Section 234B Archives - Tax Heal

Interest under Income Tax Act : Free Guide Book : 234A, 234B and 234C : FA 2018

CA Satbir Singh — Tue, 14 Aug 2018 01:50:53 +0000

INTEREST PAYABLE BY THE TAXPAYER UNDER THE INCOME-TAX ACT

Interest under Income Tax Act u/s 234A, 234B and 234C [As amended by Finance Act, 2018]

Introduction of Interest under income Tax

Under the Income-tax Act, different types of interests are levied for various kinds of
delays/defaults. In this part, you can gain knowledge about the provisions of section
234A, 234B and 234C dealing with interest levied for

(i) delay in filing the return of income;

(ii) non-payment or short payment of advance tax; and

(iii) non-payment or short payment of individual instalment or instalments of advance tax (i.e., deferment of advance tax).

Manner of computation of interest under the Income-tax Act

Before understanding the provisions of section 234A, 234B and 234C it is important to understand the provisions of Rule 119A which gives the manner of computation of interest under the Income-tax Act.

As per Rule 119A, while calculating the interest payable by the taxpayer or the interest payable by the Central Government to the taxpayer under any provision of the Act, the following rule shall be followed :

a) where interest is to be calculated on annual basis, the period for which such interest is to be calculated shall be rounded off to a whole month or months. For this purpose any fraction of a month shall be ignored and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated;
b) where the interest is to be calculated for every month or part of a month comprised in a period, any fraction of a month shall be deemed to be a full month and the interest shall be so calculated;
c) the amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees. For this purpose, any fraction of one hundred rupees shall be ignored and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.

E.g. If we want to compute interest under section 234A on Rs. 8,489 for 3 months and 10
days, then as per Rule 119A discussed above, while computing the amount liable to interest, any fraction of Rs. 100 is to be ignored and, hence, we will ignore Rs. 89 and the balance amount will come to Rs. 8,400. Interest will be computed on Rs. 8,400. Further, the period of 10 days will be considered as full month and, hence, interest will be computed for 4 months.

Interest for delay in filing the return of income [Section 234A]

Under section 234A, interest is levied for delay in filing the return of income.

Basic provisions

 Interest under section 234A is levied for delay in filing the return of income. In other words, if the taxpayer files the return of income after the due date specified in this regard, interest under section 234A will be levied.

Illustration

Mr. Kapoor is a doctor. His tax liability for the financial year 2017-18 amounted to Rs. 8,400. The due date of filing the return of income in his case is 31st July, 2018. On 5th August, 2018 he paid tax of Rs. 8,400 and filed his return of income. Will he be liable to pay interest under section 234A?

Interest under section 234A is levied for delay in filing the return of income. The due date for filing the return of income in the case of Mr. Kapoor is 31st July, 2018 and he has paid the tax and filed the return on 5th August 2018. Hence, he will be liable to pay interest under section 234A on the outstanding tax liability (provisions relating to rate of interest, period of levy of interest and amount liable to interest are discussed later).

Rate of interest

Interest under section 234A is levied for delay in filing the return of income. Interest is
levied at 1% per month or part of a month. The nature of interest is simple interest. In
other words, the taxpayer is liable to pay simple interest at 1% per month or part of a
month for delay in filing the return of income.

Period of levy of interest under section 234A

Interest under section 234A is levied from the period commencing on the date
immediately following the due date of filing the return of income and ending on the date
of furnishing the return of income, or in case where no return has been furnished, on the
date of completion of the assessment under section 144.
It should be noted that while computing the period of levy of interest, part i.e. fraction of
a month is considered as full month

Illustration

Mr. Sunil is an engineer. The due date of filing the return of income in his case is 31st
July, 2018. He filed his return of income on 9th January, 2019. His tax liability for the
financial year 2017-18 is Rs. 8,400 (which is paid on 9th January, 2019). Will he be
liable to pay interest under section 234A, if yes then what will be the period of levy of
interest?

The due date of filing the return of income is 31st July, 2018, and return of income is
filed on 9th January, 2018 i.e. after the due date and hence, Mr. Sunil will be liable to pay
interest under section 234A

While computing interest, part of the month will be taken as full month. In this case,
there is a delay of 5 months and 9 days. Part of the month i.e. 9 days will be considered
as full month and hence, interest will be levied for 6 months.

Amount liable to interest under section 234A

Interest under section 234A is levied on the amount of tax as determined under section
143(1) and where regular assessment is made, the tax on total income as determined
under such regular assessment as reduced by advance tax, tax deducted/collected at
source, relief claimed under various sections like sections 90/90A/91 and tax credit
claimed under section 115JAA/115JD.

Illustration

Mr. Kumar is running a medical store. The due date for filing the return of income in his case is 31st July. He filed his return of income on 3rd December. Tax liability of Mr. Kumar for the year is Rs. 28,400 (which is paid on 3rd December). Advance tax paid by him is Rs. 15,000 and he has TDS credit of Rs. 5,000. Will he be liable to pay interest under section 234A, if yes then how much?

Mr. Kumar has filed his return of income after the due date i.e. after 31st July and hence, he will be liable to pay interest under section 234A. Interest will be levied at 1% per month or part of the month.
The due date of filing the return of income is 31st July and the return of income is filed on 3rd December and hence, there is a delay of 4 months and 3 days. Part of the month i.e. 3 days will be considered as full month and hence, interest will be charged for a period of 5 months. Interest will be levied at 1% per month on Rs. 8,400 (*) for 5 months. Thus, interest under section 234A will come to Rs. 420.
(*) Advance tax of Rs. 15,000 and TDS of Rs. 5,000 are to be deducted from the tax liability of Rs. 28,400, hence, net liability after deducting advance tax and TDS will come to Rs. 8,400. Thus, interest will be levied on Rs. 8,400.

Interest for default in payment of advance tax [Section 234B]

Section 234B provides for levy of interest for default in payment of advance tax.

Basic provisions

Interest under section 234B is levied in following two cases:

a) When the taxpayer has failed to pay advance tax though he is liable to pay advance tax; or

b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax
(meaning of assessed tax is discussed later).

As per Section 208 of the Act, advance tax shall be payable by the taxpayer during the financial year if estimated tax liability of assessee during that year is ten thousand rupees or more.

Illustration

Mr. Khushal is running a provision shop. Tax liability of Mr. Khushal for the year is Rs. 38,400. He has not paid any advance tax till 31st March. Entire tax was paid by him at the time of filing the return of income. Will he be liable to pay interest under section 234B?

Interest under section 234B is levied in following two cases:

a) When the taxpayer has failed to pay advance tax; or

b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.

As per section 208 every person whose estimated tax liability for the year is Rs. 10,000
or more, shall pay his tax in advance in the form of “advance tax”.

The tax liability of Mr. Khushal is Rs. 38,400 (i.e., not less than Rs. 10,000), thus, he is
liable to pay advance tax. However, he has not paid any advance tax and, hence, he will
be liable to pay interest under section 234B (provisions relating to period of interest, rate
of interest and amount on which interest is levied are discussed in later part).

Illustration

Mr. Mangal is running a provision shop. Tax liability of Mr. Mangal for the year is Rs.
48,400. He has paid advance tax of Rs. 46,000 till 31st March. Balance tax of Rs. 2,400 is paid by him at the time of filing the return of income. Will he be liable to pay interest under section 234B?

Interest under section 234B is levied in following cases:

(a) When the taxpayer has failed to pay advance tax; or

(b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.

In this case, Mr. Mangal has paid 95% of the advance tax (*) i.e. more than 90% and
thus, no interest will be levied under section 234B.

(*) The tax liability of Mr. Mangal is Rs. 48,400 and he has paid advance tax of Rs. 46,000. The quantum of advance tax paid by him will come to 95% (i.e., Rs. 46,000/Rs. 48,400) of the total tax liability.

Illustration

Mr. Raja is engaged in furniture business. Tax liability of Mr. Raja for the year is Rs.
58,400. He has paid advance tax of Rs. 35,000 till 31st March. Balance tax of Rs. 23,400 is paid by him at the time of filing the return of income. Will he be liable to pay interest under section 234B?

Interest under section 234B is levied in following cases:

(a) When the taxpayer has failed to pay advance tax; or

(b) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.

In this case, Mr. Raja has paid advance tax of Rs. 35,000. The quantum of advance tax
paid by him is 60% of the total tax liability (*) i.e. less than 90% and hence, he will be
liable to pay interest under section 234B.

(*) The tax liability of Mr. Raja is Rs. 58,400 and he has paid advance tax of Rs. 35,000.
The quantum of advance tax paid by him will come to 60% (i.e., Rs. 35,000/Rs. 58,400)
of the total tax liability.

Rate of interest

Under section 234B, interest for default in payment of advance tax is levied at 1% per
month or part of a month. The nature of interest is simple interest. In other words, the
taxpayer is liable to pay simple interest at 1% per month or part of a month for default in
payment of advance tax.

Amount liable for interest

Interest under section 234B is levied on the amount of unpaid advance tax. If there is a
shortfall in payment of advance tax, then interest is levied on the amount by which
advance tax is short paid. The amount of unpaid/short paid advance tax is computed as
follows :

(*) Assessed tax means the amount of tax as determined under section 143(1) and where
regular assessment is made, the tax on total income as determined under such regular
assessment as reduced by tax deducted/collected at source, relief/deduction of tax
claimed under various sections like sections 90/90A/91 and tax credit claimed under
section 115JAA/115JD.

Period of levy of interest

Interest under section 234B is levied from the first day of the assessment year, i.e., from
1st April till the date of determination of income under section 143(1) or when a regular
assessment is made, then till the date of such a regular assessment.

In a case where the income is increased on account of assessment/re-computation,
interest under section 234B will be levied on the differential amount from the first day of
the assessment year till the date of assessment/re-computation. In a case where and
application is made to Settlement Commission, interest under section 234B will be levied
on the differential amount from the first day of the assessment year till the date of making
the application. Further, if the income as declared in the application is increased by the
Settlement Commission, interest under section 234B will be levied on the differential
amount from the first day of the assessment year till the date of such order. If as a result
of rectification order of the Settlement Commission, income is increased/decreased,
interest will also be increased/decreased accordingly.

If the taxpayer has paid any tax before completion of assessment, then interest will be
levied as follows:

(a) Upto the date of payment of self assessment tax, interest will be computed on
the amount of unpaid advance tax.

(b) From the date of payment of self assessment tax, interest will be levied on the
unpaid amount of advance tax after deducting the self assessment tax paid by
the taxpayer.

Illustration

Mr. Suraj is a businessman. His tax liability as determined under section 143(1) is Rs.
28,400. He has not paid any advance tax but there is a TDS credit of Rs. 10,000 in his
account. He has paid the balance tax on 31st July i.e. at the time of filing the return of
income. Will he be liable to pay interest under section 234B, if yes, then how much?

In this case, the tax liability (after allowing credit of TDS) of Mr. Suraj comes to Rs.
18,400 (i.e. Rs. 28,400 – Rs. 10,000) which exceeds Rs. 10,000 and hence, he will be
liable to pay advance tax.

He has not paid any advance tax and hence, he will be liable to pay interest under section
234B. Interest under section 234B will be levied at 1% per month or part of the month. In
this case, Mr. Suraj has paid the outstanding tax on 31st July and hence, interest under
section 234B will be levied for the period from 1st April to 31st July i.e. for 4 months.

Interest will be levied on unpaid tax liability of Rs. 18,400. Interest at 1% per month on
Rs. 18,400 for 4 months will come to Rs. 736.

Interest for default in payment of instalment(s) of advance tax [Section 234C]

Section 234C provides for levy of interest for default in payment of instalment(s) of
advance tax. Before getting into the detailed provisions of section 234C, lets recall the
provisions relating to payment of advance tax by a taxpayer

As per section 208, every person whose estimated tax liability for the year exceeds Rs.
10,000, shall pay his tax in advance in the form of “advance tax” by following dates :

Any tax paid till 31st March will be treated as advance tax.

Basic provisions

Interest under section 234C is levied, if advance tax paid in any instalment(s) is less than
the required amount. In other words, interest under section 234C in case of deferment of
different instalments of advance tax is levied in following cases:
(A) In case of taxpayers (other than those who opted for presumptive taxation scheme
under section 44AD or section 44ADA), interest shall be levied-

 If advance tax paid on or before 15th June is less than 12% of advance tax
payable
 If advance tax paid on or before 15thSeptember is less than 36% of advance tax
payable
 If advance tax paid on or before 15thDecember is less than 75% of advance tax
payable
 If advance tax paid on or before 15thMarch is less than 100% of advance tax
payable

(B) In case of taxpayers who opted for presumptive taxation scheme of Section 44AD or
section 44ADA interest shall be levied if advance tax paid on or before 15th March is
less than 100% of advance tax payable.

No levy of interest if shortfall in payment of advance tax is due to capital gains or winning from lottery, etc.

Interest under section 234C is not levied, if, the shortfall in payment of advance tax is due
to failure to estimate the amount of capital gains or income referred to in section 2(24)(ix) (i.e. winning from lotteries, crossword puzzle, etc.) or income from a new business or income referred to in section 115BBDA (i.e., dividend received from a domestic company exceeds Rs. 10,00,000) and the taxpayer pays the required advance tax on such income as a part of immediate following instalments or till 31st March, if no instalment is pending.

Rate of interest

Interest under section 234C for default in payment of instalment(s) of advance tax is
charged at 1% per month or part of a month. The nature of interest is simple interest. In
other words, the taxpayer is liable to pay simple interest @ 1% per month or part of a
month for short payment/ non-payment of individual instalment(s) of advance tax.

Period of levy of interest

Interest under section 234C is levied for a period of 3 months, in case of short fall in
payment of 1st, 2nd and 3rd instalment and for 1 month, in case of short fall in payment
of last instalment.

Amount liable for interest

Interest under section 234C is levied on the short paid amount of instalment(s) of advance
tax

Illustration

Mr. Khushal is running a garments shop. Tax Liability of Mr. Khushal is Rs 45,500. He has paid advance tax as given below:
 Rs. 8,000 on 15th June,
 Rs. 11,000 on 15th September,
 Rs. 12,000 on 15th December,
 Rs. 14,500 on 15th March.

Mr. Khushal has not opted for presumptive taxation scheme of section 44AD. Will he be liable to pay interest under section 234C, if yes, then how much?

Every person whose estimated tax liability for the year exceeds Rs. 10,000, shall pay his
tax in advance in the form of “advance tax” by the following dates:

Any tax paid till 31st March will be treated as advance tax.

Considering the above dates, the advance tax liability of Mr. Khushal at different
installments will be as follows:

1) In first installment: Not less than 15% of tax payable should be paid by 15thJune.
The tax liability is Rs. 45,500 and 15% of 45,500 amounts to Rs. 6,825. Hence, he
should pay Rs. 6,825 by 15thJune. He has paid Rs. 8,000, hence, there is no short
payment in case of first installment.

2) In second installment: Not less than 45% of tax payable should be paid by
15thSeptember. Tax liability is Rs. 45,500 and 45% of 45,500 amounts to Rs.
20,475. Hence, he should pay Rs. 20,475 by 15th September. He has paid Rs.
8,000 on 15th June and Rs. 11,000 on 15th September (i.e. total of Rs. 19,000 is
paid till 15thSeptember). There is short payment of Rs. 1,475 (i.e. Rs. 20,475 – Rs
19,000)

Though there is short payment of Rs. 1,475 but Mr. Khushal will not be liable to
pay interest under section 234C because he has paid minimum of 36% of advance
tax payable by 15th September. He has paid Rs. 19,000 till 15th September and
36% of 45,500 amounts to Rs. 16,380. Hence, no interest shall be levied in case of
deferment of second installment.

3) In third installment: Not less than 75% of tax payable should be paid by 15th
December. Tax liability is Rs. 45,500 and 75% of 45,500 amounts to Rs. 34,125.
Hence, he should pay Rs. 34,125 by 15th December. He has paid Rs. 8,000 on 15th
June, Rs. 11,000 on 15th September and Rs. 12,000 on 15th December (i.e. total of
Rs. 31,000 is paid till 15thDecember). There is a short payment of Rs. 3,125 (i.e.
Rs. 34,125 – Rs 31,000). Hence, he will be liable to pay interest under section
234C on account of short fall of Rs. 3,125 (*).

4) In last installment: 100% of tax payable should be paid by 15th March. The total
tax liability of Rs. 45,500 is paid by Mr. Khushal by 15th March (i.e. 8,000 on 15th
June, Rs. 11,000 on15th September, Rs. 12,000 on 15th December and Rs 14,500
on 15th March). Hence, there is no short payment in case of last installment. Thus,
Mr. Khushal will not be liable to pay interest under section 234C in case of last
instalment.

(*)There is a short fall of Rs. 3,125 in case of third installment (computation already
discussed). Due to short fall in case of third installment, interest under section 234C will
be levied. Interest will be levied at 1% per month or part of the month on the short paid
amount of Rs. 3,100 (i.e. Rs. 3,125 rounded off to Rs. 3,100 as per Rule 119A). Interest
will be levied for a period of 3 months. In other words, interest will be levied on Rs.
3,100 at 1% per month for 3 months. Interest under section 234C will come to Rs. 93.

MCQ ON INTEREST PAYABLE BY THE TAXPAYER UNDER THE INCOMETAX ACT

Q1. Under section 234A, interest is levied for _______________________.
(a) Delay in filing the return of income (b) Non-payment of tax
(c) For non-payment of advance tax (d) For short payment of advance tax

Correct answer : (a)

Justification of correct answer :

Interest under section 234A is levied for delay in filing the return of income. In other
words, if the taxpayer files the return of income after the due date specified in this regard,
interest under section 234A will be levied.
Thus, option (a) is the correct option.

Q2. Interest under section 234A for delay in filing the return of income is levied at _____ % per month or part of a month.
(a) 1.5 (b) 2
(c) 0.5 (d) 1

Correct answer : (d)

Justification of correct answer :

Interest under section 234A is levied for delay in filing the return of income. Interest is
levied at 1% per month or part of a month. The nature of interest is simple interest. In
other words, the taxpayer is liable to pay simple interest @ 1% per month or part of a
month for delay in filing the return of income.
Thus, option (d) is the correct option

Q3. Section 234B provides for levy of interest for default in complying with the notice
for payment of tax
(a) True (b) False

Correct answer : (b)
Justification of correct answer :
Section 234B provides for levy of interest for default in payment of advance tax.
Thus, the statement given in the question is false and hence, option (b) is the correct
option

Q4. Interest under section 234B is levied in following two cases:
(i) When the taxpayer has failed to pay advance tax though he is liable to pay advance
tax; or
(ii) Where the advance tax paid by the taxpayer is less than 75% of the assessed tax
(a) True (b) False

Correct answer : (b)

Justification of correct answer :

Interest under section 234B is levied in following two cases:
(i) When the taxpayer has failed to pay advance tax though he is liable to pay advance
tax; or
(ii) Where the advance tax paid by the taxpayer is less than 90% of the assessed tax.
Thus, the statement given in the question is false and hence, option (b) is the correct
option

Q5. Interest under section 234B for default in payment of advance tax is levied @ _____
% per month or part of a month.
(a) 1.5 (b) 2
(c) 0.5 (d) 1

Correct answer : (d)

Justification of correct answer :
Under section 234B, interest for default in payment of advance tax is levied at 1% per
month or part of a month. The nature of interest is simple interest. In other words, the
taxpayer is liable to pay simple interest at 1% per month or part of a month for default in
payment of advance tax.
Thus, option (d) is the correct option.

Q6. Interest under section 234B is levied on the amount of unpaid advance tax. If there is a shortfall in payment of advance tax, then also interest is levied on the entire amount of advance tax.
(a) True (b) False
Correct answer : (b)

Justification of correct answer :
Interest under section 234B is levied on the amount of unpaid advance tax. If there is a
shortfall in payment of advance tax, then interest is levied on the amount by which
advance tax is short paid. The amount of unpaid/short paid advance tax is computed as
follows

Assessed tax means the amount of tax as determined under section 143(1) and where
regular assessment is made the tax on total income as determined under such regular
assessment as reduced by tax deducted/collected at source, relief of tax claimed under

various sections like sections 90/90A/91 and tax credit claimed under section
115JAA/115JD. Thus, the statement given in the question is false and hence, option (b) is the correct option.

Q7. Interest under section ______ is levied from the first day of the assessment year, i.e., from 1st April till the date of determination of income under section 143(1) or when a regular assessment is made, then till the date of such a regular assessment.
(a) 234A (b) 234B
(c) 234C (d) 234D

Correct answer : (b)
Justification of correct answer :
Interest under section 234B is levied from the first day of the assessment year, i.e., from
1st April till the date of determination of income under section 143(1) or when a regular
assessment is made than till the date of such a regular assessment.
Thus, option (b) is the correct option

Q8. Section ______ provides for levy of interest for default in payment of instalment(s)
of advance tax.
(a) 234A (b) 234B
(c) 234C (d) 234D

Correct answer : (c)

Justification of correct answer :
Section 234C provides for levy of interest for default in payment of instalment(s) of
advance tax.
Thus, option (c) is the correct option.

Q9. Interest under section 234C is not levied, if, the shortfall in payment of advance tax is due to failure to estimate the amount of capital gains or income referred to in section 2(24)(ix) (i.e. winning from lotteries, crossword puzzle, etc.).
(a) True (b) False

Correct answer : (b)
Justification of correct answer :

Interest under section 234C is not levied, if, the shortfall in payment of advance tax is due
to failure to estimate the amount of capital gains or income referred to in section 2(24)(ix)
(i.e. winning from lotteries, crossword puzzle, etc.) or income from a new business or
income referred to in section 115BBDA (i.e., dividend received from a domestic
company exceeds Rs. 10,00,000) and the taxpayer pays the required advance tax on such
income as a part of immediate following instalments or till 31st March, if no instalment is
pending.

Thus, the statement given in the question is false and hence, option (b) is the correct
option.

Source https://www.incometaxindia.gov.in

Interest u/s 234B from first day of AY to give effect to order of Settlement Commission

CA Satbir Singh — Mon, 25 Jul 2016 03:34:28 +0000

IN THE ITAT JAIPUR BENCH

Anil Hastakala (P.) Ltd.

Assistant Commissioner of Income-tax, Central Circle, Alwar

T.R. MEENA, ACCOUNTANT MEMBER
AND LALIET KUMAR, JUDICIAL MEMBER

IT APPEAL NOS.605 AND 606 (JP.) OF 2015
[ASSESSMENT YEARS 2003-04 & 2004-05]

APRIL 28, 2016

P.C. Parwal, CA for the Appellant. Kailash Mangal, JCIT for the Respondent.

ORDER

Laliet Kumar, Judicial Member – These are two appeals filed by the assessee against the order of ld. CIT (Appeals), Alwar dated 29.04.2015 for the A.Y. 2003-04 & 04-05. The ground raised by the assessee is as under :—

ITA No. 605/JP/2015

“The ld. CIT (A) has erred on facts and in law in upholding the chargeability of interest u/s 234B under sub-section (1) and not under sub-section (3) resulting into the excess charge of interest u/s 234B by Rs. 4,26,149/- (1441236-1015087).”

ITA No. 606/JP/2015

2. The brief facts of the case are that the AO while giving effect to the order passed by the Settlement Commission under section 245D(4) of the IT Act charged interest under section 234B from 1st day of assessment year under section 234B(1) resulting in excess interest charged by the AO. Against this order charging interest under section 234B(1), the assessee has filed rectification application under section 154 praying rectification of the AO’s order on the ground that the AO has wrongly charged the interest under section 234B(1) of the IT Act instead of charging the interest under section 234B(3). The assessee’s contention was that interest should be charged from the date of determination of total income u/s 143(1) as provided in section 234B(3). The AO on perusal of the record found that no assessment order has been passed after processing of the return under section 143(1) of the Act. Further, explanation 2 to section 234B(1) provides that where in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as regular assessment for the purpose of this section. Therefore, the AO held that interest is chargeable under section 234B(1) and not under section 234B(3). He, therefore, rejected the application of the assessee filed under section 154 of the Act.

3. Aggrieved by the order of AO, assessee filed appeal before ld. CIT (A), who confirmed the order of the AO by observing as under :—

“4.5. Having considered the material available on record, I do not find any force in the contentions of the appellant as the provisions of section 234B(1) of the IT Act are very clear and the present situation is well covered within the meaning of Explanation 2 to section 234B(1) or the IT Act. The provisions of sub section (3) of section 234B would come into play only if subsequently this assessed income is increased by any appellate authority. Therefore, AO was justified in computing the interest u/s 234B of the IT Act. I do not find any infirmity in the order of the AO on this account.”

4. Now the assessee is in appeal before us.

4.1 The ld. A/R submitted that the following dates are relevant for deciding the issue :—

Particulars	A.Y. 2003-04	A.Y. 2004-05
Date of filing of return u/s 139	27.11.2003	01.11.2004
Date of intimation u/s 143(1)	28.05.2004	31.05.2005
Date of Notice u/s 153A	7.9.2006	7.9.2006
Filing of return in response to notice u/s 153A	12.10.2006	12.10.2006
Date of filing of settlement petition	22.12.2006	22.12.2006
Date of deemed admission u/s 245D(1)	31.07.2007	31.07.2007
Date of order passed u/s 245D(4)	7.2.2013	7.2.2013

He submitted that in the case of the assessee total income is determined under section 143(1) on the dates mentioned above. Thereafter, there was a search and assessee was required to file the return under section 153A. Assessee after filing the return under section 153A moved petition before Hon’ble Settlement Commission to settle the case by passing order under section 245D(4). Therefore, the order passed by the AO for giving effect to the order passed by Hon’ble Settlement Commission is an order under section 245D(4) read with section 153A. Such order is similar to the order passed under section 143(1)/147 or under section 143(3)/263 or u/s 143(1)/153A. Therefore, the order passed by the AO giving effect to the order of Settlement Commission is an order passed under section 153A/245D(4). The ld. A/R further argued that as per section 234B(3) whereas result of an order of reassessment or recomputation under section 147 or u/s 153A, the amount on which interest was payable under section 234B(1) is increased, assessee is liable to pay simple interest @ 1% per month following the date of determination of total income under section 143(1) and ending on the date of reassessment or re-computation under section 147 or u/s 153A. In the case of the assessee, there is an assessment under section 143(1) and thereafter there is an order giving effect to the order of Settlement Commission which is passed under sec. 153A/245D(4), therefore, interest is payable under sec. 234B(3) from the date of processing of return u/s 143(1) and not from first day of the relevant assessment year. He further stated that explanation 2 to section 234B(1) is not applicable as it is not a case of assessment made for the first time under sec. 147 or 153A for the reason that income of the assessee is already determined under sec. 143(1). It was further contended that ld. CIT (A) has wrongly interpreted that section 234B(3) would come into play only if the assessed income is subsequently increased by the order of any appellate authority by ignoring that there is no such provision under sec. 234B(3). The ld. A/R therefore argued that the direction be given to charge interest u/s 234B as per sub-section (3) from the date of determination of total income u/s 143(1) and not from 1st April of the relevant assessment year under sub section (1) of sec. 234B.

4.2 The ld. D/R supported the orders of the authorities below.

4.3 We have heard rival contentions and perused the material on record. The short controversy involved in the present appeal is whether the assessee is liable to pay the interest from 01.04.2003 (i.e. from the 1st day of April next following such financial year) or from the date of processing i.e. 28.05.2004 (date of intimation under section 143(1) in terms of section 243B(3) of the IT Act in respect of ITA No. 605/2015. Before we decide the issue, we reproduce the relevant provisions hereunder:

“Section 234B. Interest for defaults in payment of advance tax.

(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 sub-section (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.
		Explanation 2. – Where, in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section.
(2)		Where, as a result of an order of reassessment or recomputation under section 147 or section 153A, the amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the the rate of one per cent, for every month or part of a month comprised in the period commencing on the 1st day of April next following such financial year and ending on the date of the reassessment or recomputation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment as referred to in sub-section (1), as the case may be.

Application for settlement of cases.

Section 245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided :

Provided that no such application shall be made unless, –

(i)		In a case where proceedings for assessment or reassessment for any of the assessment years referred to in clause (b) of sub-section (1) of section 153A or clause ( b) of sub-section (1) of section 153B in case of a person referred to in section 153A or section 153C have been initiated, the additional amount of income-tax payable on the income disclosed in the application exceeds fifty lakh rupees,
(ia)		in a case where –
		(A) The applicant is related to the person referred to in clause (i) who has filed an application (hereafter in this sub-section referred to as “specified person”); and
		(B) The proceedings for assessment or re-assessment for any of the assessment years referred to in clause (b) of sub-section (1) of section 153A or clause (b ) of sub-section (1) of section 153B in case of the applicant, being a person referred to in section 153A or section 153C, have been initiated,
		the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees,
(ii)		In any other case, the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees,

and such tax and the interest thereon, which would have been paid under the provisions of this Act had the income disclosed in the application been declared in the return of income before the Assessing Officer on the date of application, has been paid on or before the date of making the application and the proof of such payment is attached with the application.”

As per section 245C, the assessee is required to make an application for settlement of cases in the prescribed format as mentioned in section 245C(1) to the Settlement Commission and if such case is arising out of the proceedings for assessment or reassessment u/s 153A, then the additional amount of income tax payable should exceed Rs. 50 lakhs, as in the present case, and the assessee is required to pay such tax and interest thereon which would have been paid under the provisions of this Act had the income been disclosed in the return of income.

If the assessee discloses excess income in the return of income or has disclosed income in the settlement proceedings but has not paid payable tax or advance tax on such amount then the assessee is liable to pay interest on the unpaid tax along with the unpaid tax at the time of filing of the return or filing of the settlement application. In our view, the assessee is liable to pay the interest in accordance with section 234B from the 1st day of April of next following such financial year (sic) i.e. 1.4.2004 in the present case on the same reasoning and the analogy. As the tax is required to be paid in the form of advance tax etc. before 1st April of the next following financial year (sic) as tax became due and payable before the said date and if the tax was wrongly withheld by the assessee beyond 1st April, then the revenue would have been deprived from the use of the tax amount. Since the assessee has wrongly withheld the amount or has not deposited the tax amount before 1st April, therefore, the Assessee as is required to be deposit the tax payable upto 1st April, along with return of income along with interest. Similarly, if any amount is found to be due and payable in the proceedings initiated for assessment or reassessment or recomputation, then the interest is required to be paid from the date of 1st April next following such financial year, as the income assessed, reassessed or recomputed shall relate back or deemed to have been filled in the return of income and the principals for pay the interest as applicable for the return of income shall mutatis mutandis be applicable in these cases as well. In the present case, settlement petition was filed and thereafter the petition was deemed to have been admitted on 31.07.2007 and thereafter the settlement order was passed on 07.02.2013. But at the time of filing of the settlement petition, the assessee was required to deposit the tax along with interest thereon as if such income would have been disclosed and declared in the return of income. If the assessee has declared/disclosed the same income ( income disclosed in the settlement application), then it would relate back to the date of filing of return of income. The contention of the assessee that the case of the assessee would fall under section 243B(3), in our view is not applicable. In fact, the provisions of section 245C makes it abundantly clear that such tax and interest thereon have to be paid under the provisions of this Act had the income been disclosed in the application but was declared in the return of income before the AO on the date of application. The words referred in 245C clearly shows that the date of application for settlement will relate back to the filing of the return before the AO and, therefore, the tax and the interest thereon is required to be calculated in the manner provided under section 234B. The section234B(1) clearly mentioned that if there is a difference in advance tax or the tax, then the interest is required to be paid from 1st April next following such financial year (sic). In view thereof, the appeals of the assessee are dismissed.

5. In the result, assessee’s appeals are dismissed.

Interest u/s 234B and 234C is mandatory and automatic

CA Satbir Singh — Wed, 10 Feb 2016 06:05:47 +0000

Held

It is clear that both the provisions are in mandatory terms and would apply automatically, as has been held by the Apex Court also in the Bhagat Construction Co. case (supra), the moment there is any shortfall in deposit of advance tax in terms of the provisions of Sections 234B and 234C of the Act.

HIGH COURT OF PATNA

Commissioner of Income-tax (I), Patna

Natraj Engineers (P.) Ltd.

RAMESH KUMAR DATTA AND SUDHIR SINGH, JJ.

MISC. APPEAL NO. 466 OF 2005

SEPTEMBER 7, 2015

Mrs. Archana Sinha, Sr. Standing Counsel, Alok Kumar and Mrs. Vijay Laxmi Srivastava, Advs. for the Appellant.Sanjeev Kumar, Adv. for the Respondent.

JUDGMENT

Ramesh Kumar Datta, Judicial Member – Heard learned counsel for the appellants-Revenue and learned counsel for the respondent-Assessee.

2. The appeal has been filed against the order dated 15.6.2005 passed by the Income-tax Appellate Tribunal, Patna Bench, Patna in ITA No. 327/Pat/2003 for the assessment year 1996-97 by which the order of the Commissioner of Income-tax (A)-II has been set aside holding that interest under Section 234B and 234C cannot be charged in absence of any order of the assessing officer.

3. The facts of this case lie in a narrow compass. The assessment was made under Section 143(3)/263 on total income of Rs. 65,35,430/- but the assessment order itself did not speak about the charging of any interest under Sections 234B and 234C. Vide ITNS 150 computation form, the amount of interest under Sections 234B and 234C were also shown. The appellants challenged the assessment order including charging of interest under Sections 234B and 234C under the ITNS 150 form.

4. The contention of the assessee was that the interest should have been charged with reference to the income tax return and not the assessed income and further that the assessee also challenged the inclusion of demand notice with reference to the same in the assessment order. The CIT (Appeal), referring to the retrospective amendment in the provisions of interest under Section 234B and 234C, held that interest was required to be levied with reference to assessed income as per the statute relying upon the decision of the Supreme Court in the case of Kalyankumar Ray v. CIT [1991] 191 ITR 634 (SC). Aggrieved by the same the assessee preferred an appeal before the Income-tax Appellate Tribunal. The ITAT reversed the order of the CIT appeal holding that there is nothing in the order to show that the Assessing Officer has decided to charge interest under Sections 234B and 234C and thus following the decision of the Supreme Court in the case of CIT v. Ranchi Club Ltd. [2001] 247 ITR 209 (SC) it held that the interest under Sections 234B and 234C cannot be charged in absence of any order of the Assessing Officer and so the interest charged under Section 234C was deleted.

5. Before this Court the appeal has been admitted on the following substantial questions of law :—

“(1)		Whether on the facts and in the circumstances of the case the Tribunal should have held that computation sheet in ITNS 150 is part and parcel of assessment order and as such charging of interest is legal and valid?
(2)		Whether on the facts and in the circumstances of the case in view of amendment in proviso to Section 234A & 234B by Finance Act 2001 with retrospective effect from 1.4.1989 the case decided by the Hon’ble Supreme Court in 247 ITR page 209 and relief by the Tribunal could be said to be still applicable as the amendment makes the charging of interest mandatory and not directory?”

6. So far as the first question is concerned, learned counsel for the Revenue relies upon a decision of the Apex Court in the case of Kalyankumar Ray (supra) page 638 of which, it has been held as follows :

‘The statute does not, however, require that both the computations (i.e., of the total income as well as the sum payable) should be done on the same sheet of paper, the sheet that is superscribed “assessment order”. It does not prescribe any form for the purpose. It will be appreciated that once the assessment of the total income is complete with indications of the deductions, rebates, reliefs and adjustments available to the assessee, the calculation of the net tax payable is a process which is mostly arithmetical but generally time-consuming. If, therefore, the Income-tax Officer first draws up an order assessing the total income and indicating the adjustments to be made, directs the office to compute the tax payable on that basis and then approves of it, either immediately or some time later, no fault can be found with the process, though it is only when both the computation sheets are signed or initialed by the Income-tax Officer that the process described in section 143(3) will be complete.

In this context, one may take notice of the fact that, initially, rule 15(2) of the Income-tax Rules prescribed Form No. 8, a sheet containing the computation of the tax, though there was no form prescribed for the assessment of the income. This sub-rule was dropped in 1964. Thereafter, the matter has been governed by departmental instructions. Under these, two forms are vogue. One is the form of what is described as the “assessment order” (I.T. 30 or I.T.N.S. 65). The other is what is described as the “Income-tax Computation Form” or “Form for Assessment of Tax/Refund” (I.T.N.S. 150). The practice is that, after the “assessment order” is made by the Income-tax Officer, the tax is calculated and the necessary columns of I.T.N.S. 150 are filled up showing the net amount payable in respect of the assessment year. This form is generally prepared by the staff but it is checked and signed or initialed by the Income-tax Officer and the notice of demand follows thereafter. The statute does not, in terms, require the service of the assessment order or the other form on the assessee and contemplates only the service of a notice of demand. It seems that while the “assessment order” used to be generally sent to the assessee, the other form was retained on file and a copy occasionally sent to the assessee. I.T.N.S. 150 is also a form for determination of tax payable and when it is signed or initialed by the Income-tax Officer, determining the tax payable, within the meaning of section 143(3). It may be, as stated in CIT v. Himalaya Drug Co. [1982] 135 ITR 368 (All.), only a tax calculation form for departmental purposes as it also contains columns and code numbers to facilitate computerization of the particulars contained therein for statistical purposes but this does not detract from its being considered as an order in writing determining the sum payable by the assessee. We are unable to see why this document, which is also in writing and which has received the imprimatur of the Income-tax Officer, should not be treated as part of the assessment order in the wider sense in which the expression has to be understood in the context of section 143(3). There is no dispute in the present case that the Income-tax Officer has signed the Form I.T.N.S. 150. We, therefore, think that the statutory provision has been duly complied with and that the assessment order was not, in any manner, vitiated.’

7. Learned counsel for the Revenue further relies upon a recent decision of the Apex Court in CIT v. Bhagat Construction Co. (P.) Ltd. [2015] 235 Taxman 135 (SC) in which both the substantial questions of law as raised herein, according to learned counsel, have been answered in favour of the revenue and against the assessee. The relevant part of the said decision is as follows:—

“It will be seen that under the provisions of Section 234B, the moment an assessee who is liable to pay advance tax has failed to pay such tax or where the advance tax paid by such an assessee is less than 90 per cent of the assessed tax, the assessee becomes liable to pay simple interest at the rate of one per cent for every month or part of the month.

Shri Guru Krishna Kumar is right in stating that levy of such interest is automatic when the conditions of Section 234B are met.

We are of the view that the facts of the present case are squarely covered by the decision contained in Kalyankumar Ray’s case inasmuch as it is undisputed that contained a calculation of interest payable on the tax assessed. This being the case, it is clear that as per the said judgment, this Form must be treated as part of the assessment order in the wider sense in which the expression has to be understood in the context of Section 143, which is referred to in Explanation 1 to Section 234B. This being the case, we set aside the judgment of the High Court and allow the appeal of the Revenue. There will be no orders as to cost. The appeal is disposed of in terms of the abovesaid order in Civil Appeal No. 1169 of 2006”.

8. Learned counsel for the respondent assessee, faced with the aforesaid two decisions of the Apex Court tried to pull back upon the decision of the Apex Court in the case of Ranchi Club Ltd. (supra)

9. The aforesaid decision has also been considered by the Apex Court in the case of M/s. Bhagat Construction Co. (P.) Ltd.(supra) and it was explained that the High Court judgment was given in the context of challenge to the vires of Sections 234A and 234B of the Income Tax Act and ultimately it has been held in the said case that under the provisions of Section 234B where the advance tax paid by the assessee is less than 90% of the assessed tax, levy of such simple interest at the rate of one per cent for every month or part of the month is automatic.

10. We may here also point out that the provisions of Section 234B which were inserted by the Direct Tax Law (Amendment) Act, 1987 with effect from 1.4.89 underwent further amendments after the decision of the Supreme Court inRanchi Club Ltd. case (supra) by further adding an Explanation in the said provisions with retrospective effect from 1.4.1989 by the Finance Act, 2001 which reads as under:—

‘Explanation 1.—In this Section, “assessed tax” means the tax on the total income determined under sub-section (1) of Section 143 or on regular assessment as reduced by the amount of tax in accordance with the provisions of Chapter XVIII on any income which is subject to such deduction or collection and which is taken into account in computing such total income.’

11.The said provision has further been amended by the Finance Act, 2006 with effect from 1.4.2007 which however, is not relevant for ever purpose. It is evident from the aforesaid Explanation introduced by the Finance Act, 2001 that the decision of this Court as confirmed by the Apex Court in Ranchi Club Ltd. (supra) will in no way be applicable to the present matter and the assessed tax on the total income determined under Section 143(1) or on regular assessment and not as computed by the assessee while paying the advance tax shall be treated as the basis for the purpose of payment of interest on advance tax paid short. In fact, there is a clear distinction made by the Income Tax Act in the provisions of Section 234B and 234C: with regard to interest under Section 234B, the calculation is to be made not on the returned income but on the tax as may be finally assessed and determined by the assessment whereas under Section 234C, what is to be determined is tax due on the returned income for the purpose of calculation of the shortfall in the advance tax paid.

12. It is further clear that both the provisions are in mandatory terms and would apply automatically, as has been held by the Apex Court also in the Bhagat Construction Co. case (supra), the moment there is any shortfall in deposit of advance tax in terms of the provisions of Sections 234B and 234C of the Act. Thus, we are of the view that the present matter is squarely covered in favour of the appellant revenue by the decision of the Supreme Court in Kalyan Kumar Ray’s case (supra). The first substantial question of law is, accordingly, answered in favour of the Revenue and it is held that the Tribunal should have held the computation sheet and demand notice as integral parts of the assessment order and thus charging of the interest was legal and valid.

13. With regard to second substantial question of law it is held that the decision in Ranchi Club Ltd. case (supra) would not be applicable in the present matter as the amendment of the provisions of Sections 234A and 234B of the Finance Act, 2001 having retrospective effect from 1.4.1989, has the effect of making chargeable interest mandatory and not directory.

The appeal is, accordingly, allowed.

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