2010 (11) TMI 796 - HC - Income Tax

Denial of unabsorbed investment allowance and unabsorbed depreciation allowance - Whether the Tribunal was correct in holding that no interest under section 234B and 234C was leviable in the case of the assessee as the provisions of section 34A (4) of the Act override the provisions of section 234B and 234C of the Act, since the assessed taxes had been paid before the due date for filing the return - Held that - assessee was not required to pay any tax on the original return income. By virtue of the order dated 26.03.1999 the set off pertaining to the previous years came to be altered. Consequently the unabsorbed allowances that were required to be shown for the year 1992-1993 became altered. This happened only in the year 1999, obviously the assessee was not expected to guess, imagine or presume such an alteration in the years to come which is almost seven years later than the return of income filed by the assessee. Therefore the Tribunal was justified in saying that as on the date of return of income field on 29.12.1992, there was neither delayed payment of tax nor short fall of tax payable as income tax, substantial questions of law have to be answered against the revenue, appeal is dismissed.

Summary

Issues:
1. Levy of interest under sections 234B and 234C of the Income Tax Act for assessment year 1992-93.
2. Applicability of section 34A(4) in overriding provisions of sections 234B and 234C.
3. Computation of interest up to the date of regular assessment or rectification order.

Analysis:

1. Levy of Interest under Sections 234B and 234C:
The respondent/assessee filed returns for the assessment year 1992-93 showing net income and tax payable. Subsequently, an assessment was made under section 143(3) without imposing interest under sections 234B or 234C. However, a rectification order in 1999 altered the set off amounts from the previous year, resulting in a change in the tax liability. The Department then demanded interest under sections 234B and 234C, which was challenged by the assessee in appeals. The Tribunal ruled in favor of the assessee, stating that the tax payable on the return income was paid on time, and the alteration in set off amounts was unforeseeable at the time of filing the returns. Therefore, the Tribunal held that interest was not leviable, leading to the dismissal of the appeal against this decision.

2. Applicability of Section 34A(4):
The key contention revolved around the interplay of section 34A(4) with sections 234B and 234C. Section 34A(4) came into effect from 1.4.1992 and acts as an exception to the provisions of interest payment on delayed tax and shortfall of advance tax. The Tribunal held that since the assessed taxes were paid before the due date for filing the return, the provisions of section 34A(4) would override sections 234B and 234C. The Tribunal's decision was based on the interpretation that the assessee could not have anticipated the subsequent alteration in set off amounts, thereby justifying the non-levy of interest under sections 234B and 234C.

3. Computation of Interest up to Regular Assessment or Rectification Order:
The issue of computing interest up to the date of regular assessment or the rectification order was raised. The original assessment order under section 143(3) did not impose interest under sections 234B or 234C. The subsequent rectification order in 1999 altered the tax liability, leading to a demand for interest. The Court noted that the alteration in taxable income was due to changes in unabsorbed allowances, which were not foreseeable at the time of filing the returns in 1992. Therefore, the Court upheld the Tribunal's decision that interest could only be computed up to the date of regular assessment and not the rectification order, as the tax payment was timely based on the original return income.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision that no interest under sections 234B and 234C was leviable for the assessment year 1992-93 due to the application of section 34A(4) and the unforeseeable alterations in tax liability.