2006 (4) TMI 193 - AT - Income Tax

Issues Involved:
1. Justification of levying interest under Section 234B(3) of the IT Act.

Detailed Analysis:

1. Justification of levying interest under Section 234B(3) of the IT Act:
The primary issue in this appeal is whether the Assessing Officer (AO) was justified in levying interest under Section 234B(3) of the Income Tax Act, 1961, for the period from 31st March 1995 to 14th March 2002.

Facts of the Case:
- The assessee is engaged in the business of processing and export of marine products.
- The initial assessment was completed under Section 143(3) on 30th March 1995, fixing the total income at Rs. 55,35,390.
- The assessee received relief from the CIT(A), reducing the total income to Rs. 11,080.
- Subsequent reassessment proceedings under Section 147 led to various recomputations of income, ultimately fixing the total income at Rs. 23,32,002 as of the AO's order dated 10th November 2003.
- The AO charged interest under Section 234B(3) for the period from 31st March 1995 to 14th March 2002, amounting to Rs. 6,85,058.

Arguments by the Assessee:
- The assessee contends that under Section 234B, interest is chargeable only if the advance tax paid is less than 90% of the assessed tax.
- The initial assessment order had no tax liability, and the assessee had paid advance tax and TDS amounting to Rs. 5,12,983.
- The final assessed tax after giving credit for TDS and advance tax was Rs. 76,092, against which the assessee had paid Rs. 1,30,032 as advance tax, thus complying with Section 234B(1).
- Hence, the assessee argued that there was no basis for levying interest under Section 234B(3).

Arguments by the Revenue:
- The Revenue supported the AO's computation of interest, stating that the interest under Section 234B is compensatory in nature.

Tribunal's Findings:
- The Tribunal examined the relevant provisions of Section 234B, which deals with the liability to pay advance tax and the interest chargeable for failure to pay the same.
- Section 234B(1) specifies that interest is chargeable if the advance tax paid is less than 90% of the assessed tax, with "assessed tax" defined as the tax determined under Section 143(1) or regular assessment, reduced by TDS.
- Section 234B(3) is a consequential provision that applies if the tax on reassessment exceeds the tax on the original assessment, necessitating interest on the increased amount.
- The Tribunal noted that the initial assessment had no tax liability, and the assessee was entitled to a refund due to TDS and advance tax payments.
- The final assessment order dated 10th November 2003 determined the total tax liability at Rs. 4,59,043, with the assessed tax after TDS being Rs. 76,092.
- The assessee had paid advance tax of Rs. 1,30,032, which was more than 90% of the assessed tax, thereby complying with Section 234B(1).
- Consequently, the Tribunal concluded that the AO was not justified in levying interest under Section 234B(3).

Conclusion:
The Tribunal allowed the appeal, deleting the interest levied under Section 234B(3) amounting to Rs. 6,85,058, and held that the assessee was not liable for the interest as the advance tax paid exceeded 90% of the assessed tax.

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