2023 (4) TMI 726 - AT - Income Tax

Interest u/s 234A - what is the period upto which interest u/s 234A can be levied? - HELD THAT - As the interest u/s 234A is a monetary compensation against the legitimate taxes due to the Government of India, we in the light of CIT Vs Prannoy Roy 2008 (9) TMI 150 - SUPREME COURT are of the considered view that, irrespective of date of filing of ITR, interest u/s 234A of the Act, shall on the balance of taxes outstanding accrue commencing from the first date immediately following the due date and shall cease to accrue on the date of payment by instalment (when paid in parts) or on the date of full discharge of entire tax liability computed on the total income. It shall be needless to mentioned that, by virtue of provisions of sub-section (2) to section 243A, the interest payable under sub-section (1) shall be reduced by the interest, if any, paid u/s 140A towards the interest chargeable thereunder. In the extant appeal, since the appellant in terms of section 234A(1) computed the interest accrued on each occasion of payment by instalment on the outstanding balance of taxes due to ex-chequer and discharged the entire tax liability alongwith interest accrued thereon before filing of his return, we finding no fault with the computation of interest liable u/s 234A, hold the orders of both the Ld. TAB as erroneous, consequently we set-aside the order of Ld. NFAC and direct the Ld. CPC to compute interest in aforestated terms - Assessee appeal allowed.

Summary

Issues:
- Dispute over interest computation under section 234A of the Income-tax Act, 1961 for the assessment year 2020-21.

Analysis:
1. The appellant filed the return of income for AY 2020-21 on 17/10/2020, declaring total income of Rs. 86,77,950, and interest under section 234A was computed to Rs. 55,794. The appellant contended that interest should be calculated up to the date of payment of tax, not the filing of the return.

2. The National Faceless Appeal Centre rejected the appellant's claim, citing a three-month delay in filing the return and the applicability of interest from 1st August 2020 to the date of filing the return due to tax payable exceeding Rs. 1,00,000 for AY 2020-21.

3. The appellant challenged the interest computation up to the date of filing the return before the Appellate Tribunal, arguing that interest should be calculated up to the date of payment of tax. The appellant had paid the entire tax liability in five instalments between August and September 2020.

4. The Tribunal analyzed the issue of interest computation under section 234A, referring to the decision in "CIT Vs Prannoy Roy" and CBDT Circular No 2/2015. It held that interest under section 234A accrues on the balance of taxes outstanding from the first day following the due date and ceases on the date of payment or full discharge of tax liability.

5. The Tribunal found the appellant's computation of interest on the outstanding balance of taxes during payment by instalments to be correct. It held that interest under section 234A is a compensation against legitimate taxes due to the Government, and any interest paid under section 140A shall be reduced from the interest payable under section 234A.

6. Consequently, the Tribunal set aside the order of the National Faceless Appeal Centre and directed the Central Processing Centre to compute interest in accordance with the appellant's method. The appeal of the appellant was allowed, and the orders of the lower authorities were deemed erroneous.

This detailed analysis highlights the key arguments, legal references, and the Tribunal's decision regarding the dispute over interest computation under section 234A of the Income-tax Act, 1961 for the assessment year 2020-21.