V.B. Desai Financial Services Ltd, ... vs Assessee

ी िवजय पाल राव, याियक सद य, एवं ी एन. के . िबलै या, लेखा सद य. के सम । BEFORE SHRI VIJAY PAL RAO , JM AND SHRI N.K. BILLAIYA, AM

आयकर अपील सं./I.T.A. No. 302/Mum/2011 (िनधारण वष / Assessment Y ear : 1992­93)

V.B. Desai Financial बनाम/ DCIT -C.C. 31 Services Ltd. Vs. Mumbai. 24/26, Cama Building, 1st Floor, Dalal Street, Fort Mumbai­400 023. थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACV 3460 E (अपीलाथ /Appellant) ... ( यथ / Respondent)

अपीलाथ क ओर से / Appellant by : Shri Pradip Shroff यथ क ओर से/Respondent by : Dr. P. Daniel­Special Counsel

सुनवाई क तारीख / Date of Hearing 25/02/2015 घोषणा क तारीख /Date of Pronouncement 26/03/2015

आदेश / O R D E R

PER VIJAY PAL RAO, JM:

This appeal by the assessee is directed against the order dated 29.11.2010 by CIT(A) arising from the order passed u/s. 154 of the Income tax Act for the assessment year 1992­93. The assessee has raised the following grounds in this appeal :­

"1. The ld. CIT(A) has erred in law and on facts in upholding the order u/s. 154 of the Act which is illegal and bad law.

2. The ld. Commissioner of Income tax(Appeals) has erred in law and on facts in confirming the order u/s. 154 of the Act as it was passed in violation of the principles of natural justice.

2 ITA No.302/M/11 VB Desai Financial Services Ltd.

3. The ld. Commissioner of Income tax(Appeals) has erred in law, and on facts in concurring with the levy of interest u/s.234B of the Act.".

2. At the time of hearing the ld. AR of the assessee has submitted that the assessee does not want to press Ground No.1 and 2 and the same may be dismissed as not pressed. The ld. DR has no objection if the Ground No.1 and 2 are dismissed as not pressed. Accordingly ground No.1 and 2 are dismissed as not pressed.

3. Ground No.3 is regarding levy of interest u/s. 234B of the Act. The assessee filed return of income for the year under consideration on 29.6.1993 declaring total income of Rs.22,88,670/­. The return of income of the assessee included income from share issue management fee and consultancy fee as well as underwriting commission which is classified as merchant bank income of Rs.45,63,478/­. The assessee accounted the said merchant banking income on actual realization basis/receipt basis and claimed that this is as per consistent method of accounting followed by the assessee right from the beginning and was accepted by the Department from the AY 1987­88 to 1991­92. The Assessing Officer while completing assessment u/s. 143(3) dated 30.3.1995 computed total income of the assessee on 3 ITA No.302/M/11 VB Desai Financial Services Ltd.

accrual basis. The assessee challenged the action of the Assessing Officer by filing the appeal before CIT(A) but could not succeed as CIT(A) confirmed the action of Assessing Officer vide order dated 1.12.1986. On second appeal before this Tribunal the issue was set aside to the file of the Assessing Officer for deciding afresh vide order dated 1.9.2004. the Assessing Officer passed the order u/s. 143(3) r.w.s. 254 of the act on 14.12.2005 and restricted the addition of merchant banking income to Rs.20,67,181/­. The Assessing Officer has also levied interest u/s. 234B of the Act. The assessee filed a petition u/s. 154 for rectification of the assessment order and reduction of the levy of interest u/s. 234B. The Assessing Officer did not accept the contention of the assessee and accordingly request of the assessee to reduce interest u/s. 234B was turned down. The assessee challenged the action of the Assessing Officer before CIT(A). The CIT(A) has confirmed the chargeability of interest u/s. 234B by holding that the same is mandatory in nature.

3.1 Before us, the ld. AR of the assessee has submitted that the issue is covered by the judgment of the Hon'ble Jurisdictional High Court in the case of Prime Securities Ltd. Vs. ACIT (Inv.) (2011) 333 ITR 464; and submitted that when there was no 4 ITA No.302/M/11 VB Desai Financial Services Ltd.

failure on the part of the assessee to pay advance tax in accordance with the provisions of section 208 and 209 then the assessee was not liable to pay interest u/s. 234B.

3.2 On the other hand, the ld. DR has relied upon the judgment of Hon'ble Supreme Court in the case of Karanvir Singh Gossal vs. CIT (2012) 349 ITR 692; and submitted that Hon'ble Supreme Court has held that interest u/s. 234B is mandatory in nature. He has further submitted that remedy for reduction/waiver of penal interest is only to seek relief before the CIT. he has also relied upon the orders of authorities below.

4. We have considered the rival submissions as well as relevant material on record. There is no dispute that the assessee has been consistently offering income from merchant banking on actual realization basis/ receipt basis right from the assessment year 1987­88. The Revenue has accepted the income offered by the assessee on actual realization basis in the earlier Assessment years up to 1991­92. This is the first time when the Assessing Officer has assessed the income on accrual basis and made the addition. It is not the case of the Revenue that the assessee has not paid the advance tax on the self assessed income but the 5 ITA No.302/M/11 VB Desai Financial Services Ltd.

difference of advance tax and tax liability on the basis of assessment order, is the basis for levy of interest u/s. 234B. The Hon'ble Jurisdictional High Court in case of Prime Securities Ltd. Vs. ACIT(Inv.) (supra), while considering the issue of levy of interest u/s. 234B has discussed the provisions section 234B elaborately and held in para­8 to 10 as under :­

"8. Now, if in the light of these rival submissions the provisions of law are perused, it becomes clear that the appellant would not be liable to pay interest under section 234B of the Act. Section 234B, especially sub­section (1) thereof which is relevant for our purpose reads as under:

"234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance' tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one per cent. for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub­section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. "

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 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 [2001] 252 ITR 1 is concerned, the Supreme Court was 6 ITA No.302/M/11 VB Desai Financial Services Ltd.

concerned with the 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 pro­ visions. 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 coun­ sel 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 com­ mitted 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, when the Supreme Court in Ghaswala's case [2001] 252 TIR 1 says that charging of interest under section 234B is mandatory, what it really 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 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 itactually paid it, the appellant cannot be held liable to pay interest under section 2348. 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.

10 In the result, therefore, the present appeal succeeds and is allowed. It is held that in the facts and circumstances of the case the Tribunal was not justified in law in holding that the interest was payable under section 234B."

7 ITA No.302/M/11 VB Desai Financial Services Ltd.

4.1 Thus, it is clear that the Hon'ble High Court has observed that the amount of advance tax is to be decided by assessee after estimating his current income and then applying law in force for deciding the amount of tax. The date on which the assessee paid advance tax it has estimated its income and liability of advance tax in accordance with law. Therefore, it was held that there was no failure on the part of the assessee to pay advance tax. The Hon'ble High Court has also considered the judgment of Hon'ble Supreme Court in the case of CIT vs. Anjum M.H. Ghaswala (2001) 252 ITR 1. It is to be noted that the Hon'ble Supreme Court in case of Karanvir Singh Gossal (supra), has followed the judgment in case of Anjum M.H. Ghaswala, (supra). Therefore, there is no quarrel on the point that charging of interest u/s. 234B is mandatory but firstly it is to be determined whether the assessee has committed default in payment of advance tax which is a necessary condition for levy of interest u/s. 234B as mandatory in nature. In view of the facts and circumstances of the case and by following the judgment of Hon'ble Jurisdictional High Court we are of the considered opinion that there is no default on the part of the assessee in payment of advance tax which was as per the estimated income of the assessee and is 8 ITA No.302/M/11 VB Desai Financial Services Ltd.

consistent with the practice followed by the assessee right from the beginning which was accepted by the revenue for earlier years. Accordingly, we delete the interest levied u/s. 234B.

5. Appeal of the assessee is allowed.

Order pronounced in the open court on 26/03/2015.

आदेश क घोषणा खुले यायालय म दनांकः 26/03/2015 को क गई ।

Sd/­ Sd/­ (N.K. Billaiya) (Vijay Pal Rao ) लेखा सद य / ACCOUNTANT MEMBER याियक सद य / JUDICIAL MEMBER

ं ई Mumbai; मुब दनांक Dated 26/ 03/2015 व.िन.स./ Jv, Sr. PS

आदेश क ितिलिप अ िे षत/Copy of the Order forwarded to :

1. अपीलाथ / The Appellant

2. यथ / The Respondent.

3. आयकर आयु (अपील) / The CIT(A)­

4. आयकर आयु / CIT

5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड फाईल / Guard file.

आदेशानुसार/ BY ORDER, स यािपत ित //True Copy// उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai