2016 (7) TMI 945 - AT - Income Tax

Chargeability of interest u/s 234B - whether the assessee is liable to pay the interest from 01.04.2003 (i.e. from the 1st day of April next following such financial year) or from the date of processing i.e. 28.05.2004 (date of intimation under section 143(1) in terms of section 243B(3) of the IT Act - Held that - In the present case settlement petition was filed and thereafter the petition was deemed to have been admitted on 31.07.2007 and thereafter the settlement order was passed on 07.02.2013. But at the time of filing of the settlement petition the assessee was required to deposit the tax along with interest thereon as if such income would have been disclosed and declared in the return of income. If the assessee has declared/disclosed the same income ( income disclosed in the settlement application) then it would relate back to the date of filing of return of income. The contention of the assessee that the case of the assessee would fall under section 243B(3) in our view is not applicable. In fact the provisions of section 245C makes it abundantly clear that such tax and interest thereon have to be paid under the provisions of this Act had the income been disclosed in the application but was declared in the return of income before the AO on the date of application. The words referred in 245C clearly shows that the date of application for settlement will relate back to the filing of the return before the AO and therefore the tax and the interest thereon is required to be calculated in the manner provided under section 234B. The section 234B(1) clearly mentioned that if there is a difference in advance tax or the tax then the interest is required to be paid from 1st April following next financial year.- Decided against assessee

Issues Involved:
1. Chargeability of interest under section 234B(1) versus section 234B(3) of the Income Tax Act.
2. Determination of the correct period for charging interest under section 234B.

Issue-Wise Detailed Analysis:

1. Chargeability of Interest under Section 234B(1) versus Section 234B(3):

The primary contention raised by the assessee was the incorrect application of section 234B(1) for charging interest, instead of section 234B(3). The assessee argued that interest should be charged from the date of determination of total income under section 143(1) as provided in section 234B(3). The Assessing Officer (AO) rejected this contention, stating that no assessment order had been passed after processing the return under section 143(1), and as per Explanation 2 to section 234B(1), the assessment made under section 147 or section 153A should be regarded as a regular assessment. Consequently, the AO held that interest was chargeable under section 234B(1).

On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s decision, observing that the provisions of section 234B(1) were clear and applicable, and that section 234B(3) would only apply if the assessed income was subsequently increased by any appellate authority.

2. Determination of the Correct Period for Charging Interest under Section 234B:

The assessee provided a timeline of relevant dates, highlighting that the total income was determined under section 143(1) and that the subsequent order by the Settlement Commission under section 245D(4) should be treated similarly to orders passed under section 143(1)/147 or section 143(3)/263. The assessee argued that interest should be payable under section 234B(3) from the date of processing of the return under section 143(1), not from the first day of the relevant assessment year.

The Tribunal analyzed the provisions of section 234B and section 245C. It noted that section 234B(1) mandates the payment of interest from the 1st day of April following the financial year if there is a shortfall in the advance tax paid. Section 234B(3) applies when the amount on which interest was payable under section 234B(1) is increased due to reassessment or recomputation under section 147 or section 153A.

The Tribunal concluded that the assessee was liable to pay interest from the 1st day of April following the financial year, as the tax became due and payable before that date. The Tribunal emphasized that if the tax was withheld by the assessee beyond 1st April, the revenue would be deprived of the use of the tax amount. Therefore, interest was required to be paid from 1st April next following the financial year, aligning with the principles applicable to the return of income.

The Tribunal rejected the assessee’s contention that section 234B(3) applied, clarifying that the provisions of section 245C necessitate the payment of tax and interest as if the income disclosed in the settlement application was declared in the return of income. The Tribunal affirmed that the tax and interest should be calculated from the 1st April following the financial year, as stipulated in section 234B(1).

Conclusion:

The Tribunal dismissed the appeals of the assessee, affirming that interest under section 234B is chargeable from the 1st day of April following the financial year, as per section 234B(1), and not from the date of processing the return under section 143(1). The Tribunal upheld the orders of the AO and CIT(A), finding no infirmity in their application of the relevant provisions of the Income Tax Act.

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