2010 (12) TMI 625 - AT - Income Tax

Interest u/s 234B and 234C - whether interest u/s 234B and 234C of the Act can be charged for default in payment of advance tax and for deferment of advance tax, respectively, where the payment of tax became due only because of the amendment by way of insertion of Expln. 1(h) to s. 115JB(2) of the Act, the amendment having been made operative retrospectively - Held that it was noted that from CBDT Order No. F 400/234/95-IT(B), dt. 21st May, 1996, it was clear that the intention of the tax authorities was not to levy interest where any amendment came with retrospective effect - This gets further corroborated from the fact that while processing the return of income, the AO himself did not charge interest under ss. 234B and 234C of the Act - Further, it has been time and again held that where the assessee is under a bona fide belief and based his estimate of income as per the law prevailing at the relevant time, no interest u/s 234B and 234C of the Act is leviable - Decided in favour of assessee

Summary

Issues:
Department's appeal on charging mandatory interest under ss. 234B and 234C of the IT Act for retrospective amendments in s. 115JB.

Detailed Analysis:
1. The Department's appeal contested the CIT(A)'s decision regarding the chargeability of mandatory interest under ss. 234B and 234C of the IT Act for retrospective amendments in s. 115JB. The AO initially did not charge interest under these sections during return processing, but later imposed it in the regular assessment after the assessee revised income computation based on the retrospective amendment.

2. The CIT(A) ruled in favor of the assessee, stating that interest under ss. 234B and 234C should not be charged due to the retrospective nature of the amendment to s. 115JB. The assessee voluntarily revised the income computation post-amendment, adding deferred tax amount to the book profit. This decision was supported by a previous order in the assessee's case regarding deferred tax treatment under s. 115JB.

3. The Departmental Representative argued against the CIT(A)'s decision, emphasizing the mandatory nature of interest under ss. 234B and 234C. The representative claimed that interest should be charged even for retrospective amendments to s. 115JB, which the CIT(A) allegedly overlooked.

4. The assessee's counsel defended the CIT(A)'s order, stating that the assessee filed the return based on a genuine belief that tax was not payable due to deferred tax adjustments. The counsel highlighted that the amendment post-return filing necessitated the revision, and the assessee acted in good faith by voluntarily adjusting the income post-amendment.

5. The Tribunal examined the case and upheld the CIT(A)'s decision. It acknowledged the retrospective amendment's impact on the assessee's liability, leading to the voluntary revision of income. Citing legal precedents, the Tribunal emphasized that interest under ss. 234B and 234C is not leviable when an assessee acts in good faith based on prevailing laws and subsequently adjusts income due to retrospective amendments.

6. The Tribunal concluded that the CIT(A) did not err in waiving the interest under ss. 234B and 234C, considering the circumstances of the case. The appeal filed by the Department was dismissed based on the established legal principles and the assessee's genuine belief in compliance with the law prevailing at the time of filing the return.