2018 (3) TMI 962 - HC - Income Tax

Computation of interest u/s 234B & 234C - interest liability of the assessee u/s 234B(3) - demand on reassessment - claim of interest from the date of payment of tax under Section 140A - Held that - Admittedly, there was a demand raised as per the re-assessment. The flaw committed by the Tribunal was insofar as assuming that the tax paid under Section 140A remained with the Department. Even before the regular assessment, the same was returned with interest on 27.3.1998. Hence, the Department did not have any benefit of the amounts and whatever was paid under Section 140A stood refunded with interest to the assessee. The tax paid by the assessee under Section 140A also did not include any interest. Hence, there was no question of applying sub-Section (2) of Section 234B. On re-assessment after the re-computation of the total income, the tax demand was raised after giving credit of tax paid under Section 140A and also adding on the refund with interest. There again was a demand raised after adjustments. As we have noticed, there is definite increase of tax liability from the regular assessment at the time of re-assessment. There is no dispute that the advance tax payable at 90% of the liability to tax, had not been satisfied. The interest payable under sub-Section (1) of Section 234B was levied in the regular assessment. On re-assessment, the liability for advance tax also stood increased and in that circumstances, the differential tax on reassessment had to be levied interest at the rate provided under sub-Section (3) of Section 234B. Set aside the order of the Tribunal and restore that of the Assessing Officer under Section 154 as confirmed in first appeal. - Decided in favour of the Revenue and against the assessee.

Summary

Issues:
1. Interpretation of interest computation under Section 234 for a specific period.
2. Correctness of interest liability under Section 234B(3) for a particular period.
3. Validity of Tribunal's interference with interest computation under Section 234B.
4. Application of Section 234B(2) in reducing interest under Section 140A payment.
5. Assessment and reassessment discrepancies leading to interest levies.

Analysis:
1. The case involves the levy of interest under Section 234B(3) for the assessment year 1996-97. The regular assessment was completed on 26.3.1999, and interest was initially levied under Sections 243B & C, which was later reduced. A reassessment was conducted on 18.3.2002, where the Assessing Officer did not levy interest under Section 234B(3) initially, but later did so through an order under Section 154. The Tribunal modified the levy to be applicable only between 1.4.1997 and 12.6.1997, based on the payment made under Section 140A on 29.6.1996.

2. The Tribunal reasoned that the tax paid under Section 140A should be considered when computing interest under Section 234B(1) and (3). It held that the demand post-reassessment was less than the amount paid under Section 140A, therefore no further interest could be claimed. However, the court found discrepancies in the Tribunal's assumptions, noting that the tax paid under Section 140A was refunded with interest before the regular assessment was completed.

3. The court observed that the Tribunal's interpretation was flawed as it assumed the tax paid under Section 140A remained with the Department, whereas it was refunded to the assessee with interest. The court emphasized that the Department did not benefit from the amount paid under Section 140A, and there was no basis for applying Section 234B(2) in this scenario. The reassessment resulted in an increased tax liability, justifying the interest levied under Section 234B(3) on the differential tax component.

4. The court set aside the Tribunal's order and reinstated that of the Assessing Officer, confirming the interest levy under Section 234B(3) as per the reassessment. It was established that there was a definite increase in tax liability during reassessment, warranting the interest levy on the differential tax component. Consequently, the appeal of the Revenue was allowed, and the questions of law were answered in favor of the Revenue and against the assessee.