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2004 (9) TMI 83 - HC - Income TaxRevenue is aggrieved by the finding of the Tribunal that interest under sections 234B and 234C cannot be charged in a case where income is computed as per the provisions of section 115JA Revenue contended that levy of interest is merely a process of determining the liability of the assessee on account of tax or interest payable by the assessee on the basis of the return of income. This process of determination of the assessee s liability cannot be equated with an adjustment made in the income or loss declared in the return as had been done by the Tribunal. He therefore contended that the Tribunal has erred in holding that levy of interest under sections 234B and 234C was an adjustment made by the Assessing Officer under section 143(1)(a) of the Act and cancelling the same Held that Tribunal was not right in holding that the assessee was not liable to pay interest under sections 234B and 234C
Issues Involved:
1. Levy of interest under sections 234B and 234C of the Income-tax Act, 1961. 2. Applicability of section 115JA for computing taxable income. 3. Scope of adjustments permissible under section 143(1)(a) of the Income-tax Act. 4. Interpretation of legislative intent and mandatory nature of interest provisions. 5. Hardship and equity considerations in the imposition of interest. Detailed Analysis: 1. Levy of Interest under Sections 234B and 234C: The primary issue revolves around whether interest under sections 234B and 234C can be levied when income is computed under section 115JA of the Income-tax Act. The Tribunal had held that such interest could not be charged, but this was contested by the Revenue. The court found that the Tribunal erred in equating the levy of interest with adjustments under section 143(1)(a). The court clarified that the levy of interest is compensatory and mandatory, not penal, and is automatic upon default. 2. Applicability of Section 115JA: Section 115JA creates a legal fiction where total income is deemed to be 30% of the book profits. The assessees argued that they could not determine their liability under section 115JA until the end of the financial year when the books are closed. The court disagreed, stating that advance tax is payable on "current income," which includes income computed under section 115JA. The court cited multiple judgments supporting the view that advance tax provisions apply equally to income computed under section 115JA. 3. Scope of Adjustments under Section 143(1)(a): The Tribunal had held that the Assessing Officer's power under section 143(1)(a) was limited to rectifying arithmetical errors and making prima facie adjustments. The court clarified that the levy of interest does not amount to an adjustment in the income or loss declared in the return. The Tribunal's application of the tests for adjustments under section 143(1)(a) to quash the levy of interest was deemed incorrect. 4. Legislative Intent and Mandatory Nature of Interest Provisions: The court emphasized that sections 234A, 234B, and 234C are compensatory, not penal, and are mandatory. The Karnataka High Court's judgment in Kwality Biscuits Ltd. was rejected, and the court relied on other High Court judgments and the Supreme Court's decision in CIT v. Anjum M.H. Ghaswala, which held that the levy of interest under these sections is automatic and does not require a hearing. 5. Hardship and Equity Considerations: The court acknowledged that the levy of interest could cause hardship but held that such considerations are irrelevant for the automatic levy of interest. The court noted that the legislative intent was to ensure uniform treatment and reduce litigation. It was also pointed out that the Board has the power under section 119(2) to grant relief in cases of extreme hardship, providing a remedy outside the judicial process. Conclusion: The court allowed the appeals, reversing the Tribunal's findings. It was held that interest under sections 234B and 234C is mandatory and applicable even when income is computed under section 115JA. The Tribunal's reliance on the Karnataka High Court's decision was rejected, and the court aligned with the views of other High Courts and the Supreme Court, emphasizing the automatic and compensatory nature of the interest provisions.
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