Interest under section 40 of Black Money Act is unsustainable where foreign source was disclosed and tax statutory exemptions apply.

ORDER

Ms. Padmavathy S., Accountant Member.- These appeals by the assessee are against separate orders of the Commissioner of Income Tax (Appeals) Chennai -18 (in short “CIT(A)) passed under section 15 of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (in short the BMA) both dated 31.07.2025 for Assessment Year (AY) 2023-24. The orders of the CIT(A) are emanating from the orders of Assessing Officer (AO) passed u/s.10 of the BMA and u/s.10 r.w.s.12 of the BMA. For the purpose adjudication we will first consider the impugned order passed against the order of the AO u/s.10 r.w.s.12 of the BMA (BMA No.14/Chny/2025).

2. The assessee is an individual resident and citizen of India. The assessee was born to Late Mr. Michel Postel, a French national, and Mrs. Myrtle Postel, an Indian national on 18.09.1961. The assessee had stayed in India till the age of six years and thereafter moved to France along with his parents in the year 1968. Subsequently, the assessee returned to India in the year 1979 after completion of schooling and has since been residing in India. Over a period of time, the assessee received various assets in India and abroad by way of gifts from his father, who was a tax resident of France. As on 01.07.2015, the assessee held the following foreign assets

3. These assets were not disclosed by the assessee till AY 2021-22 in the return of income. Subsequently, summons dated 21.06.2022, 22.06.2022 and 04.07.2022 were issued under section 131 of the Income-tax Act by the DDIT (Inv.), Chennai, pursuant to information received through the CRS portal regarding balances maintained in foreign bank accounts. In response thereto, the assessee informed the department that foreign bank accounts and related interest income would be disclosed in the return of income to be filed for AY 2022-23 i.e. on 31.07.2022. Accordingly, the assessee filed the return of income for AY 2022-23 on 30.07.2022 under section 139(1) disclosing all foreign assets in Schedule FA and also offered interest income to the tune of Rs. 27,09,117/- from such bank accounts to tax. Thereafter, upon receipt of additional bank statements from the banks from the year 2012 to 31.03.2021 the assessee filed a revised return on 21.12.2022 enhancing the interest income to Rs. 1,03,17,177 and the said income also included interest income from BNP Paribas estimated at Rs.1,50,000 per annum from the year 2012. The revised return filed by the assessee was processed u/s.143(1)(a). The assessee also filed an updated return under section 139(8A) for AY 2022-23 on 14.08.2025 disclosing the correct interest income from BNP Paribas whereby the income was revised to Rs. 1,16,55,811. For AY 2023-24, the assessee filed the return of income on 30.07.2023 disclosing all foreign assets in Schedule FA and offered foreign interest income of Rs.3,88,090 relating to FY 2022-23 to tax. The said return was selected for scrutiny and the returned income was accepted under section 143(3) of the Act vide order dated 31.12.2024.

4. In the meantime on 10.01.2023, the AO (DDIT) issues a notice u/s.10(1) of the BMA initiating the assessment proceedings under the BMA. The assessee filed various details from time to time as called for by the AO. During the proceedings assessee furnished further bank statements including statements relating to BNP Paribas account, pursuant to which the total interest income was computed at Rs.1,16,55,811/-. The assessee explained the source of acquisition of all foreign assets and submitted documentary evidences including bank statements and declarations from his father before the AO. The AO accepted that the source of the foreign assets stood explained and consequently held that the assets were not undisclosed foreign assets. However, the AO treated the interest income earned on the foreign bank accounts as undisclosed foreign income and brought to tax the aggregate interest income for the period from 2012 to 2022 amounting to Rs.1,16,55,811. Further, the AO also estimated interest income for the period from 1982 to 2012 at Rs.3,49,67,333 and passed an order under section 10 of the BMA on 23.01.2024 raising a tax demand. The assessee paid the entire demand on 16.02.2024. 28. On 30.09.2024, the AO issued a notice u/s 12 of the Act, stating that the interest chargeable u/s 40 of the Act had not been charged in the order dated 23.01.2024 passed u/s 10 of the Act, which was a mistake apparent on record. The assessee objected to the rectification. However, the AO dismissed the objections of the assessee and vide order dated 24.03.2025, passed u/s 10 r.w.s. 12 of the BMA, to levy interest of Rs. 11,66,09,386 u/s.40 of the BMA. The assessee filed an appeal before the CIT(A) and made detailed submissions during the course of the hearing. The CIT(A), vide his order dated 31.07.2025, passed u/s 15 of the BMA, partially allowed the appeal filed by the Appellant by holding as under: –

8.5 The Assessing Officer had not assessed the undisclosed income from foreign source separately for each assessment year but has charged interest under section 40 for all the years. If the Assessing Officer had assessed the undisclosed income separately for each relevant year, then charging interest under section 40 for those individual years might have been justified. However, since the AO has chosen to assess the entire undisclosed foreign income— spanning several decades—in a single year, i.e., AY 2023-24, it follows both logically and legally that interest under section 40 can be levied only for AY 2023-24. There exists no valid basis for imposing interest under section 40 in respect of earlier assessment years when no separate assessments have been carried out for those years. Accordingly, the AO is directed to compute and levy interest under section 40 only for AY 2023-24.

8.6 As regards the rate of interest applied, the AO is further directed to adopt the applicable rates prescribed under sections 234A, 234B, and 234C of the Income Tax Act for AY 2023-24.

9. In Grounds No.7 & 8/the appellant contended that interest u/s 40(1) is chargeable only in a situation when return of income was filed belated and since he had admitted all the foreign income in the returns of income and filed the same well within the time allowable time, no interest u/s 40(1) is chargeable and that interest if chargeable, the same shall be on the amount of total income determined u/s 143(1) /143(3). The section 40(1) reads as under:

(1) Where the assessee has any income from a source outside India which has not been disclosed in the return of income furnished under sub-section (1) of section 139 of the Income-tax Act or the return of income has not been furnished under the said sub-section, interest shall be chargeable in accordance with the provisions of section 234A of the Income-tax Act.

9.1 As per the above section, even if the appellant has filed return within time, the appellant is liable for interest u/s 40(1) if the undisclosed income was not reflected in the returns of income filed. In the case of the appellant the undisclosed foreign income was not reflected in the returns of income filed by the appellant before the enquiry by the department. Further, as a case of undisclosed foreign income was made by the DDIT in the said order u/s 10, interest u/s 40(1) of BMA is leviable on the quantum of income determined for the Asst. Year 2023-24 from the due date u/s 139(1) to the date of completion of order u/s 10 of BMA. Accordingly, the DDIT is directed to restrict the charging of interest u/s 40(1) from the due date of filing of return of income for the Asst. Year 2023-24 to the date of passing of order u/s 10 of BMA i.e., 23.01.2024 on the quantum of tax levied therein. Accordingly, ground nos. 7 & 8 are treated as partly allowed.

10. In ground nos. 9, 10, 11 & 12, the appellant contended that the provisions of section 207(2) of the IT Act are applicable since he has no business income and has crossed age of 60 years and not liable to pay advance tax; that since neither 234B nor section 40 of the BMA makes any reference to the date of assessment u/s 10, no interest can be computed u/s 40(2). It was also contended that interest u/s 234C was calculated on the short fall of total tax against the chargeability of default in short fall of tax for the respective quarters. From the information available on file, for the year under consideration i.e., Asst. Year 2023-24, the appellant has crossed the age of 60 years and has no business income. Therefore, the provisions of section 207(2) are prima-facie applicable to the appellant and the appellant is not liable to pay any advance tax as per Income Tax Act, 1961. However, the position under the BMA is different and it provides no such exception in cases of non-payment of advance tax on undisclosed foreign income. The section 40 of BMA reads as under.

40. Interest for default in furnishing return and payment or deferment of advance tax.-

(1) Where the assessee has any a source outside India which has not been disclosed in the return of income furnished under sub-section (1) of section 139 of the Income-tax Act or the return of income has not been furnished under the said sub-section, interest shall be chargeable in accordance with the provisions of section 234A of the Income-tax Act.

(2) Where the assessee has any undisclosed income from a source outside India and the advance tax on such income has not been paid in accordance with Part C of Chapter XVII of the Income-tax Act, interest shall be chargeable in accordance with the provisions of sections 234B and 234C of the Income-tax Act.”

5. Before the CIT(A), the assessee also contended the quantum addition made u/s.10 of the BMA and the CIT(A) dismissed the contentions by holding that –

11. In Ground nos. 13 to 17, the appellant contended that he has disclosed all the assets and income in the return of income filed and the DDIT erred in treating certain sums as undisclosed income, once all the assets are disclosed the said assets or income ceased to be undisclosed foreign income / assets; that DDIT brought interest income pertaining to years 1982 to 2012 on assumption basis which cannot be made; that the charge u/s 3 read with section 4 of BMA seeks to levy tax on undisclosed foreign assets/income, only if both undisclosed foreign income / undisclosed foreign assets exists simultaneously and if one of the twin legs is not satisfied the charge would fail. The appellant claims to have disclosed foreign income in return of income but it was disclosed after the enquiry by the department. Further, after the commencement of BMA, the undisclosed foreign income is to be brought to tax only under BMA. However, as could be seen from the contents of the grounds so raised above, all these grounds pertain to quantum of undisclosed foreign interest income brought to tax by the DDIT and not against the interest charged in the order passed u/s 12 of BMA. Therefore, the same are not adjudicated here and treated as dismissed.

6. The assessee is in appeal before the Tribunal against the order of the CIT(A) raising the following grounds of appeal –

1. In the facts and circumstances of the case and as per law, the Ld. CIT(A) and Ld. DDIT erred in levying interest u/s 40 of the Black Money (Undisclosed Foreign Income & Assets) and Imposition of Tax Act, 2015 (“the BMA”).

2. In the facts and circumstances of the case and as per law, the Impugned Order of the Ld. CIT(A) is vitiated due to non-consideration of the documents and submissions filed by the Appellant in relation to the foreign assets held and income earned thereon by the Appellant.

3. In the facts and circumstances of the case and as per law, the Ld. CIT(A) erred in passing the Impugned Order to charge interest u/s 40 read with section 12 of the BMA, when the chargeability of interest is not a mistake apparent on record, but a disputed question of law.

4. In the facts and circumstances of the case and as per law, Section 40 of BMA is an example of still born legislation and hence it cannot be applied in case of assessment made under Section 10 of the BMA.

5. In the facts and circumstances of the case and as per law, the Ld. CIT(A) failed to appreciate that in terms of Section 207(2) of the Incometax Act, 1961, the Appellant was not liable to pay any advance taxes for AY 2023-24, and thus, Section 40(2) of the BMA cannot apply for levy of interest as per Section 234B and 234C of the Income-tax Act, 1961.

6. In the facts and circumstances of the case and as per law, the Ld. CIT(A) erred in not adjudicating the additional grounds of appeal filed by the Appellant, and thus the order of the Ld. CIT(A) is vitiated to that extent.

7. In the facts and circumstances of the case and as per law, the Ld. CIT(A) erred in not appreciating that the Appellant is entitled to impugn the underlying quantum levy even in an appeal directed against interest charged pursuant to rectification of the order imposing the tax.

8. On the facts and circumstances of the case and in law, the Ld. DDIT did not have jurisdiction over the Appellant to levy interest u/s 40 read with section 12 of the BMA and the Ld. CIT(A) erred in not setting aside the order which was passed without jurisdiction by the Ld. DDIT.

9. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in referring to the Notification S.O.1590(E) dated 16th May 2017 issued by CBDT to hold that the Ld. DDIT was the jurisdictional Assessing Officer qua the Appellant. The Ld. CIT(A) failed to appreciate that Section 6 of the BMA does not contain any provision which authorizes issue of any notification or order for any purpose including, conferment of jurisdiction on any officer by any Notification or Order. Section 6 or any other provisions of the BMA do not borrow or make applicable Section 120 of Income Tax Act, 1961 for the purposes of the BMA. Therefore, the very recital/reference to “Section 120 read with Section 6 of the BMA”, in the Notification of CBDT dated 16.5.2017 is a nullity. Hence, the rectification proceedings in question levying interest u/s.40 of the BMA are bad in law and ought to be quashed.

10. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above stated grounds of appeal, at any time before or at the time of hearing of the appeal, so as to enable this Tribunal to decide this reference according to law and the facts of the case.

7. The Ld. Authorized Representative (AR) of the assessee submitted that the levy of interest under section 40 of the BMA for AY 2023-24 is wholly unsustainable both on facts and in law. The ld AR further submitted that section 40 of the BMA can be invoked only where the assessee has undisclosed foreign income which was not disclosed in the return of income furnished under section 139(1) of the Income-tax Act. The Ld. AR also submitted that the assessee, for AY 2023-24, had already been disclosed all foreign assets in Schedule FA of the return filed on 30.07.2023 and the interest income relating to the relevant previous year was also duly offered to tax. The ld AR drew our attention to the fact that the return filed for AY 2023-24 was selected for scrutiny and the returned income was accepted under section 143(3) without any addition. The ld AR therefore argued that no undisclosed foreign income pertaining to AY 2023-24 survived and consequently the foundational requirement for invoking section 40 itself was absent. The assessee further pointed out that even in the computation made by the AO under section 10 of the BMA, only interest income up to 31.03.2022 had been considered and no income pertaining to FY 2022-23 was brought to tax. On this basis, it was submitted that interest under section 40 could not at all be levied for AY 2023-24.

8. The ld AR argued that the provisions relating to advance tax under Part C of Chapter XVII of the Income-tax Act (the Act) are not applicable to the assessee since the assessee was above sixty years of age during the relevant previous year and did not have any income chargeable under the head “Profits and gains of business or profession.” Accordingly it was further argued that as per section 207 of the Act, the assessee was not liable to pay advance tax. It is also argued that since section 40(2) of the BMA adopts sections 234B and 234C of the Act for the purpose of levy of interest, once liability to pay advance tax under the Act is not applicable then no interest under section 40(2) could be levied upon the assessee. The ld AR submitted that since for AY 2023-24, the assessee has filed the return of income with the time limit as prescribed u/s.139(1) of the Act, interest u/s.40(1) of BMA cannot be levied.

9. The ld AR also submitted that the entire exercise of bringing to tax alleged foreign interest income pertaining to the period from FY 1982-83 to FY 2021-22 in AY 2023-24 itself was contrary to the scheme of the BMA, which also proceeds on the concepts of “previous year” and “assessment year.” Hence, no interest could be levied on such income in AY 2023-24.

10. The ld AR argued that provisions relating to levy of interest in a taxing statute are substantive in nature and therefore require strict construction. Reliance was placed on the decisions of the Hon’ble Supreme Court in J.K. Synthetics v. CTO  (SC)/(1994) 4 SCC 276 ] and the Hon’ble Bombay High Court in Mahindra & Mahindra Ltd. v. Union of India  (Bombay)/(2022) 10 TMI 212 (Bom) to contend that interest cannot be imposed unless the statutory conditions prescribed for such levy are strictly satisfied. It was submitted that section 40 of the BMA itself suffers from serious legislative infirmities and is incapable of workable implementation in the context of assessment proceedings under section 10 of the BMA. The ld AR pointed out that unlike section 84 of the BMA, section 40 does not provide that sections 234A, 234B and 234C of the Act would apply mutatis mutandis or with necessary modifications. Consequently, the said provisions are required to be applied as they stand under the Income-tax Act, which according to the ld AR renders section 40 unworkable. It was submitted that the BMA does not contemplate filing of any separate return of income, payment of advance tax, determination of assessed tax in the manner contemplated under the Income-tax Act, or any mechanism to determine the commencement and terminal dates for levy of interest. The ld AR therefore characterized section 40 of BMA as a “still born legislation” incapable of proper enforcement in assessments framed under section 10 of the BMA.

11. Without prejudice to the above submissions, the ld AR contended that the non-levy of interest in the original assessment order dated 23.01.2024 could not be treated as a “mistake apparent from the record” so as to justify rectification under section 12 of the BMA. It was argued that the question whether section 40 was at all applicable in the facts of the present case was itself highly debatable, particularly when the assessee had already disclosed the foreign assets and corresponding income in the return filed under section 139(1). According to the Ld. AR, the Assessing Officer, at the time of passing the original order under section 10, had consciously not levied interest considering that the statutory conditions for invoking section 40 were absent. Reliance was placed on the decision of the Hon’ble Supreme Court in Brij Lal v. CIT 328 ITR 477 (SC)) to contend that debatable issues relating to levy of interest cannot be rectified under provisions analogous to section 154 of the Act. On this basis, the ld AR submitted that the subsequent rectification order levying interest under section 40 was wholly without jurisdiction and liable to be quashed.

12. We heard the parties and perused the material on record. The limited issue for our consideration in the present appeal pertains to whether the interest u/s.40 of the BMA charged to the assessee is sustainable. Therefore before proceeding further we will look at the relevant provisions of BMA –

Section 40 – Interest for default in furnishing return and payment or deferment of advance tax.

(1) Where the assessee has any income from a source outside India which has not been disclosed in the return of income furnished under sub-section (1) of section 139 of the Income-tax Act or the return of income has not been furnished under the said sub-section, interest shall be chargeable in accordance with the provisions of section 234A of the Income-tax Act.

(2) Where the assessee has any undisclosed income from a source outside India and the advance tax on such income has not been paid in accordance with Part C of Chapter XVII of the Income-tax Act, interest shall be chargeable in accordance with the provisions of sections 234B and 234C of the Income-tax Act.

13. From the plain reading of the above provisions it is clear that the interest u/s. 40(1) is charged when the assessee has not disclosed foreign income in the return of income furnished under section 139(1) of the Act. Section 40(1) states that interest u/s 234A is chargeable where:

14. The provisions of section 40(1) BMA therefore would get attracted only in a case where the income from a source located outside India remains undisclosed. Interestingly the language used in Section 40(1) does not say ‘undisclosed income’. Undisclosed income ordinarily means any income emanating from a source (outside India, in this case) which is not disclosed by the assessee in his return of income. The terms ‘source of income’ and the ‘undisclosed income’ are two different concepts altogether. For the purposes of BMA, the trigger for levy of interest under Section 40(1) is where the source of income which is located outside India has not been disclosed in the return of income and not on undisclosed income. In the present case, it is an admitted position that the assessee had disclosed the foreign source in the return furnished under the Act and the AO himself has given a specific finding that the assessee has furnished the source for undisclosed assets (refer para 7.3 from page 10 of AO’s order u/s.10 of BMA). Therefore the dispute here pertains only to the quantification of income arising from such disclosed source. In our considered view therefore, mere variation in computation or enhancement of income by the Assessing Officer cannot automatically be equated with non-disclosure of the foreign source itself. Further in our considered view, the expression “not disclosed” employed under section 40(1) has to be construed in the context of complete suppression of the foreign source and not a mere difference in the quantum of income assessed. The legislative intent behind the BMA is to bring to tax undisclosed foreign income and assets intentionally kept outside the knowledge of the Revenue. Once the source itself stood disclosed, consequences in the nature of interest under section 40(1) cannot be invoked merely on account of reassessment or re-computation of income from such disclosed source, in the absence of any finding regarding deliberate suppression or concealment. In the present case the undisclosed income computed by the AO is arrived at towards interest income from 2012 to 2022 amounting to Rs.1,16,55,811 and interest income assumed from 1982 to 2011 to the tune of Rs.3,49,67,433. From the perusal of records we notice that the assessee in the return of income filed for AY 2022-23 has already disclosed interest income of Rs. Rs.1,16,55,811 and has paid taxes on the same. The difference interest which is assessed as undisclosed pertains to an estimation of interest income that too pertaining to the period prior to BMA and the interest is estimated from the same source i.e. bank accounts which is already disclosed by the assessee. Therefore there is merit in submission that the variation in the interest income from a disclosed source on estimated basis can not result in the levy of interest under section 40(1) more so when the quantum levy is disputed by the assessee.

14.1 Now even assuming that the interest under section 40(1) is leviable on the assessed income, we will examine how in the present case the mechanism of computation would fail. The assessee had disclosed the interest income from the foreign bank accounts amounting to Rs. 3,88,090 pertaining to AY 2023-24 in the return of income filed on 30.07.2023 i.e. within the due date for filing the return of income u/s.139(1) of the Act. It is further submitted that the assessee has also disclosed all the foreign assets in Schedule FA while filing the return of income u/s.139(1) of the Act and that the return filed for AY 2023-24 was subjected to scrutiny assessment under section 143(3) where the returned income is accepted by the AO. The revenue’s contention is that the AO has assessed the undisclosed income of the assessee at Rs.4,66,23,244 and that the interest under section 234A is leviable from the due date for filing the return of income till the date of completion of assessment under section 10 of BMA. In this regard it is relevant to consider the following provisions of section 234A of the Act.

Interest for defaults in furnishing return of income.

234A. (1) Where the return of income for any assessment year under subsection (1) or sub-section (4) or sub-section (8A) of section 139, or in response to a notice under sub-section (1) of section 142, is furnished after the due date, or is not furnished, 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 commencing on the date immediately following the due date, and,—

on the amount of the tax on the total income as determined under sub-section (1) of section 143, and where a regular assessment is made, on the amount of the tax on the total income determined under regular assessment, as reduced by the amount of,— ******

15. In the present case, from the records we notice that the assessee has filed the return of income under section 139(1) on 30.07.2023 i.e. within the due date. Therefore in assessee’s case for the purpose of calculation of interest Clause (a) would be applicable. As per the said clause the interest under section 234A is computed at 1% on the assessed income for the period from the due date of filing of return of income till the date the date on which the assessee has filed the return of income. Therefore even assuming that the undisclosed income under section 10 of BMA is to be considered for the purpose of section 40(1), the computation would fail in the present case since the assessee has filed the return of income u/s.139(1) within the due date. Further the BMA does not have independent provisions for filing the return of income and therefore for the purpose of calculating interest under section 40(1), we need to consider the only the due date for furnishing the return of income u/s 139 of the Act. Therefore in our considered view, the computation of interest under section 40(1) of BMA r.w.s.234A of the Act would not be possible in assessee’s case since the assessee has filed the return of income within the due date specified under section 139(1) of the Act and no interest could be computed as per Clause (a) of section 234A(1).

16. We will now examine the levy of interest under section 40(2). We find that section 40(2) of BMA does not independently create a separate code for levy of advance tax or computation of interest. It is a well-settled proposition of law in the interpretation of fiscal statutes that a charging section and a machinery section occupy entirely distinct and separate legal domains. The Hon’ble Supreme Court in Commissioner of Customs (Import) v. Dilip Kumar & Company (2018) 9 SCC 1] has unequivocally declared that every taxing statute, including its charging, computation, and procedural provisions must be interpreted strictly, and most importantly, that in case of any ambiguity in a charging provision, the benefit must necessarily go in favour of the assessee. According to us therefore, a liability to pay interest under the BM Act can only be fastened upon the assessee through clear and unambiguous statutory language in the charging provision itself, which we find is missing in the provisions of Section 40(2) of the BMA. Though the language used in Section 40(2) of the BMA states that the interest shall be chargeable in the manner provided under Sections 234B and 234C of the Income Tax Act, 1961, however, we find that charge of interest purported in Section 40(2) is rendered unworkable and otiose as because the foundational machinery upon which Sections 234B and 234C operates viz., obligation to pay advance tax, the requirement of quarterly instalments, the specification of due dates for such payments, and the due date for filing of return etc., are all conspicuously absent under the BMA. Sections 234B and 234C of the Income Tax Act are essentially machinery provisions that can only be operationalized through the broader framework of advance tax obligations under Chapter XVII-C of the Income Tax Act. The interest chargeable under Section 234B is computed with reference to the assessed tax and the advance tax paid or payable, while the interest under Section 234C is computed by reference to the instalment due dates prescribed under Section 211 of the Income Tax Act. Under the BMA, there is no corresponding provision requiring payment of advance tax, no prescription of quarterly instalments, no specification of instalment due dates, and no due date for filing of return analogous to the framework obtaining under the Income Tax Act. In the complete absence of this essential machinery, the mere reference in Section 40(2) to Sections 234B and 234C is nothing more than a charging peg with no machinery to hang it upon. To levy interest in such circumstances by importing the machinery of the Income Tax Act, 1961 wholesale into a distinct and self-contained statute, without any express legislative provision to that effect, would amount to imposing a fiscal liability by implication and analogy, which is wholly impermissible under the strict construction applicable to fiscal statute. As the Supreme Court reminded us in Associated Cement Company v. CTO  (SC)/AIR 1981 SC 1887], the machinery provision bears a direct relationship to the nature of the charge and together they constitute an integrated code and where that code is incomplete and unworkable, the charge cannot be sustained. We are therefore of the view that the purported levy of interest under Section 40(2) of the Black Money Act fails being unsupported by any workable machinery provision within the said Act. This may yet be viewed from another angle, in the given facts of the present case. Section 40(2) of the BMA merely incorporates the machinery provisions contained in Part C of Chapter XVII of the Act relating to advance tax liability and the consequential levy analogous to sections 234B and 234C of the Act. Therefore, while invoking section 40(2) of the BMA, the entire scheme governing advance tax under sections 207 to 219 of the Act has to be read into the provision, including the conditions, exclusions and statutory exemptions embedded therein. In the present case, it is an undisputed fact that the assessee is a senior citizen and does not have any income chargeable under the head “Profits and gains of business or profession”. The alleged undisclosed foreign income pertains only to interest income from banks which are not the business income of the assessee. Under section 207 of the Act, a resident senior citizen not having business income is specifically excluded from the liability to pay advance tax. Once the parent statute itself exempts the assessee from advance tax liability, the consequential interest mechanism borrowed under section 40(2) of the BMA cannot be independently enforced. In our considered view, the expression “advance tax has not been paid in accordance with Part C of Chapter XVII” necessarily imports not merely the procedural machinery, but also the statutory exclusions contained therein. Accordingly, in the absence of any statutory liability upon the assessee to pay advance tax under the incorporated provisions of the Act, the very foundation for levy of interest under section 40(2) of the BMA fails. We are unable to agree with the findings of the CIT(A) in the present case that the assessee is liable to interest under section 40(2) for failure to pay advance tax on the undisclosed income assessee without considering that as per the fundamental condition which is to be imported from the Act into BMA the assessee is not liable to pay advance tax. Therefore we hold that interest levied under section 40(2) in the facts of the present case is unsustainable and liable to be deleted.

17. We would like to mention here that, our decision to decide the issue of levy of interest under section 40 of BMA in the present case is based on the peculiar facts of the case. Our findings as given above is to lay down the basic principles to be applied while considering the levy of interest under section 40 of BMA and the revenue while deciding the quantum is expected to keep these principles in mind for levy of interest. In the present case, based on the unique facts pertaining to the assessee’s case, we have decided the impugned levy of interest independent of the quantum addition and therefore cannot be used as precedence for independently deciding the issue of levy of interest under section 40 of BMA in any other case.

18. The next issue to be considered pertains to the quantification of the undisclosed interest income in the hands of the assessee (Ground No.6 & 7). The assessee in the appeal before the CIT(A) against the order passed under section 10 r.w.s.12 of BMA also raised grounds pertaining to quantum additions made by the AO towards interest income. The CIT(A) rejected the contentions of the assessee stating that the quantum levy does not arise from the order passed under section 12 of BMA by the AO and therefore cannot be contended in the present appeal. Section 12 of BMA provides that a tax authority may amend any order passed by it under BMA so as to rectify any mistake apparent from the record. It is an undisputed fact that the original assessment order dated 23.01.2024 was subsequently modified by the rectification order dated 24.03.2025 whereby interest liability was levied, resulting in substantial enhancement of the total demand. Once the original order itself stands altered by a rectification order, both the orders are required to be read conjointly as one composite order and the final liability of the assessee can be said to have crystallized only upon passing of the rectified order. Therefore, the contention of the Revenue that the assessee is precluded from challenging the underlying assessment in the appeal against the rectified order cannot be accepted in its absolute form.

19. In the present case, the levy of interest u/s.40 of the BMA is intrinsically linked to the determination of undisclosed foreign income assessed u/s.10 of the BMA. Once the rectification order passed u/s.10 r.w.s.12 of the BMA has the effect of varying or reaffirming the quantum forming the basis for levy of interest, the interest computation need to be examined along with the underlying assessment of quantum itself. We find merit in the contention of the assessee that where the rectification proceedings materially modify the original assessment and substantially enhance the liability, the doctrine of merger would apply and the amended order becomes the effective and operative order for the purpose of appellate proceedings. In such circumstances, the assessee, being an aggrieved party against the enhanced demand, cannot be restricted merely to challenging the levy of interest alone. The decisions relied upon by the assessee in ITO v. Margarine & Refined Oil Co. Ltd. [1982] 133 ITR 791 (Karnataka)andSyed Alavi v. State of Kerala (1981) 48 STC 150 (Ker) support the proposition that once the subsequent order modifies the earlier order, the earlier order loses its independent finality to the extent modified and the entire amended order becomes amenable to appellate scrutiny. Therefore, in our considered view the assessee is entitled to challenge the quantum addition which constitutes the very foundation for levy of interest u/s.40, in the appeal arising against the rectification order relating to levy of interest. The doctrine of merger would operate to that limited extent, namely, in respect of matters which directly has a direct nexus with the rectification carried out under section 12 of BMA.

20. Accordingly, considering that the levy of interest u/s.40 of the BMA is linked to the determination of undisclosed foreign income assessed u/s.10 of the BMA, and further considering that the rectification order passed u/s.10 r.w.s.12 of the BMA has direct bearing on such determination, we hold that the assessee is entitled to challenge not only the issue of levy of interest but also the underlying quantum addition forming the basis thereof, to the extent arising from the rectification proceedings. The appeal of the assessee on this jurisdictional aspect is therefore held to be maintainable. Since the CIT(A) has rejected the contentions on the issue of maintainability without going into the merits we deem it fit that the issue has to be remitted back to CIT(A) for consideration afresh on merits. Accordingly we remit the issue quantum additions back to CIT(A) with a direction to consider the impugned issue on merits after giving a reasonable opportunity of being heard to the assessee. It is ordered accordingly.

21. In appeal no. BMA No.13/Chny/2025, the assessee challenged the order passed by the CIT(A) who did not condone the delay in filing the appeal against the order of the AO passed under section 10 of BMA. We have while deciding the appeal against the order passed under section 10 r.w.s.12 of BMA, remitted back to the CIT(A) to decide the quantum addition on merits afresh. Considering that the present appeal filed pertains to the quantum addition, the same has become infructuous in view of our decision in BMA No.14/Chny/2025. According the present appeal is dismissed as infructuous.

22. In result the appeal in BMA No.14/Chny/2025 is allowed for statistical purposes and the appeal in BMA No.13/Chny/2025 is dismissed as infructuous.