DCIT 7(3), MUMBAI vs. VODAFONE INDIA LTD, MUMBAI

This appeal by the Revenue is directed against the order of the CIT(Appeals)-13, Mumbai dated 27/11/2013 for assessment year 2005- 05. 2. The facts of the case, briefly, are as under:- 2.1 The assessee, a company engaged in the business of cellular services, filed its return for assessment year 2005-06 on 05/10/2005 declaring NIL income after claiming deduction u/s. 80IA of the Income Tax Act, 1961(in short ‘the Act’). The case was taken up for scrutiny and the assessment was completed u/s.143(3) of the Act vide order dated 3/9/2007, wherein the ‘book profit’ u/s. 115JB of the Act was determined at Rs.3,48,58,12,526/- after making an adjustment of Rs.30,79,21,638/- for provision for doubtful debts u/s. 115JB(2) of the Act. On appeal, the Ld. CIT(A) deleted the above addition of Rs. 30,79,21,638/- on the ground that the provisions for doubtful debts did not fall under clause (c) of Explanation to section 115JB of the Act. This order of the Ld. CIT(A) was upheld by the Hon’ble ITAT. On further appeal by the Revenue against the order of the Tribunal, the Hon’ble High Court of Punjab & Haryana in its order in of 2008 dated 21/7/2011 held that since clause (i) of Explanation 1 to Section 115JB of the Act has been inserted retrospectively from 1/4/2001 by Finance Act (No.2), 2009 the same would apply to the subject assessment year 2005-06 and remanded the matter for fresh adjudication to the file of the Assessing Officer in the light of the retrospective nature of the amendment. The fresh assessment for assessment year 2005-06 was completed u/s. 143(3) r.w.s. 260A of the Act vide order dated 4/3/2013, wherein the ‘book profit’ u/s. 115jB of the Act was determined at Rs.348,54,20,574/- in view of the addition of provision for bad debts amounting to Rs.30,79,21,638/-, to which adjustment the assessee had consented vide letter dated 19/12/2011.

2.2 Aggrieved by the order of assessment for assessment year 2005- 06 dated 04/03/2013, the assessee preferred an appeal before the CIT(Appeals)-13, Mumbai challenging, inter alia, the charging of interest u/s.234C and 234D of the Act in its case. The Ld. CIT(A) disposed off the appeal vide order dated 27/11/2013 allowing the assessee partial relief i.e. deleting the interest charged u/s. 234C of the Act and upholding the charging of interest u/s. 234D of the Act.

(i) The Learned CIT(A) has erred on facts and in law in deleting interest of Rs.14,99,379/- charged u/s. 234C of the Act without properly appreciating the factual and legal matrix of the case as clearly brought out by the Assessing Officer. (ii) The Learned CIT(A) has erred on facts and in law in deleting Interest of Rs.14,99,379/- charged u/s. 234C of the Act without properly appreciating the facts that the assessee has failed to pay advance tax liability arising due to respective amendment to section 115JB which was clearificatory in nature.

2. The Ld. CIT(A)’s order is contrary in law and on facts and deserves to be setaside.

3. The appellant craves leave to amend or alter any ground or add a new ground that may be necessary.

4. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the AO restored.”

4.0 Ground (i) & (ii) - Charging of Interest u/s. 234C of the Act. 4.1 In these grounds, the Revenue contends that the Ld. CIT(A) erred in deleting the interest of Rs.14,99,379/- charged u/s. 234C of the Act without failing to appreciate that the assessee had failed to pay advance tax arising due to retrospective amendment to Section 115JB of the Act which was clarificatory in nature. The Ld. Departmental Representative for the Revenue was heard in support of the grounds raised and placed strong reliance on the order of the Assessing Officer in the matter.

4.2.1 Per contra, the Ld. Representative for the assessee supported the impugned order of the Ld. CIT(A) in deleting the interest it was charged u/s. 234C of the Act. It was submitted that the Ld. CIT(A) was of the view that no advance tax liability subsequently arising due to amendment in law, that too retrospectively, could be fastened on the assessee and, therefore, the assessee could not be charged interest u/s. 234C of the Act. It is submitted that in coming to this finding, the Ld. CIT(A)followed the decision of the Co-ordinate Bench of this Tribunal in the case of S.R. Investment Ltd., for assessment year 2005-06.

4.2.2 The Ld. Representative for the assessee submitted that the issue of chargeability of interest u/s. 234C of the Act was considered by various Courts and Tribunals and the decision has been rendered in favour of the assessee holding that where the assessee had no liability to pay advance tax instalments and became liable to do so by virtue of a retrospective amendment made after the close of the financial year, the assessee could not be held to be a defaulter in payment of advance tax and no interest could be charged upon it under section 234C of the Act. In support of this proposition, the Ld. Representative for the assessee placed reliance upon the following decision of Hon’ble Courts and Tribunals:- (i) Emami Ltd. vs. CIT (2011),337 ITR 470 (Cal); (ii) CIT v. JSW Energy Ltd. (2015) 379 ITR 36 (Bom); (iii)Shakti Insulated Wires (P) Ltd. in dated 14/2/2014 for assessment year 2005-06.

(iv) Uttam Sugar Mills Ltd. (2012) 20 taxman.com 223 (v) Garware Polyster Ltd.(2013) 23 ITR (T) 549. The Ld. Representative for the assessee contends that in view of the above submissions and judicial pronouncements, the Revenue’s appeal is liable to be dismissed.

4.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited. We find that the similar question of whether interest under section 234B and 234C of the Act can be charged for default in payment of advance tax and for deferment of advance tax, respectively, where the payment of tax became due only because of the amendment by way of insertion of clause(i) to Explanation – 1 to section 115JB of the Act by Finance (No.2) Act,2009 with retrospective effect from 1/4/2001, was considered by a Co-ordinate Bench of this Tribunal in the case of Shakti Insulated Wires (P) Ltd. and in its order in dated 14/2/2014, the Co-ordinate Bench held as under at para 6 to 6.1 thereof:-

6. The next issue relates to the computation of interest u/s 234B and 234C of the Act. The ld AR submitted that clause (i) to Explanation 1 to sec. 115JB was inserted by Finance (No.2) Act 2009 were retrospective effect from 1.4.2001. The Ld A.R further submitted that the assessee, while computing the “current income” for the purpose of computing the advance tax to be paid, could not have foreseen the amendment that will be made in future with retrospective effect. Hence, the advance tax paid by the assessee fell short. Accordingly he submitted that the interest u/s 234B and 234C could not be levied on the tax component attributable to the addition of “Provision for bad and doubtful debts”. In this regard, he placed reliance on the decision of Co-ordinate bench of Tribunal, wherein one of us was the party, in the case of Garware Polyester ltd (2013)(33 taxmann.com 164)(Mum). The assessee also placed reliance on the decision of Delhi bench of Tribunal in the case of DCIT Vs. Uttam Sugar Mills Ltd (2012)(20 taxmann.com 223). 6.1 We heard Ld D.R and also have gone through the decision relied upon by the Ld A.R. We notice the Co-ordinate benches have taken the view that the interest u/s 234B and 234C cannot be charged for default in payment of advance tax and for deferment of advance tax where payment of tax became due only because of retrospective amendment. The following observations made by the Delhi bench of Tribunal in the case of Uttam Sugar Mills are extracted, for the sake of convenience:- “7. The question is as to whether interest u/s 234B and 234C of the Act can be charged for default in payment of advance tax and for deferment of advance tax, respectively, where the payment of tax became due only because of the amendment by way of insertion of Explanation 1(h) to sec. 115JB(2) of the Act, the amendment having been made operative retrospectively. It was due t the filing of revised statement of assessable income, that the book profit was increased by the amount of the deferred tax. But for the retrospective amendment, the assessee was not liable to be taxed on account of adjustment of deferred tax. Undeniable, this is the obtaining legal position as per Apollo Tyres Ltd Vs. CIT (2002)(174 CTR (SC) 521; (2002)(255 ITR 273)(SC) and Asst. Cit Vs. Balarampur Chini Mills Ltd (2007)(111 TTJ (Kol) 230. Now, the amendment having come about only by virtue of Finance Act, 2008, obviously there was no malafide intention on the part of the assessee, as has been recognized in Priyanka Overseas Ltd Vs. Dy. CIT (2002)(75 TTJ (Delhi) 783) : (2001)(79 ITD 353)(Delhi), in a similar fact situation. It was noted therein that from CBDT Order No. F 400/234/95-IT (B) dt. 21 st May, 1996, it was clear that the intention of the tax authorities was not to levy interest where any amendment came with retrospective effect. ..” In our view, the ratio of the above said decision shall squarely apply to the facts of the instant case. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to compute the interest u/s 234B and 234C of the Act by excluding the addition relating to “Provision for bad and doubtful debts” from the amount of book profit.

4.3.2. We, respectfully, following the decision of the Co-ordinate Bench of this Tribunal in the case of Shakti Insulated Wires (P) Ltd. for assessment year 2005-06(supra), which ruling, in our view, is squarely applicable to the case on hand, confirm the impugned order of the Ld. CIT(A) in holding that the assessee in the case on hand cannot be charged interest under section 234C of the Act as it had no liability to pay advance tax under section 208 of the Act on any of the due dates for payment of advance tax in the period under consideration and became liable to pay tax by virtue of a retrospective amendment made after the close of the relevant financial year. In these circumstances, the assessee could not be branded as a defaulter and be charged interest under section 234C of the Act. Consequently, Revenue’s grounds at (i) and (ii) are dismissed.

Order pronounced in the open court on 03/02/2016