ERICSSON INDIA GLOBAL SERVICES PVT LTD,NEW DELHI vs. ACIT SPL. RANGE 3, NEW DELHI

The additional grounds of appeal raised by the assessee vide application dated 17th April, 2023, that remain to be adjudicated, are as under:-

Shri Paras S. Savla, appearing on behalf of the assessee submits that in so far as additional ground No.1 relating to education cess and secondary and higher education cess is concerned, the assessee is not pressing the same.

With respect to ground No.2 of appeal, the learned Counsel submits that the assessee had filed its original return of income for 3 assessment year 2013-14 declaring total income of Rs.302,63,71,210/- claiming Foreign Tax Credit (FTC) of Rs.1,60,87,785/-. Thereafter, the assessee filed revised return of income on 31st March, 2015 to enhance FTC claim to Rs.3,60,88,761/-. In assessment proceedings u/s143(2) of the Act, a reference was made to the Transfer Pricing Officer (TPO) on 3/10/2016. The TPO made adjustment of Rs.298,92,61,079/-. The Assessing Officer vide order dated 24/1/2017 confirmed the addition made by the TPO and allowed FTC claim as per original return of Income i.e. Rs.1,60,87,785/-. The assessee carried the issue in appeal before the Commissioner of Income Tax (Appeals). During the pendency of appeal before the CIT(A), the assessee entered into an Advanced Pricing Agreement (APA) on 20th March, 2018. Pursuant to the said APA, the assessee filed modified return on 29th June, 2018 declaring total income of Rs.333,84,68,120/- (including additional compensation of Rs.41,09,18,499/- offered under APA) and claiming FTC credit of Rs.4,88,11,007/-. Consequent to additional compensation offered under APA, the assessee paid interest under Section 234B of the Act at Rs.3,61,81,796/- and under Section 234C at Rs.44,71,149/-. The learned Counsel submits that interest under Section 234B of the Act is payable for default in payment of advance tax beginning from April 1 of the month following the end of the previous year till the completion of assessment under Section 143(3) of the Act or processing of the return of income under Section 143(1) of the Act. The interest under Section 234C is payable for shortfall in payment of quarterly installments of tax and 1% for the month of March of the fiscal year on returned income. The learned Counsel further submits that tax liability is calculated on estimation basis in the previous year itself though such income is chargeable to tax during the assessment year and such estimated advance tax is deposited to the government exchequer in advance. Advance tax is payable on current income in instalments during the previous year as per the provisions of Section 211 of the Act. In case of default in payment of advance tax or some shortfall in payment of 4 advance tax, the liability to pay interest under Section 234B and 234C follows.

The learned Counsel further submitted that the assessee in the instant case filed modified return of income after entering into APA. The provisions of Section 92CD of the Act enables the taxpayer to file modified return of income within a period of three months, in accordance with the APA. The assessee filed modified return in accordance with the aforesaid provisions and paid tax on the additional income assessed under the APA on time. Therefore, the liability to pay interest under Section 234B and 234C of the Act on additional income offered under APA would not arise. He submits that the issue is squarely covered in favour of the assessee by decision of the Tribunal in the case of Colt Technology Services (I) Pvt. Ltd. Vs. DCIT – 141 taxmann.com 386 (Delhi- Trib.).

Shri M.S. Nethrapal, learned CIT-DR representing the Department, fairly stated that the assessee had entered into APA and the interest liability under Section 234B and 234C of the Act has been fastened on the assessee in respect of additional income offered under APA.

Both sides heard. Orders of the authorities below examined. The limited issue for consideration before us is whether the assessee is liable to pay interest under Section 234B and 234C in respect of the additional income offered to tax under APA?

We find that insofar as the assessee entering into APA and thereafter filing return of income within three months’ time is not disputed by the Department. Further, it is not in dispute that the tax paid by the assessee on the additional income offered was within the time prescribed under the Act. The Assessing Officer, during assessment proceedings, charged interest under Section 234B and 234C on the 5 additional income offered under APA and, that too, retrospectively. We find that the Coordinate Bench in the case of Colt Technology Services (I) Pvt.Ltd. (supra),on an identical issue followed the decision rendered in the case of Prime Securities Ltd. Vs. ACIT – 333 ITR 464 (Bombay) and deleted the interest levied under Section 234B and 234C of the Act on additional income agreed as per APA. For the sake of completeness, relevant extract of the findings of the Coordinate Bench on this issue are as under:- “33. The additional ground of appeal is directed against levying of interest u/s 234B and 234C of the Act on additional income arising on account of APA entered into by the assessee. The Ld. Counsel for the assessee submitted that, the assessee had entered into APA for AY 2015-16 to AY 2019-20 with roll back for the AY 2011-12 to AY 2014-15. Pursuant to the APA appellant has filed modified return for AY 2011-12 on 27/11/2017 declared an income of Rs.58,72,70,320/- as against the income of Rs.49,04,70,740/- declared in original return of income, thereby declared an additional income of Rs.9,67,99,580/-. As per Section 92CD(2) of the Act the modified return filed pursuant to the APA, all other provisions shall apply as if the modified return is filed u/s 139 of the Act. Since, assessee cannot estimate the additional income at the time of advance tax instilment and at the time of filing income tax return, did not pay advance tax on such income. Therefore, submitted that interest u/s 234C and 234B of the Act for non/short payment of advance tax installment and delay in payment of income tax respectively should not be levied on such additional income declared by the assessee in its modified return of income. 34. Per contra, the Ld. DR has relied on the observations and conclusions of the Lower Authorities. 35. We have heard the Ld. AR and also Ld. DR on the issue in dispute, we are agreeing with the argument of the Ld. AR. 36. In the case of Prime Securities Ltd. Vs. Assistant Commissioner of Income Tax (Investigation), [2012] 20 taxmann.com 757 (Bombay), the Hon'ble High Court of Karnataka, while dealing with the issue of levying interest u/s sections 234A, 234B and 234C for non/short payment of advance tax installment and delay in payment of income tax held as under:- "9. Perusal of the above provisions shows that liability to pay interest arises on failure of the assessee to pay advance tax under section 208 or advance tax payable under section 210 is paid less than 90 per cent. Perusal of the provisions of sections 208 and 209 shows that for the purpose of payment of advance 6 tax the assessee has to estimate his current income and then he has to calculate income-tax on that income at the rate in force in the financial year. Thus, the amount of advance tax is to be decided by the assessee after estimating his current income and then applying law in force for deciding the amount of tax. It is an admitted position in the present case that the date on which the appellant paid the advance tax it had estimated its income and liability for payment of advance tax in accordance with law that was in force. Therefore, it is obvious that there was no failure on the part of the appellant to pay advance tax in accordance with the provisions of sections 208 and 209. So far as the judgment of the Supreme Court in the case of Ghaswala [20011 252 ITR 1 is concerned, the Supreme Court was concerned with the 1908/Del/2017 powers of the Settlement Commission in granting waiver of interest and for that purpose the Supreme Court considered the provisions of sections 234A, 234B and 234C. The Supreme Court in no uncertain terms held that the interest is compensatory in nature. The court read the provisions of sections 234A, 234B and 234C as mandatory in character holding that after the amendment in the provisions in the Finance Act, 1987, that with the use of the expression "shall" therein the Legislature clearly indicated that its intention to make the collection of statutory interest mandatory. It is for this purpose that the court proceeded to decide that even the Settlement Commission which was vested with the vast power had no power to waive the interest payable under these provisions. Going by this interpretation of sections 234A, 234B and 234C as given by the Constitution Bench of the Supreme Court, it is clear that the interest is payable in case the advance tax is not paid in consonance with the law in force at the time when the advance tax is paid and there is a default. Therefore, for charging interest under section 234B, committing of default in payment of advance tax is condition precedent. Perusal of the judgment of the Delhi High Court, which is relied on by the learned counsel appearing for the respondent, shows that in that case also the Delhi High Court has held that for charging of interest establishment of default in payment of advance tax is necessary. In the present case, it is nobody's case that the appellant at the time of payment of advance tax has committed any default or that payment of advance tax made by the appellant was not in consonance with law. The Division Bench of this court in its judgment in the case of the appellant, referred to above, has held that the return filed by the appellant was in consonance with law and there was only a formal defect and the moment that defect was cured, the return related back to the original date. In our opinion, 1908/Del/2017 when the Supreme Court in Ghaswala's case [2001] 252 ITR 1 says that charging of interest under section 234B is mandatory, what it realty means is that once the assessee is found liable to pay interest, then recovery of interest is mandatory and recovery of that interest cannot be waived for any reason But for charging interest under that section, it has to be established that the assessee has committed default in payment of advance 7 tax. In our opinion, as in the present case it is nobody's case that the appellant has committed a default in payment of advance tax when it actually paid it, the appellant cannot be held liable to pay interest under section 234B. In so far as the observations in the order of the Tribunal, that the appellant should have anticipated the events that took place in March, 1992 are concerned, in our opinion, they have no substance. In our opinion, it is rightly submitted that it was not possible for the appellant to anticipate the events that were to take place in the next financial year and pay advance tax on the basis of those anticipated events." 36.1. The similar views have been taken by the Hon'ble Delhi High Court in the case of Escorts Ltd. Vs. CIT [2003]127 Taxman 574 (Delhi), City Union Bank Ltd. Vs. Assistant Commissioner of Income Tax [2020] 116 taxmann.com 139 (Madras), CIT, Meerut Vs. Prem Kumar [2008] 169 Taxman 351 (Allahabad) and CIT Vs. Akbar Ali Dhala [2014] 226 Taxman 254 (Mad). 37. By following the ratio laid down in the judgment mentioned supra, we hold that, the levy of interest u/s 234B and 234C of the Income Tax Act on additional income agreed as per advance pricing agreement entered between appellant and the CBDT is illegal. Ergo, we allow the additional grounds of appeal.” [Emphasized by us]

In the facts of the instant case and the above decision of the Coordinate Bench, we find merit in additional ground No.2 of the appeal. Hence, following the decision rendered in the case of Colt Technology Services (I) Pvt. Ltd. (supra), additional ground No.2 of the appeal is allowed.

In the result, the appeal of the assessee is partly allowed.