1999 (10) TMI 57 - HC - Income Tax

Summary

Issues Involved: The judgment addresses the issues of whether the levy of interest under sections 234A and 234B of the Income-tax Act, 1961 can be made without affording an opportunity of being heard to the assessee and whether the levy of interest under these sections is automatic and axiomatic.

Levy of Interest u/s 234A and 234B without Opportunity of Being Heard:
The case involved a partnership firm in the business of paper products, which filed its income tax return for the assessment year 1991-92. The return was processed under section 143(1)(a) of the Act, resulting in a levy of interest under sections 234A and 234B. Subsequently, the assessment was completed under section 143(3), increasing the interest amounts. The firm challenged the levy before the Tribunal, which held that without affording an opportunity of being heard, the levy of interest cannot be made under these sections. The Revenue sought a reference on this issue, arguing that the levy is automatic and no opportunity of being heard is required.

Legal Interpretation and Precedents:
The judgment discussed the provisions of sections 234A and 234B, emphasizing that the levy of interest is mandatory and automatic, arising by operation of law. It cited precedents and legal principles to support the view that no prior show-cause notice is necessary before the levy. The court highlighted that the liability to pay interest is attracted automatically without the need for a specific order, and the assessing authority has the discretion to reduce or waive interest upon a proper cause shown by the assessee.

Mandatory Nature of Levy and Statutory Provisions:
The court analyzed the provisions of section 140A, which mandates the payment of tax and interest before filing the return, underscoring the automatic and mandatory nature of the levy. It also mentioned the authority of Chief Commissioners and Directors-General to reduce or waive penal interest. The judgment concluded that the levy of interest under sections 234A and 234B is mandatory, and no notice is required before the levy.

Conclusion:
The court answered the referred questions in favor of the Revenue, stating that the levy of interest under sections 234A and 234B is automatic and mandatory, and no opportunity of being heard is necessary before such levy. The reference was disposed of accordingly.