Andhra Pradesh H.C : petitioner’s application for waiver of interest could not be allowed as petitioner did not fulfil condition laid down in CBDT

High Court Of Andhra Pradesh

Priya Aqua Farms Vs. Director General Of Income-Tax (Inv.)

Assessment Year : 1999-2000

Section : 234A , 234C

V.V.S. Rao And Ramesh Ranganathan, JJ.

Wp Nos. 9090, 9092 And 9103 Of 2011

April  26, 2011

JUDGMENT

Ramesh Ranganathan, J. – In this batch of three writ petitions the petitioner seeks to have the order of the respondent dated December 10, 2010, whereby their waiver application for the assessment year 1999-2000 was rejected, declared as illegal and arbitrary. They seek a consequential direction to the respondent to waive the interest charged under sections 234B and 234C of the Income-tax Act, 1961, for Rs. 23,76,542.

2. The facts in W.P. No. 9092 of 2011 can be taken as representing the facts in all the three writ petitions. The petitioner, a company engaged in the business of aqua farms and power generation, filed their return of income for Rs. 2,31,958. They claimed deduction under section 80HHC of the Income-tax Act (“the Act” for short) for Rs. 59,69,067 placing support on the disclaimer certificates issued in their favour by M/s. Adani Exports Ltd., Ahmedabad, M/s. Water Base Ltd., Madras, M/s. Vivil Exports Ltd., Mumbai, and the Silk Base Co. Ltd., Chennai, through whom the petitioner had exported their marine products. The return was accepted under section 143(1) of the Act by the assessing authority by his order dated February 14, 2000. Thereafter, the Assessing Officer initiated reassessment proceedings under section 147 of the Act on the ground that as per the decision of the Supreme Court in IPCA Laboratory Ltd.  v. Deputy CIT [2004] 266 ITR 521 (SC) ; AIR 2004 SC 3046, the petitioner was not eligible for deduction under section 80HHC of the Act. The reassessment was completed and the deduction granted earlier under section 80HHC of the Act for Rs. 59,69,067 was added back to the petitioner’s income as M/s. Vivil Exports Ltd., Mumbai, one of the export houses, had incurred a loss and the petitioner, a supporting manufacturer, was, therefore, not eligible for deduction under section 80HHC of the Act on the basis of the disclaimer certificate given by such an export house. The income of the petitioner was reassessed at Rs. 62,01,025. The petitioner was also charged interest under sections 234B and 234C of the Act for short payment of advance tax.

3. The petitioner submitted an application on May 26, 2007, requesting the respondent to exercise his powers under section 119(2)(a) of the Act and waive the said interest. In their application the petitioner stated that their claim for deduction under section 80HHC of the Act was on the basis that they were a supporting manufacturer ; they had relied on the disclaimer certificates issued in their favour by the export houses which had not claimed deduction under section 80HHC ; the deduction claimed by them, under section 80HHC of the Act, was disallowed by the Assessing Officer relying on the judgment of the Supreme Court in IPCA Laboratory Ltd. [2004] 266 ITR 521 (SC) ; AIR 2004 SC 3046, the judgment in IPCA Laboratory Ltd.[2004] 266 ITR 521 (SC) ; AIR 2004 SC 3046, was pronounced after they had filed their return for the assessment year 1999-2000 ; the assessment was completed on December 26, 2006, on the basis of the said decision of the Supreme Court ; a copy of the assessment order was served on them on January 11, 2007 ; and, as such, the interest charged under sections 234B and 234C of the Act for Rs. 23,76,542 should be waived as they were disabled by genuine and reasonable causes from payment of advance tax.

4. In the impugned order, whereby the petitioner’s request for waiver of interest was rejected, the respondent records that the power to waive interest, referable to section 119(2)(a) of the Act, had been reiterated in the Central Board of Direct Taxes order dated June 26, 2006 ; the conditions stipulated in the Central Board of Direct Taxes order were not fulfilled in the present case ; no amendment of law was in issue in IPCA Laboratory Ltd. [2004] 266 ITR 521 (SC) ; AIR 2004 SC 3046, and the Supreme Court had only stated the legal position with regard to the eligibility for deduction under section 80HHC which was already a part of the Act ; hence para. 2(c) of the Central Board of Direct Taxes order dated June 26, 2006, was not applicable in the present case ; the petitioner’s claim that facts relating to export of merchandise by them, through four export houses, were not taken into consideration at the time of assessment was irrelevant in deciding their request for waiver of interest under sections 234B and 234C of the Act ; none of the other conditions stipulated in the Central Board of Direct Taxes order dated June 26, 2006, were applicable to the petitioner’s case ; and, hence, they were not entitled for waiver of interest charged under section 234B and section 234C for the assessment year 1999-2000.

5. Sri K. Vasanth Kumar, learned counsel for the petitioner, would contend that section 80HHC of the Act was amended retrospectively ; the export houses, which issued the disclaimer certificates, were not extended the benefit of deduction under section 80HHC ; the petitioner’s case falls squarely within the ambit of the Central Board of Direct Taxes order dated June 26, 2006, and the Central Board of Direct Taxes circular dated January 17, 2006 ; the Assessing Officer had considered the case of only one export house, i.e., M/s. Vivil Export House Ltd., and not the other export houses ; and the petitioner was eligible for waiver of interest as the export houses, which had issued disclaimer certificates in their favour had not claimed the benefit of deduction, under section 80HHC of the Act on the exports.

6. Paras. 2(ix), (x) and (xi) of the impugned order dated December 13, 2010, records the submission of the petitioner that their case does not fall within the purview of the Central Board of Direct Taxes Circular No. 2 of 2006, dated January 17, 2006 (see [2006] 280 ITR (St.) 39) ; if the export house is entitled for waiver, as per the circular of the Central Board of Direct Taxes, the supporting manufacturer must also be held to be entitled for such waiver ; their letter dated December 6, 2010, wherein they had stated all relevant facts regarding supply of merchandise to export houses, was not taken into consideration by the Assessing Officer while assessing them to tax ; and the disclaimer certificates issued in their favour by three of the export houses were not considered.

7. In IPCA Laboratory Ltd. [2004] 266 ITR 521 (SC) ; AIR 2004 SC 3046, the Supreme Court held that in arriving at the figure of positive profit both profits and losses from trading and manufacturing activities will have to be considered ; if the net figure is positive profit then the assessee will be entitled to deduction under section 80HHC ; and, if the net figure is a loss, the assessee will not be entitled to deduction. Under the. proviso to section 80HHC(1) and section 80HHC(1A), a supporting manufacturer may also be entitled, under certain conditions, to the benefit of deduction from its profits with regard to a part of its export turnover. Explanation (d) to section 80HHC defines “supporting manufacturer” to mean a person being an Indian company, or a person (other than a company) resident in India, manufacturing (including processing) goods or merchandise and selling such goods or merchandise to an export house or a trading house for the purposes of export.

8. On section 80HHC of the Act being amended retrospectively the Central Board of Direct Taxes (“the CBDT”), issued Circular dated January 17, 2006. The said circular records that the amended section 80HHC provided that profits on sale of DEPB credits or duty free replenishment certificates would be treated at par with duty drawback for the purposes of proportionate increase of profits derived from exports computed under clauses (a) to (c) of section 80 HHC(3) of the Act. As the amendment relating to DEPB Scheme and DRC was brought into the statute with retrospective effect, the Central Board of Direct Taxes Circular dated January 17, 2006, provides that no interest shall be charged in respect of any fresh demand raised consequent to the amendment on account of variation in the returned/ assessed income attributable to profits on sale of DEPB credits or DFRC. Further, in cases where assessments have already been completed and interest has been charged, the Chief Commissioner of Income-tax is required, under the Central Board of Direct Taxes circular dated January 17, 2006, to waive the interest relating to the claim of profit on the sale of DEPB credit or DFRC for deduction under section 80HHC of the Act. It is not even the petitioner’s case, as is clear from their submission to the respondent, that they are entitled for benefit under the Central Board of Direct Taxes Circular dated January 17, 2006.

9. Clause 2(c) of the Central Board of Direct Taxes order dated June 26, 2006, reads as under :

“Where any income was not chargeable to income-tax in the case of an assessee on the basis of any order passed by the High Court within whose jurisdiction he is assessable to income-tax, and as a result, he did not pay income-tax in relation to such income in any previous year, and subsequently, in consequence of any retrospective amendment of law or the decision of the Supreme Court of India, or as the case may be, a decision of a Larger Bench of the jurisdictional High Court (which was not challenged before the Supreme Court and has become final), in any assessment or reassessment proceedings, the advance tax paid by the assessee during such financial year is found to be less than the amount of advance tax payable on his current income, and the assessee is chargeable to interest under section 234B or section 234C, and the Chief Commissioner/Director General is satisfied that this a fit case for reduction or waiver of such interest.”

10. To fall within the ambit of clause 2(c) of the Central Board of Direct Taxes order dated June 26, 2006, for being entitled to waiver of interest charged under sections 234B and 234C of the Act, the following conditions must be satisfied :

(i) Income of the assessee should not chargeable to income-tax on the basis of an order passed by the High Court within whose jurisdiction he is assessable to tax ;

(ii) As a result, the assessee did not pay income-tax in relation to such income in any previous year ;

(iii) Subsequently, as a result of—

(a) retrospective amendment of the law, or

(b) the decision of the Supreme Court, or

(c) the decision of a Larger Bench of the jurisdictional High Court ;

the advance tax paid by the assessee during such financial year is found, in any assessment or reassessment proceedings, to be less than the amount of advance tax payable on his current income ;

(iv) The assessee is charged interest under sections 234B and 234C of the Act ;

(v) The Chief Commissioner/Director General is satisfied that it is a fit case for reduction or waiver of such interest.

11. Admittedly, in the present case, it was not on the basis of any order passed by the High Court, within whose jurisdiction they were assessed to tax, that the petitioner’s income was not chargeable to income-tax. As rightly held by the respondent, the law was not amended consequent upon the judgment of the Supreme Court in IPCA Laboratory Ltd . [2004] 266 ITR 521 (SC) ; AIR 2004 SC 3046, and the requirement of payment of advance tax is not on account of a subsequent retrospective amendment of the law. It is also not on account of a subsequent decision of the Supreme Court or a decision of a Larger Bench of the High Court. The interest, which the petitioner was charged, under sections 234B and 234C of the Act is not as a result of short payment of advance tax during the financial year because of such a situation. It is evident, therefore, that the conditions laid down in the Central Board of Direct Taxes order dated June 26, 2006, are not satisfied in the case on hand. The petitioner was charged interest, under sections 234B and 234C of the Act, at the stage of reassessment and failure, if any, by the Assessing Officer in not taking into consideration the factum of export of merchandise through the four export houses, could not have been, and was rightly not, taken into consideration by the respondent, as these are matters for examination only in an appeal preferred against the assessment order and not for the respondent to consider while examining a claim for waiver of interest under section 119(2)(a) of the Act.

12. Sri K. Vasanth Kumar, learned counsel for the petitioner, would further contend that, as the Central Board of Direct Taxes Circular dated January 17, 2006, does not extend a similar benefit of waiver to a supporting manufacturer as is extended to an exporter, the said circular is discriminatory. In the absence of any challenge in this writ petition, to the validity of the said circular, we see no reason to examine this contention. Suffice to observe that it is only if the petitioner’s case falls squarely within the ambit of the Central Board of Direct Taxes’s order dated June 26, 2006, or the Central Board of Direct Taxes Circular dated January 17, 2006, that they would be justified in their submission that the respondent should have exercised his discretion under section 119(2)(a) of the Act and considered their claim for waiver of interest charged earlier under section 234B or 234C of the Act. As the petitioner’s case does not fall within the ambit of either of the two circulars the impugned order of the respondent dated December 10, 2010, is valid and does not necessitate interference in proceedings under article 226 of the Constitution of India. These writ petitions fail and are, accordingly, dismissed. However, in the circumstances, without costs.

[Citation : 335 ITR 428]

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