2010 (7) TMI 610 - HC - Income Tax

Search and Seizure - Advance Tax - Interest - The assessee is engaged in the business of trading of cloth and filed return for the assessment year 1994-95 on October 28 1994 declaring an income of Rs. 30, 38, 920 - On April 29 1994 a search was conducted at the residential as well as business premises and on search the assessee surrendered certain amounts as additional income - The assessee made a request for adjusting the cash amount seized during search on May 30 1994 - The said request of the assessee was not accepted by the Assessing Officer - As the search operation had taken place on April 29 1994 i.e. after the closing of the financial year interest u/s 234B and 234C was levied - Hence the assessee is liable to pay interest u/s 234C of the Act in terms thereof and shall be entitled to benefit of payment out of the seized cash from the date of making application for adjustment of the seized cash towards tax liability - Thus the substantial question of law is answered in favour of the Revenue.

Issues:
1. Interpretation of sections 234B and 234C of the Income-tax Act, 1961 regarding the levy of interest on income surrendered post-financial year.
2. Justifiability of interest charged under sections 234B and 234C on income surrendered after the close of the financial year.
3. Application of Explanation 1 to section 234B(1) of the Act in determining assessed tax.
4. Consideration of interest for deferment of advance tax under section 234C(1)(b).

Analysis:

1. The High Court considered the appeal against the order of the Income-tax Appellate Tribunal regarding the levy of interest under sections 234B and 234C of the Income-tax Act, 1961. The issue was whether the interest charged on income surrendered post-financial year was justifiable. The Tribunal held that the demand of interest was not justified as the income surrendered after the close of the financial year could not have been foreseen by the assessee for advance tax payment. The Tribunal considered the assessee's request to adjust seized cash towards tax liability and found that the interest demand was not valid in this context.

2. The Revenue contended that the interest charged was mandatory as per the provisions of the Act. They argued that the assessee's inability to foresee the interest liability was not a valid ground for waiving the interest. The Revenue relied on Explanation 1 to section 234B(1) of the Act, added in 2001, to support their position. The Court referred to a previous judgment to emphasize that interest under section 234B is chargeable on the income assessed by the Assessing Officer, not based on the income declared in the return by the assessee.

3. The Court discussed the application of Explanation 1 to section 234B(1) of the Act, which defines "assessed tax" as the tax on the total income determined under section 143 or on regular assessment. The Court cited previous judgments to highlight the retrospective effect of the amendment and the clarification it provided regarding the levy of interest under section 234B. The Court affirmed that interest under section 234B is based on the income determined by the assessing authority, not on the income declared in the return.

4. Regarding the interest for deferment of advance tax under section 234C(1)(b) of the Act, the Court noted that the assessee was liable to pay interest on the returned income for the period of deferment of advance tax. The Court concluded that the assessee was liable to pay interest under sections 234B and 234C based on the tax liability determined on the income assessed by the Assessing Officer. The Court held that the Tribunal's view on waiving interest was unsustainable and ruled in favor of the Revenue, allowing the appeal in these terms.

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