannot be treated as prejudicial to the interest of the Revenue and if the AO has adopted one of the course permissible under the law or where two views are possible and the AO has taken one view which the CIT does not agree, it cannot be treated as an order erroneous and prejudicial to the interest of the Revenue. The AO exercises quasi judicial power vested in him and if he exercises such powers in accordance with law, arrives at a just conclusion such conclusion cannot be termed to be erroneous only because the CIT does not feel satisfied with the conclusion.

In view of the fact that in the case of assessee respondent itself, while interest was being charged in the past under ss. 234B and 234C of the Act, therefore, the AO rightly allowed the interest under s. 244A of the Act. Granting interest by the AO under s. 244A was not erroneous. In our view, two views are possible and when two views are possible even otherwise provisions of s. 263 cannot be invoked. Further in view of the catena of judgments referred to above, the respondent company was even otherwise entitled to interest under s. 244A of the Act. Thus, viewed from all angles, the learned Tribunal had rightly come to the correct conclusion and rightly quashed the order of the CIT under s. 263 of the Act.

Thus, insofar as the issue involved in the present appeal is concerned, when it has been decided by the Hon''ble apex Court in the case referred to above (supra), having been covered, as such, the AO was quite justified in allowing the interest under s. 244A of the Act.

We have extracted the proposed substantial questions of law herein above and in question (ii), the issue which has been raised about applicability of proviso to s. 115JAA(2) of the Act, however, the said proviso is not applicable insofar as this matter is concerned, firstly, the present appeal relates to the asst. yr. 2000-01 when s. 115JA was applicable and secondly proviso to s. 115JAA itself, came to be introduced from 1st April, 2006 therefore, even otherwise, the question No. (ii) is misconceived and not relevant to the year under appeal. Therefore, even otherwise, the CIT while invoking the provisions of s. 263 was not correct in drawing analogy of s. 115JAA and its proviso which even otherwise, was not applicable for the year under appeal. The legislatures in its own wisdom have not enacted such proviso or bar for payment of interest in excess deposit under s. 115JA of the Act, with which we are concerned in this appeal. In view of the aforesaid judgments of the apex Court and various other Courts, granting of interest under s. 244A of the Act, is justified, therefore, the learned CIT had committed an error in invoking the provisions of s. 263 of the Act and the learned Tribunal had rightly quashed the invoking of the provisions of s. 263 of the Act. No substantial questions of law arise out of the order of the Tribunal in view of the above judgments, the appeal, being devoid of merit is dismissed in limine.