2012 (10) TMI 60 - HC - Income Tax

Interest under Sections 234A and 234B - whether interest can be charged in an order of rectification under Section 154 for the first time - Held that - If the return is not filed within time or if advance tax is not paid within time then the assessee is liable to pay interest and the payment of interest is mandatory. However, if the AO or the appellate authority does not order the payment of interest, the assessee cannot be directed to pay interest by the demand notice. AO virtually acts like a judicial officer but if he passes a wrong order not to levy the interest then the revenue must challenge the said order get the same set-aside and an order must be passed directing interest should be paid. If no such order is there, the revenue cannot claim interest. However, in case the assessment order is silent with regard to the payment of interest then without challenging the assessment order the revenue cannot, while issuing notice of demand, claim interest under the aforesaid sections - in favour of assessee.

Issues Involved:
1. Interest under Sections 234A and 234B in rectification orders under Section 154.
2. Justification of charging interest for the first time in rectification orders.
3. Tribunal's adherence to its own Special Bench decision in Motorola Inc. Vs. DCIT.

Detailed Analysis:

Issue 1: Interest under Sections 234A and 234B in Rectification Orders under Section 154
The primary legal question was whether interest under Section 234B of the Income Tax Act could be charged in a notice of demand issued under Section 156 in the absence of any specific order demanding interest in the assessment or rectification orders. The court noted that the levy of interest under Sections 234A, 234B, and 234C is mandatory as per the Supreme Court's decision in Anjum M.H. Ghaswala and Others Vs. CIT (252 ITR 1). However, in the present case, the rectification orders did not explicitly mention the imposition of interest. The court emphasized that the assessment order must contain the imposition of interest, and only thereafter, a notice of demand could be issued.

Issue 2: Justification of Charging Interest for the First Time in Rectification Orders
The court examined whether the Tribunal was justified in holding that no interest under Sections 234A and 234B could be charged for the first time in an order passed under Section 154. The court referenced the Patna High Court's decision in Ranchi Club Ltd. vs. Commissioner of Income-tax and others (1996) 217 ITR 72, which held that interest payable under Sections 234A and 234B is compensatory in character and must be specified in the assessment order. The court agreed with this view, stating that the revenue cannot claim interest in the demand notice if the assessment order is silent on the matter.

Issue 3: Tribunal's Adherence to its Own Special Bench Decision in Motorola Inc. Vs. DCIT
The court considered whether the Tribunal was justified in not following its own Special Bench decision in Motorola Inc. Vs. DCIT (95 ITD 269). The Tribunal had distinguished the Motorola case on factual grounds, which the court found to be irrelevant to the legal principles involved. The court held that the Tribunal should have adhered to its own precedent unless there were compelling reasons not to do so.

Conclusion:
The court concluded that while the payment of interest under Sections 234A, 234B, and 234C is mandatory, the assessment order must explicitly state the imposition of such interest. If the assessment order does not mention interest, the revenue cannot demand it through a notice of demand. The court dismissed the appeal, ruling in favor of the assessee and against the revenue.

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