Increase in tax liability would correspondingly reduce the amount refundable & also interest payable on such reduced refund

IN THE ITAT CHANDIGARH

Aarti Steels Ltd.

V/s.

Deputy Commissioner of Income-tax 

C.O. NO. 31 (CHANDI) OF 2009

IT APPEAL NO. 494 (CHANDI) OF 2009

[Assessment Year 2006-07]

APRIL 18, 2012

ORDER

Mehar Singh, Accountant Member

The captioned Cross Objection, for the assessment year 2006-07, has been filed by the assessee before the Bench, in respect of appeal filed by the revenue vide ITA No. 494/Chd/2009, for the assessment year 2006-07.

2. The assessee has raised the following grounds of Cross Objections:

“1.  That the ld. CIT(A) has erred in holding that the AO was justified in withdrawing the interest already allowed u/s 244A in proceedings u/s 154 of the Income-tax Act.

 2.  That the action of the CIT(A) is against the law and facts of the case.”

3. The ld. ‘AR’ narrated the factual background of the case, which is undisputed in nature. The grievance of the assessee is that interest granted on refund u/s 244A of the Act has been withdrawn by the revenue. He was of the opinion that the order charging interest u/s 234D of the Act, by the revenue, was set aside by the CIT(A) as well as the Tribunal. Therefore, on the same analogy, ld. ‘AR’ urged to set aside the order, withdrawing the interest, granted on refund u/s 244A of by an order passed u/s 154 of the Act.

4. Ld. ‘DR’, on the other hand, vehemently contended that the provisions of Section 244A(3) of the Income-tax Act,1961 contain clear legislative intent and, hence, the interest so withdrawn by the revenue, in terms of the said provisions, is statutorily valid.

5. We have carefully perused the rival submissions, facts of the case and the relevant records. The brief facts of the case are that assessment was framed u/s 143(3) of the Act on 28.03.2008, at the returned income of Rs. 4,09,12,748/- u/s 115JB of the Act. In terms of Section 115JB(2)(h), effective from 01.04.2001, ‘book profit’, by the amount of deferred tax and the provision thereof, which was debited in the Profit & Loss Account, was required to be increased. The AO, consequently, issued notice u/s 154 of the Act, on 21.05.2008, for the purpose of giving effect to the above referred to amended clause of Section 115JB(2)(h) of the Act. The AO proposed to add back, to the net profit, a sum of Rs. 19,14,25,910/-, representing the amount of deferred tax provisions, charged to the Profit & Loss Account. The assessee did not object to the proposed rectification u/s 154 of the Act and, consequently, the AO recomputed the income u/s 115JB of the Act at Rs. 23,23,38,658/-, as against Rs. 4,09,12,748/-, assessed originally u/s 143(3) of the Act. The AO, in the assessment order u/s 154 of the Act dated 22.05.2008 charged interest u/s 234D of the Act amounting to Rs. 9,13,378/-. The AO also withdrew interest granted to the assessee u/s 244A of the Act. Both the CIT(A) vide order dated 26.02.2009 and the Tribunal in ITA No. 494/Chd/2009 vide order dated 26.08.2010, adjudicated the issue of levy of interest u/s 234D of the Act against the revenue. A perusal of the impugned order of the Tribunal reveals that the present C.O. raised by the assessee, in respect of withdrawal of interest u/s 244A of the Act, was not adjudicated by the Tribunal. Therefore, the assessee feels aggrieved in respect of non-adjudication of the C.O.

5. (i) The assessee, has placed reliance on the decision, in the case of Bharat Conductors (P.) Ltd. v. CIT [1999] 238 ITR 89 (Kar.), CIT v. Satish Traders [2001] 247 ITR 119/114 Taxman 390 (MP) and CIT v. Hindustan Electro Graphites Ltd. [2000] 243 ITR 48/109 Taxman 342 (SC). Ld. CIT(A), as well as the Tribunal had considered these case laws in the context of levy of interest u/s 234D of the Act and gave their respective findings in favour of the assessee. The ratio of these case laws, is inapplicable to the contents and issue raised in the CO under reference. In the CO, the assessee appellant urged against withdrawal of interest by the AO and, hence, these case laws are not relevant to the facts and issues raised in the said CO.

6. A bare perusal of the provision of Section 244A of the Act, reveals that where refund of any amount becomes due to the assessee, under the Act, he shall be entitled to receive, in addition to the said amount, simple interest on the refund, calculated in the manner specified under the said Section. However, it is provided u/s 244A sub-section (3) that, if, as a result of an order passed u/s 147, 154, 155, 250, 254, 260, 262, 263, 264 or 248, the amount on which the interest was payable, has been increased/reduced, the interest shall, accordingly be increased/reduced. It is pertinent to reproduce the provisions of Section 244A for the purpose of proper appreciation of the legislative intent, contained therein :

“244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall subject to the provisions of this Section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely :

(3) Where, as a result of an order under sub-section (3) of Section 115WE or Section 115WF or Section 115WG or sub-section (3) of Section 143 or Section 144 or Section 147 or section 154 or Section 155 or Section 250 or Section 254 or Section 260 or Section 262 or Section 263 or Section 264 or an order of the Settlement Commission under sub-section (4) of Section 245D, the amount on which interest was payable under sub-Section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under Section 156 and the provisions of this Act shall apply accordingly.”

7. A bare perusal of the provisions of Section 254A(3) of the Act reveals that in a situation whereby an order is passed under various sections of the Act, contained therein, the amount on which interest payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where interest is reduced, the AO shall serve on the assessee, a notice of demand in the prescribed form, specifying the amount of excess interest paid and requiring him to pay such amount and such notice of demand shall be deemed to be a notice u/s 156 and the provisions of this Act shall apply accordingly. There is fundamental distinction between interest on refunds u/s 244A of the Act and interest on excess refund u/s 234D of the Act.

8. Having regard to the unequivocal and clear legislative intent enshrined in the provisions of Section 244A(3) of the Act, it is not tenable to resort to the interpretative process of such simple and clear language of the provisions of the Act. Therefore, the claim of the assessee, founded on the basis of analogies and inferences, is not statutorily valid in the light of the specific, clear provisions of Section 244A(3) of the Act and also in the light of common law jurisprudence. The relevant part of the findings of CIT(A), as contained in para 5.1 of the appellate order dated 26.02.2009, is reproduced hereunder :

“5.1 Coming to the issue of withdrawing of interest u/s 244A, it is the contention of the ld. counsel that for similar arguments as advanced by him against charging of interest u/s 234D as discussed above, the AO could not be said to be justified in withdrawing interest u/s 244A. However, I do not agree with the ld. Counsel in this regard. As per the ratio of the various decisions relied upon by the ld. counsel and which have been discussed above as assessee is not to be penalized by charging interest on the additional demand created as a result of retrospective amendment to the provisions of the Act. Whereas charging of interest u/s 234D on such an income could be said to be penalizing an assessee to some extent, withdrawing interest u/s 244A of the Act which was earlier allowed to an assessee, could not be taken to be of the same nature so as to be termed as penalizing the assessee. The appellant had been allowed interest u/s 244A of the Act on certain amount which was ultimately recovered from the appellant. The appellant is not disputing that position. Therefore, withdrawing interest allowed u/s 244A on this amount is just recovering from the appellant what had been wrongly given to it earlier. This is no case could be termed as penalizing the appellant. Therefore, ratio of these decisions would not help the case of the appellant as far as withdrawing of interest u/s 244A is concerned. Therefore, the order of the AO in withdrawing interest u/s 244A is fully justified and is accordingly confirmed.”

9.In a situation where tax liability is varied, the consequential corresponding effect, would be on the tax payable or amount refundable. Such a situation has been covered under the scheme of Act by inserting various provisions, which is in consonance with the general law and tenants of rational jurisprudence. The provisions enshrined in the Income-tax Act, 1961 are sections 234A(4), 234B(4), 234D(2), 244A(3), 221(2), 215(3) and 214(1A) of the Act. It is pertinent to highlight here that imposition of additional tax liability, by way of tax, is covered under separate statutory provisions, whereas the levy of interest is provided under different set of statutory provisions under the Act. The issue in question falls u/s 154 of the Act. The charging of interest is compensatory in nature. If a tax demand raised by the AO is varied by an appellate or revisional authority, it is the appellate and revisional order and not the assessment order, that would hold the field under the doctrine of merger, and hence, fresh notice of demand is to be issued accordingly.

ORDER

Mehar Singh, Accountant Member – The captioned Cross Objection, for the assessment year 2006-07, has been filed by the assessee before the Bench, in respect of appeal filed by the revenue vide ITA No. 494/Chd/2009, for the assessment year 2006-07.

2. The assessee has raised the following grounds of Cross Objections:

“1.  That the ld. CIT(A) has erred in holding that the AO was justified in withdrawing the interest already allowed u/s 244A in proceedings u/s 154 of the Income-tax Act.

2.  That the action of the CIT(A) is against the law and facts of the case.”

3. The ld. ‘AR’ narrated the factual background of the case, which is undisputed in nature. The grievance of the assessee is that interest granted on refund u/s 244A of the Act has been withdrawn by the revenue. He was of the opinion that the order charging interest u/s 234D of the Act, by the revenue, was set aside by the CIT(A) as well as the Tribunal. Therefore, on the same analogy, ld. ‘AR’ urged to set aside the order, withdrawing the interest, granted on refund u/s 244A of by an order passed u/s 154 of the Act.

4. Ld. ‘DR’, on the other hand, vehemently contended that the provisions of Section 244A(3) of the Income-tax Act,1961 contain clear legislative intent and, hence, the interest so withdrawn by the revenue, in terms of the said provisions, is statutorily valid.

5. We have carefully perused the rival submissions, facts of the case and the relevant records. The brief facts of the case are that assessment was framed u/s 143(3) of the Act on 28.03.2008, at the returned income of Rs. 4,09,12,748/- u/s 115JB of the Act. In terms of Section 115JB(2)(h), effective from 01.04.2001, ‘book profit’, by the amount of deferred tax and the provision thereof, which was debited in the Profit & Loss Account, was required to be increased. The AO, consequently, issued notice u/s 154 of the Act, on 21.05.2008, for the purpose of giving effect to the above referred to amended clause of Section 115JB(2)(h) of the Act. The AO proposed to add back, to the net profit, a sum of Rs. 19,14,25,910/-, representing the amount of deferred tax provisions, charged to the Profit & Loss Account. The assessee did not object to the proposed rectification u/s 154 of the Act and, consequently, the AO recomputed the income u/s 115JB of the Act at Rs. 23,23,38,658/-, as against Rs. 4,09,12,748/-, assessed originally u/s 143(3) of the Act. The AO, in the assessment order u/s 154 of the Act dated 22.05.2008 charged interest u/s 234D of the Act amounting to Rs. 9,13,378/-. The AO also withdrew interest granted to the assessee u/s 244A of the Act. Both the CIT(A) vide order dated 26.02.2009 and the Tribunal in ITA No. 494/Chd/2009 vide order dated 26.08.2010, adjudicated the issue of levy of interest u/s 234D of the Act against the revenue. A perusal of the impugned order of the Tribunal reveals that the present C.O. raised by the assessee, in respect of withdrawal of interest u/s 244A of the Act, was not adjudicated by the Tribunal. Therefore, the assessee feels aggrieved in respect of non-adjudication of the C.O.

5. (i) The assessee, has placed reliance on the decision, in the case of Bharat Conductors (P.) Ltd. v. CIT [1999] 238 ITR 89 (Kar.), CIT v. Satish Traders [2001] 247 ITR 119/114 Taxman 390 (MP) and CIT v. Hindustan Electro Graphites Ltd. [2000] 243 ITR 48/109 Taxman 342 (SC). Ld. CIT(A), as well as the Tribunal had considered these case laws in the context of levy of interest u/s 234D of the Act and gave their respective findings in favour of the assessee. The ratio of these case laws, is inapplicable to the contents and issue raised in the CO under reference. In the CO, the assessee appellant urged against withdrawal of interest by the AO and, hence, these case laws are not relevant to the facts and issues raised in the said CO.

6. A bare perusal of the provision of Section 244A of the Act, reveals that where refund of any amount becomes due to the assessee, under the Act, he shall be entitled to receive, in addition to the said amount, simple interest on the refund, calculated in the manner specified under the said Section. However, it is provided u/s 244A sub-section (3) that, if, as a result of an order passed u/s 147, 154, 155, 250, 254, 260, 262, 263, 264 or 248, the amount on which the interest was payable, has been increased/reduced, the interest shall, accordingly be increased/reduced. It is pertinent to reproduce the provisions of Section 244A for the purpose of proper appreciation of the legislative intent, contained therein :

“244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall subject to the provisions of this Section, be entitled to receive, in addition to the said amount, simple interest thereon calculated in the following manner, namely :

(3) Where, as a result of an order under sub-section (3) of Section 115WE or Section 115WF or Section 115WG or sub-section (3) of Section 143 or Section 144 or Section 147 or section 154 or Section 155 or Section 250 or Section 254 or Section 260 or Section 262 or Section 263 or Section 264 or an order of the Settlement Commission under sub-section (4) of Section 245D, the amount on which interest was payable under sub-Section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where the interest is reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the amount of the excess interest paid and requiring him to pay such amount; and such notice of demand shall be deemed to be a notice under Section 156 and the provisions of this Act shall apply accordingly.”

7. A bare perusal of the provisions of Section 254A(3) of the Act reveals that in a situation whereby an order is passed under various sections of the Act, contained therein, the amount on which interest payable under sub-section (1) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and in a case where interest is reduced, the AO shall serve on the assessee, a notice of demand in the prescribed form, specifying the amount of excess interest paid and requiring him to pay such amount and such notice of demand shall be deemed to be a notice u/s 156 and the provisions of this Act shall apply accordingly. There is fundamental distinction between interest on refunds u/s 244A of the Act and interest on excess refund u/s 234D of the Act.

8. Having regard to the unequivocal and clear legislative intent enshrined in the provisions of Section 244A(3) of the Act, it is not tenable to resort to the interpretative process of such simple and clear language of the provisions of the Act. Therefore, the claim of the assessee, founded on the basis of analogies and inferences, is not statutorily valid in the light of the specific, clear provisions of Section 244A(3) of the Act and also in the light of common law jurisprudence. The relevant part of the findings of CIT(A), as contained in para 5.1 of the appellate order dated 26.02.2009, is reproduced hereunder :

“5.1 Coming to the issue of withdrawing of interest u/s 244A, it is the contention of the ld. counsel that for similar arguments as advanced by him against charging of interest u/s 234D as discussed above, the AO could not be said to be justified in withdrawing interest u/s 244A. However, I do not agree with the ld. Counsel in this regard. As per the ratio of the various decisions relied upon by the ld. counsel and which have been discussed above as assessee is not to be penalized by charging interest on the additional demand created as a result of retrospective amendment to the provisions of the Act. Whereas charging of interest u/s 234D on such an income could be said to be penalizing an assessee to some extent, withdrawing interest u/s 244A of the Act which was earlier allowed to an assessee, could not be taken to be of the same nature so as to be termed as penalizing the assessee. The appellant had been allowed interest u/s 244A of the Act on certain amount which was ultimately recovered from the appellant. The appellant is not disputing that position. Therefore, withdrawing interest allowed u/s 244A on this amount is just recovering from the appellant what had been wrongly given to it earlier. This is no case could be termed as penalizing the appellant. Therefore, ratio of these decisions would not help the case of the appellant as far as withdrawing of interest u/s 244A is concerned. Therefore, the order of the AO in withdrawing interest u/s 244A is fully justified and is accordingly confirmed.”

9. In a situation where tax liability is varied, the consequential corresponding effect, would be on the tax payable or amount refundable. Such a situation has been covered under the scheme of Act by inserting various provisions, which is in consonance with the general law and tenants of rational jurisprudence. The provisions enshrined in the Income-tax Act, 1961 are sections 234A(4), 234B(4), 234D(2), 244A(3), 221(2), 215(3) and 214(1A) of the Act. It is pertinent to highlight here that imposition of additional tax liability, by way of tax, is covered under separate statutory provisions, whereas the levy of interest is provided under different set of statutory provisions under the Act. The issue in question falls u/s 154 of the Act. The charging of interest is compensatory in nature. If a tax demand raised by the AO is varied by an appellate or revisional authority, it is the appellate and revisional order and not the assessment order, that would hold the field under the doctrine of merger, and hence, fresh notice of demand is to be issued accordingly. An increase in tax liability would correspondingly reduce the amount refundable and also the interest payable on such reduced refund. Provisions of Section 244A(3) of the Act clearly cover such a situation. If the contention of the assessee is accepted, it would lead to irrational and absurd consequences, which would make the provisions of Section 244A(3) of the Act inoperative and redundant. The AO merely gave effect to these relevant and clear provisions of the Act.

10. In view of the above legal and factual discussions, CO of the assessee is not legally and factually tenable and, hence, the same is dismissed.

In the result, CO of the assessee is dismissed.

visions of Section 244A(3) of the Act clearly cover such a situation. If the contention of the assessee is accepted, it would lead to irrational and absurd consequences, which would make the provisions of Section 244A(3) of the Act inoperative and redundant. The AO merely gave effect to these relevant and clear provisions of the Act.

10. In view of the above legal and factual discussions, CO of the assessee is not legally and factually tenable and, hence, the same is dismissed.

In the result, CO of the assessee is dismissed.