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Issues involved: Assessment of default in advance tax payment and levy of interest u/s 234C of the IT Act.
Assessment of Default in Advance Tax Payment: The case involved a limited company that started its business just 15 days before the first instalment of advance tax was due. Due to the sudden increase in turnover after the second instalment was due, the company faced difficulty in anticipating the income and consequent tax liability. The Assessing Officer accused the company of default in advance tax payment, but it was argued that it was impossible for the company to anticipate such a spurt in sales and income. The principle of "lex non cogit ad impossibilia" was cited, stating that the law does not compel a person to do what is impossible for them to perform. Levy of Interest u/s 234C of the IT Act: Section 234C of the IT Act deals with interest for deferment of advance tax payment. The section requires an assessee to pay advance tax based on their estimated current income. The law makes the liability to pay advance tax dependent on the estimate made by the assessee, which should be based on available material and circumstances. In this case, it was argued that since the company had not yet started earning income, it was unreasonable to expect them to estimate advance tax liability and pay tax. Therefore, it was contended that no interest should be levied on the company. The decision of the CIT (Appeals) to delete the interest levy was upheld based on the principle that impossibility of performance is a valid excuse in law. Additional Point: The departmental representative contended that no appeal is maintainable against the charge of interest u/s 234C. However, it was argued that the interest charged under this section is a part of the assessment, and the Supreme Court decision in the case of Central Provinces Manganese Ore Co. Ltd v. CIT supports the appeal against the interest charge. Conclusion: The Appellate Tribunal dismissed both the appeal by the revenue and the cross objection by the assessee. The appeal challenging the levy of interest u/s 234C was rejected based on the principle of impossibility of performance, and the cross objection was dismissed due to being filed late without a petition for condonation.
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