BHARAT PETROLEUM CORPORATION LTD,MUMBAI vs. ASST CIT RG 2(1), MUMBAI

1. The appellant submits that the order passed under section 154 of the Income Tax Act, 1961, (the Act) by the Assessing Officer levying interest of Rs.4,50,43,503 under section 234D of the Act, was passed without granting the appellant a reasonable opportunity of being heard as required by section 154(3) of the Act and consequently the learned CIT(A) erred in upholding the same.

In this appeal the assessee is aggrieved for order passed u/s.154 charging interest u/s.234D of the I.T.Act. Rival contentions have been heard and record perused. Facts in brief are that regular assessment in this case was completed u/s.143(3), originally on 30-11-2000, whereas no interest u/s.234D was charged against the refund issued u/s.143(1) on 18-1-1999 of Rs.6,10,83,551/-. Subsequently, order was passed to give effect to CIT(A) order, ITAT order and order u/s.263, but no interest u/s.234D was charged, whereas, by way of impugned order u/s.154 dated 6-2-2012 interest u/s.234D has been charged which has been objected by the assessee. By the impugned order the CIT(A) confirmed the Action of AO after having following observations :- “5. I have considered the facts of the case and submissions of the assessee. Explanation 2 to section 234D clearly states that it is for removal of doubts that the provisions of this section shall apply to an assessment year commencing before 1st day of June, 2003, if the proceedings in respect of such assessment year is completed after the said date. Therefore, it has nothing to do with the assessment year, rather it will apply to all assessment years for which proceedings are completed after 1/6/03. It applies to the case of the assessee because admittedly order for giving effect to order u/s. 263 has been passed u/s. 143(3) after 116/03 and, therefore, 3 the provisions of section 234D are clearly applicable to the case of the assessee even for assessment year 1998-1999.”

Against the above order of CIT(A), the assessee is in further appeal before us.

It was argued by ld. AR that there was no mistake apparent from the record, therefore, the AO was not justified in invoking provisions of Section 154 in respect of issue which is debatable. He further contended that relevant assessment year under consideration is 1998-99, whereas provisions of Section 234D was brought on the statute w.e.f assessment year 2003-04, accordingly not applicable to the assessment year under consideration i.e. 1998-99. Ld. AR also relied on the judicial pronouncements in the case of Delta Airlines INC, Bombay High Court decision dated 5-9-2011, which was confirmed by the Hon’ble Supreme Court by dismissing the revenue’s SLP in the case of Reliance Energy Ltd., vide order dated 30-9-2013.

On the other hand, ld. DR relied on the order of lower authorities.

We have considered rival contentions, gone through the orders of authorities below and also deliberated on the judicial pronouncements cited by ld. AR and DR during the course of hearing before us as well as referred by lower authorities in their respective orders. From the record we found that in the order passed u/s.143(3) dated 30-11-2000, the AO has not charged interest u/s.234D in respect of refund issued while processing the return u/s.143(1) on 18-1-1999. The scope of section 234D can be construed as under: - 4 “Sub section (1) of section 234D enjoins that where any refund is granted to the assessee under sub section (1) of section 143 and no refund is due on regular assessment, or the amount refunded under sub section (1) of section 143 exceeds the amount refundable on regular assessment, then, the assessee shall be liable to pay simple interest at the given rate, on the whole or the excess amount so refunded for every month or part of month comprised in the period from the date of grant of refund to the date of such regular assessment.” It is clear that interest is payable u/s.234D in respect of refund granted while processing return u/s.143(1), which is in excess of refund allowable while passing from regular assessment order. Not charging the interest u/s.234D while passing regular assessment order amounts to a mistake apparent on record, therefore, the AO was justified in invoking provisions of Section 154 of the Act. So far as applicability of Section 234D of the Act for the year under consideration is concerned, we found that as per Explanation 2 to Section 234D this section is applicable to an assessment year commencing before 1st date of June, 2003, if the proceedings in respect of such assessment year is completed after the said date. In the instant case before us, the assessment was not completed prior to 1st June, 2003, accordingly 234D is correctly applied for the year under consideration. Our view is supported by the decision of jurisdictional High Court in the case Indian Oil Corporation Ltd., 254 CTR 113, wherein it was held that Explanation 2 introduced by Finance Act, 2012 is declaratory in nature, therefore there is no manner of doubt that Section 234D is to be applied retrospectively even to the period prior to assessment year 2004-05.

Now coming to the period for which interest can be charged. The provisions of Section 234D makes it clear that interest is to be charged from the date of refund u/s.143(1) till the date of such regular assessment. Accordingly, we direct the AO to restrict the interest u/s.234D till date of regular assessment with respect to refund/excess refund granted u/s.143(1) of the Act.

In the result, appeal of the assessee is allowed in part. Order pronounced in the open court on this 31/03/2016.