TMI Blog2004 (9) TMI 83X X X X Extracts X X X X X X X X Extracts X X X X ..... urt was delivered by N.K. Sud J.- This order will dispose of three Income-tax Appeals Nos. 172 and 173 of 2003 and 49 of 2004, involving common questions of law and facts. These appeals are directed against the common order passed by the Income-tax Appellate Tribunal, Chandigarh Bench "B" (for short "the Tribunal"), dated November 18, 2002. The Revenue is aggrieved by the finding of the Tribunal that interest under sections 234B and 234C of the Income-tax Act, 1961 (for short "the Act'), cannot be charged in a case where income is computed as per the provisions of section 115JA of the Act. Briefly stated, the identical facts of the cases are that the assessees filed their respective returns declaring income computed as per the provisions of section 115JA of the Act. While processing the returns, the Assessing Officer charged interest under sections 234B and 234C of the Act on the tax determined on the returned income. Being aggrieved, the assessees filed appeals before the Commissioner of Income-tax (Appeals) [for short "the CIT(A)"] challenging the levy of interest. It was contended before the Commissioner of Income-tax (Appeals) that section 115JA intended to tax income b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se which had been decided on the basis of the judgment of the Karnataka High Court in Kwality Biscuits Ltd. v. CIT [2000] 243 ITR 519. Mr. D.S. Patwalia, learned counsel for the Revenue, contended that levy of interest is merely a process of determining the liability of the assessee on account of tax or interest payable by the assessee on the basis of the return of income. This process of determination of the assessee's liability cannot be equated with an adjustment made in the income or loss declared in the return as had been done by the Tribunal. He, therefore, contended that the Tribunal has erred in holding that levy of interest under sections 234B and 234C of the Act was an adjustment made by the Assessing Officer under section 143(1)(a) of the Act and cancelling the same on the ground that the issue being debatable, was outside the purview of that section. He pointed out that the provisions of sections 234B and 234C of the Act are mandatory and the interest chargeable thereunder is not penal in nature but is compensatory. Learned counsel further contended that the view taken by the Karnataka High Court in the case of Kwality Biscuits Ltd. [2000] 243 ITR 519 was not based on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on available in such return, accounts or documents, is prima facie inadmissible, shall be disallowed: Provided further that an intimation shall be sent to the assessee whether or not any adjustment has been made under the first proviso and notwithstanding that no tax or interest is due from him: Provided also that an intimation under this clause shall not be sent after the expiry of two years from the end of the assessment year in which the income was first assessable." A perusal of clause (i) shows that the Assessing Officer has to determine the tax or interest found due on the basis of the return after adjustment of pre-paid tax or interest and send an intimation to the assessee specifying the amount payable by him. Tax and interest has to be computed as per the provisions of the Act. Clause (ii) provides for grant of refund if the assessee is found to be so entitled on the basis of the return. The first proviso describes the adjustments which the Assessing Officer is required to make in the income or loss declared in the return. These adjustments dearly relate to the determination of quantum of income or loss. Levy of tax or interest does not amount to adjustment in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a hearing and exercise the power to grant relief, the legislative intent to the contrary notwithstanding. The principles of natural justice upon which the petitioners rely do not supplant the law, they simply supplement it. These principles have no application where a statute either by express words or by necessary implication excludes the grant of a hearing to the assessee concerned. The provisions of sections 234A, 234B and 234C are in my opinion incapable of being interpreted to mean that the assessee concerned has a right of being heard against the levy which is otherwise automatic in nature." This court in Sant Lal v. Union of India [1996] 222 ITR 375, concurred with the view of the Karnataka High Court in the case of Union Home Products Ltd. [1995] 215 ITR 758. The argument raised on behalf of the assessee that the provisions should be held ultra vires as they leave no discretion with the Assessing Officer to waive or reduce the interest even in a case of extreme hardship, was rejected by holding as under: "We shall now deal with the argument of learned counsel for the petitioners that even in cases of extreme hardship no discretion has been conferred upon the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The expression 'shall' used in the said section cannot by any stretch of imagination be construed as 'may'. There are sufficient indications in the scheme of the Act to show that the expression 'shall' used in sections 234A, 234B and 234C is used by the Legislature deliberately and it has not left any scope for interpreting the said expression as 'may'. This is clear from the fact that prior to the Amendment brought about by the Finance Act, 1987, the Legislature in the corresponding section pertaining to imposition of interest used the expression 'may7 thereby giving a discretion to the authorities concerned to either reduce or waive the interest. The change brought about by the Amending Act (Finance Act, 1987) is a clear indication of the fact that the intention of the Legislature was to make the collection of statutory interest mandatory." The scope of sections 234B and 234C of the Act was considered by the Bombay High Court also in CIT v. Kotak Mahindra Finance Ltd [2004] 265 ITR 119, and it was observed as under: "It is well settled that interest under section 234B is compensatory in character. It is not penal in nature. So also, interest under section 234C is compensator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax under section 115J arises if the total income as computed under the provisions of the Act is less than 30 per cent. of its book profits. This exercise for determining the total income in accordance with the provisions of the Act and that of book profit can be only after the end of the relevant assessment year. It is only the deemed income for which the provisions of section 115J have been incorporated. When a deeming fiction is brought under the statute it is to be carried to its logical conclusion but without creating further deeming fiction so as to include other provisions of the Act which are not specifically made applicable. Since the entire exercise of computing the income or that of book profit could be only at the end of the financial year, the provisions of sections 207, 208, 209 or 210 cannot be made applicable, until and unless the accounts are audited and the balance-sheet is prepared even the assessee may not know whether the provision of section 115J would be applicable or not. The liability would be after the book profits are determined in accordance with the Companies Act. The words 'for the purposes of this section' in the Explanation to section 115J(1A) are r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the curtain rises in the cases of companies falling under section 115J after March 31, is no ground for the assessee-company not to pay interest under section 234B and section 234C. Under section 115J, every assessee-company had to compute the total income under the Act and, thereafter, compare such total income with the book profits and if the total income computed under the Act was less than 30 per cent. of the book profits then the total income shall be deemed to be 30 per cent. of the book profits. It is not in dispute that every such company has to prepare its profit and loss account under Schedule VI of the Companies Act after the end of the accounting year/previous year but, once it is found that the total income computed under the Act is less than 30 per cent. of the book profits and consequent upon which there is non-payment or short payment of advance tax then, the provisions of sections 234B and 234C are automatically attracted." The Bombay High Court concurred with the judgments of the Gauhati High Court in the case of Assam Bengal Carriers Ltd. [1999] 239 ITR 862 and that of the Madhya Pradesh High Court in the case of Itarsi Oils Flours (P.) Ltd. [2001] 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... current income after providing for all deductions that may be available under the Income-tax Act, it is not possible for the company to estimate the profits of the company of the current year." We fully concur with the view expressed in the aforesaid judgments. The Madras High Court has correctly pointed out that for the purpose of payment of advance tax, all assessees including companies, are required to make an estimate of their current income. Even before the introduction of the provisions of section 115J of the Act, companies had been estimating their total income after providing deductions admissible under the Act. In fact, all assessees who maintain books of account have to undertake this exercise for the purpose of payment of advance tax. If a profit and loss account can be drawn up on estimate basis for the purpose of the Income-tax Act, it is not understood as to why a similar profit and loss account on estimate basis under the Companies Act cannot be drawn up. It the explanation of the companies that the profits under section 115J of the Act can only be determined after the close of the year were to be accepted, then no assessee who maintains regular books of account wo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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