Indian Oil Corporation Ltd
IN THE INCOME TAX APPELLATE TRIBUNAL " I " BENCH, MUMBAI
BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND
SHRI RAJENDRA, ACCOUNTANT MEMBER
Indian Oil Corporation Ltd. Deputy Commissioner of
G-9, Ali Yavar Jung Marg, Vs. Income Tax,
Bandra (East), 10(1), Aayakar Bhavan,
Mumbai 400 051. Mumbai 400 020.
PAN:- AAACI 1681G
Appellant Respondent
Assessee By/fu/kkZfjrh dh vksj ls Shri K.K. Ved
Revenue By/jktLp dh vksj ls Shri P.K. Shukla & Shri O.P.
Singh
Date of hearing 28.04.2014
Date of pronouncement 30.04.2014
ORDER
Per Vijay Pal Rao, JM
This appeal by the assessee is directed against the order dated
25.10.2010 of CIT(A) for A.Y. 2001-02. The assessee has raised the following
grounds in this appeal.
The appellant objects to the order dated 25 October 2010 passed by the learned
Commissioner of Income-tax (Appeals) 21, Mumbai on the following among other
grounds:
Reopening of assessment
1. The learned Commissioner (Appeals) ought to have appreciated that there was no
income chargeable to tax that has escaped assessment and therefore the learned
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Indian Oil Corporation Ltd
Commissioner (Appeals) ought to have quashed order dated 24 November 2008
passed under section 143(3) read with 147 pursuant to the notice dated 22
February 2008 issued under section 148.
2. The learned Commissioner (Appeals) ought to have appreciated that no new facts
have been brought on record by the Assessing. Officer for framing reassessment
under section 147 of the Act.
,3. The learned Commissioner (Appeals) erred in confirming the reopening
proceedings based on the change of opinion.
: 4. The learned Commissioner (Appeals) erred in confirming the reopening of the
assessment by issue of notice dated 22 February 2008 under section 148 of the Act
after expiry of four years from the end of the relevant assessment year.
r No escapement of income
5. The learned Commissioner (Appeals) erred in confirming that there was
escapement of income.
6. The learned Commissioner (Appeals) ought to have appreciated that even after
taxing interest income of Rs.11 ,77,49,053 under normal provisions of the Act, the
Assessing Officer assessed the appellant under the provisions of section 115JB of
the Act as per returned income. Therefore, the appellant submits that there was no
escapement of income.
7.The learned Commissioner (Appeals) erred in holding that had the interest income of
Rs.ll,77,49,053 offered by the appellant in the return, the difference between
assessed tax and tax payable under section 115JB would have been less and
consequently lesser amount of tax credit would have been available to the
appellant for adjustment against the tax liability of subsequent years. The learned
Commissioner (Appeals) ought to have appreciated that during the relevant
assessment year, no tax credit for tax paid under section 115JB was allowed to carry
forward to subsequent years.
Interest on Income-tax refund
8. The learned Commissioner (Appeals) erred in confirming to addition of interest
on Income-tax refund of Rs.11,77,49,053 to total income of the appellant under
the normal provision.
9. The learned Commissioner (Appeals) ought to have appreciated that during the
relevant tax year, interest paid by the appellant was more than interest income and
therefore no interest income was accrued to the appellant.
Income under the head "Income from other sources"
10. The learned Commissioner (Appeals) erred in confirming the action of the
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Indian Oil Corporation Ltd
Assessing Officer in assessing interest on income-tax refund of Rs.11,77,49,053
under the head "Income from other sources".
2. Ground no. 1 to 7 are regarding validity of reopening of assessment. The
assessment in the case of the assesseee was completed u/s 143(3) on
26.03.2004 and income was assessed at Rs. 381.11 crores for computing the tax
liability u/s 115JB. Subsequently the AO issued notice u/s 148 on 22nd
February 2008 on the ground that the assesseee received an amount of Rs.
11,77,49,053/- crore as interest on refund pertaining to the assessment year
1994-95. The interest income received by the assessee during the previous year
2000-01 relevant to the year under consideration. Therefore, the assessee was
rquired to offer the same for taxation in this assessment year. Since the
assessee has not offered the said income for taxation the income chargeable to
tax has escaped assessment. Reassessment was completed whereby the interest
received by the assessee of Rs. 11,77,49,053/- was assessed to tax. The
assessee challenged the action of the AO before the CIT(A) including the validity
of the reopening of the assessement but could not succeed.
2.1 Before us, the Ld. AR of the assessee has submitted that the reopening of
the assessment is beyond four years and, therefore, in view of the proviso to
section 147 the notice issued beyond prescribed period of time is not valid when
there is no failure on the part of the assessee to disclose fully and truly all
material facts necessary for assessment. The Ld. AR of the assessee has
submitted that the refund was issued by the department and it was in the
knowledge of the AO that along with the refund the said amount of interest u/s
244A was paid to the asessee, therefore, there is no questin of failure on the part
of the assessee to disclose fully and truly the facts necessary for assessment of
the said income. Further since the appeal in respect of A.Y. 1994-95 was
pending before this Tribunal and the issue of refund had not attend the finality,
therefore, the assessee did not offer the said amount of interest received u/s
244A to tax.
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Indian Oil Corporation Ltd
2.2 On the other hand, the Ld. DR has submitted that the assessee has not
disclosed this fact of receipt of interest of Rs. 11,77,49,053/- u/s 244A in the
year under consideration and, therefore, the benefit of proviso to section 147 is
not available to the assessee. He has relied upon the orders of authorities below.
2.3 We have considered the rival submissions as well as relevant material on
reocrd. There is no dispute that the assessee received a sum of Rs.
11,77,49,053/- towards interest u/s 244A of the Income Tax Act along with the
refund pertaining to A.Y. 1994-95. In the return of income the assessee has
neither offered this amount to tax nor disclosed this fact of receipt of the interest
and the reasons for not offering to tax. The AO vide notice u/s 148 dated 22nd
February 2008 has reopened the assessment after recording the following
reasons:-
"The assessee received an amount of Rs. 11.78 crores as interest on a
refund pertaining to the assessment year 1994-95, which was issued by
the department vide rectification order of February, 2001. The interest
income received by the assessee during 2000-01 being the relevant previous
year to the assessment year 2001-02 was required to be offered
for taxation in assessment year 2001-02. However, the same was not
offered for taxation by the assessee in the assessment of assessment year
2001-02. The omission resulted in under assessment of income of Rs.
11.78 crores involving short levy of tax of Rs. 4. 61 crores including interest.
In view of the above, I have reason to believe that income chargeable to tax
has escaped assessment coming within the meaning of section 147 read
with proviso thereto, by reason of failure on the part of the assessee to
disclose fully and truly all material facts necessary for the assessment.
Therefore notice under section 148 of the Income Tax Act is hereby issued"
2.4 The reasons recorded by the AO clearly manifest that the income
chargeable to tax has escaped assessment by the reason on failure on the part of
the assessee to disclose fully and truly all material facts necessary for
assessment. Though the assessment has been reopened after expiry of four
years however the benefit of the proviso to section 147 is not available to the
assessee in view of the fact that there is a complete failure on the part of the
assessee to disclose the primary fact of reciept of this amount in the return of
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Indian Oil Corporation Ltd
incoem and further no explanation in the return of income as to why this
amount has not been offered to tax. When the assessee has failed to disclose the
interest amount of Rs. 11,77,49,053/- received u/s 244A in the return of
incoem and even during the assessment proceedings then this conduct of the
assessee clearly falls under the category of the cases where the incoem
chargeable to tax has escaped assessment by the reason of failure on the part of
the assessee to disclose fully and truly all material facts necessary for
assessment in terms of seciton 147 of the income Tax Act. The mere fact that
this amount was received from income tax department does not obliterate the
requirement and duty cast on the assessee to disclose all facts relevant to the
assessment. Therefore, we are of the considered view that the benefit of the
proviso to section 147 is not available to the assessee in this case. Accordingly
we do not find any error or illegality in the orders of authorities below qua this
issue of validity of reopening of assessment.
3. Ground no. 8 is regarding assessment of the interest received u/s 244A of
Rs. 11,77,49,053/- in the year under consideration.
3.1 We have heard the Ld. AR as well as Ld. DR and considered the relevant
material on record. The AO has assessed the said amount by adding to the total
income of the assessee while framing reassessment under consideration. The
assessee contended that the amount of interest has not been finalised and,
therefore, is not assessable in this year. The Ld. AR of the assessee has pointed
out that the AO has already given effect to the orders of Tribunal and has
determined the interest u/s 244A at Rs. 8,01,46,478/- only. At the outset we
note that this issue of taxability of the interest received u/s 244A of income tax
has been considered and decided by the special bench of this Tribunal in the
case of Avada Trading Co. (P) Ltd. Vs. ACIT (100 ITD 131) and held in para 8
as under:-
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Indian Oil Corporation Ltd
"8. Let us now look at the relevant provisions of section 244A of the Act which for the benefit of this
order are stated below :
"244A. (1) Where refund of any amount becomes due to the assessee under this Act, he shall,
subject to the provisions of his section, be entitled to receive, in addition to the said amount, simple
interest thereon calculated in the following manner, namely :--
(a)Where the refund is out of any tax paid under section 115WJ or collected at source under
section 206C or paid by way of advance tax or treated as paid under section 199, during the
financial year immediately preceding the assessment year, such interest shall be calculated at
the rate of one-half per cent for every month or part of a month comprised in the period from
the 1st day of April of the assessment year to the date on which the refund is granted:
Provided that no interest shall be payable if the amount of refund is less than ten per cent of the tax
as determined under sub-section (1) of section 115WE or sub-section (1) of section 143 or on
regular assessment;
(b)in any other case, such interest shall be calculated at the rate of one-half per cent for every
month or part of a month comprised in the period or periods from the date or, as the case may
be, dates of payment of the tax or penalty to the date on which the refund is granted.
(3) Where, as a result of an order under sub-section (3) of section 115WE or section 115WF or
section 115WG or sub-section (3) of section 143 or section 144 or section 147 or section 154 or
section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section
264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on
which interest was payable under sub-section (1) has been increased or reduced, as the case may
be, the interest shall be increased or reduced accordingly, and in a case where the interest is
reduced, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed
form specifying the amount of the demand shall be deemed to be a notice under section 156 and the
provisions of this Act shall apply accordingly."
A bare look at the provisions of sub-section (1) reveals that as soon as any refund becomes due under
any provisions of the Act, the assessee becomes entitled to receive the interest in respect of such refund
calculated in the manner provided in clauses (a) and (b) of such provisions. Therefore, the moment the
refund is granted, as enforceable debt is created in favour of assessee in respect of interest due on such
refund. Consequently, income can be said to accrue on the date of refund itself. Therefore, when such
interest is actually granted along with the refund then, in our opinion, the requirement of sections 4 and
5 of the Act are fully satisfied and the same can be taxed in the year of receipt.
3.2 Thus the issue of taxability of interest received u/s 244A in the year of
receipt is covered against the assessee and, therefore, we do not find any merit
in the assessee's claim.
3.3 As regards adjustment in terms of the Tribunal order for the A.Y. 1994-95
the AO has already given effect to the said order and, therefore, no grievance is
left in this respect.
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Indian Oil Corporation Ltd
4. Ground no. 9 is regarding netting of interest received u/s 244A by the
amount of interest paid by the assessee.
4.1 We have heard the Ld. AR as well as Ld. DR and considered the relevant
material on record. The assessee has claimed that the payment of interest in the
year under consideration is more than the interest received by the assessee u/s
244A and, therefore, the interest received has to be netted against the interest
payment by the assessee and no amount can be taxed in the year under
consideration on account of interest receipt. It is pertinent to note that the
interest paid under Income Tax Act falls under the category of income tax and,
therefore, is not an allowable deduction. Whereas the interest received on refund
of tax is an income assessable under the head "income from other sources". An
identicla issue has been dealt by the third member decision of this Tribunal in
the case of DCIT Vs. Sandvik Asia Ltd. (133 ITD 126), wherein the Tribunal has
condidered this aspect in para 11 to 13 as under:-
"11. The next question is whether the interest can be claimed as a deduction under section
37(1) of the Act while computing the business income. On this question also, the judgment
of the Supreme Court cited above is in favour of the department. It was also held in that
judgment that interest levied for failure to pay advance tax up to the statutory percentage
and interest levied for delay in filing the return of income were not deductible under
section 37(1) of the Act. In fact, the Bombay High Court in the case of Aruna Mills Ltd.
(supra) has taken a similar view and the Supreme Court has referred to the judgment of
the Bombay High Court in arriving at its decision.
12. Thus the question as to whether the interest paid to the income tax department under
the provisions of the Income Tax Act can be deducted while computing the business income
of the assessee has to be decided against the assessee.
13. The next question which arises is whether on general principles and on the principle of
real income the interest received from and paid to the income tax department can be
adjusted or netted against each other. On this question there are two judgments, one of the
Supreme Court in Dr V P Gopinathan (supra) and the other of the Bombay High Court in
the case of Aruna Mills Ltd. (supra), both of which are against the assessee. In the case of
Dr V P Gopinathan (supra), the assessee placed monies in a fixed deposit with the bank
and earned interest. He took a loan from the bank on the security of the fixed deposit and
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Indian Oil Corporation Ltd
paid interest on the loan. The interest received on the fixed deposit was more than the
interest paid on the loan by Rs. 27,034/-. The assessee's case was that he should be taxed
only on the difference of Rs. 27,034/- under the residuary head whereas the case of the
revenue was that the entire interest received should be brought to tax without reducing the
same by the interest paid. It was noticed by the Supreme Court that the learned counsel
appearing for the assessee before the Tribunal had made it clear that the assessee's case
did not rest upon the provisions of section 57(iii) of the Act, which provided for a
deduction of the interest paid by the assessee for earning the interest income. In other
words, it was not the contention of the assessee that he was paying interest to the bank to
facilitate the earning of interest from the bank. This aspect of the matter was noticed by the
Supreme Court at page 450 of the report. Thereafter the Supreme Court noticed that the
argument before them on behalf of the assessee was that the real income of the assessee
was only Rs. 27,034/-. This argument was rejected by the Supreme Court in the following
words: -
"It was not disputed, as it could not be, that if the assessee had taken a loan from
another bank and paid interest thereon his real income would not diminish to the
extent thereof. The only question then is : does it make any difference that he took the
loan from the same bank in which he had placed the Fixed deposit. There is no
difference in the eye of the law. The interest that the assessee received from the bank
was income in his hands. It could stand diminished only if there was a provision in
law which permits such diminution. There is none, and, therefore, the amount paid by
the assessee as interest on the loan that he took from the bank did not reduce his
income by way of interest on the fixed deposit placed by him in the bank."
The learned counsel for the assessee sought to point out a distinction between Dr. V.P.
Gopinathan's case (supra) and the present case by pointing out that if the assessee in the
case before the Supreme Court had taken a loan from another bank on the strength of the
fixed deposit placed by him in his bank and paid interest thereon then the decision of the
Supreme Court would have been different. I am unable to accept the submission because in
the paragraph quoted above the Supreme Court has observed that even if that were to be
the case, the assessee's real income would not have diminished to the extent of the interest
paid to the bank from which he took a loan. The judgment of the Supreme Court, rejecting
the argument based on the theory of real income, applies equally to the computation of
business income and in this view of the matter I must decide that the rule of netting does
not apply to the case before me and that the assessee is properly assessable on the gross
interest of Rs. 45,90,876/- and not merely on the net interest of Rs. 44,53,655/-."
4.2 In view of the above decision of Tribunal on this issue, we do not find any
error or illegality in the order of CIT(A) qua this issue. Accordingly this ground is
decided against the assessee.
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5. Ground No. 10 is regarding assessment of interest on refund of tax under
the head income from other sources. This issue is connected with the issue
raised in grounds no. 8 and 9, in view of our finding on the grounds no. 8 and
9, this ground of assessee's appeal is dimissed.
6. The assessee has also raised an additional ground which reads as under:-
"The appellant submits that in case it is held that the interest u/s. 244A for the
Assessment year 1994-95 is taxable as incoem for the year then the Assessing
Officer be directed to reduce the same from the Appellants income for the
Assessment Year 2009-10 when it has been offered to tax by the Appellant.
6.1 We have heard Ld. AR as well as Ld. DR. The additional ground raised by the
assessee is only with respect to the avoidance of double taxation of interest in question
in view of the fact that the assessee has already offered the said amount to tax for the
A.Y. 2009-10. Since the taxability of the interest in question has been decided by us
being taxable in the year of receipt i.e. 2001-02, therefore, the same income cannot be
taxed twice and, accordingly, the AO is directed not to tax the said income for the A.Y.
2009-10
7. In the result appeal of the assessee is dismissed subject to observation on
additional ground.
Order pronounced in the open court today i.e 30-04-2014
Sd/- Sd/-
(Rajendra) (Vijay Pal Rao)
(Accountant Member/ys[kk lnL;) (Judicial Member/U;kf;d lnL;)
Mumbai dated 30-04-2014
SKS Sr. P.S,
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Copy to:
1. The Appellant
2. The Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. The DR, "I" Bench, ITAT, Mumbai
By Order
Assistant Registrar
Income Tax Appellate Tribunal,
Mumbai Benches, MUMBAI
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