Reduction or waiver of interest charged under section 234A/234B/234C - Income Tax - Press Note

Press Note : Dated 21-5-1996 . Prior to 1989, taxpayers who had failed to furnish the return of income within the specified time-limit or had paid inadequate or not paid advance tax within the stipulated time-limit were charged penal interest for such defaults and also subjected to penalty proceedings. The Direct Tax Laws (Amendment) Act, 1987 inserted new sections 234A, 234B and 234C in the Income-tax Act from assessment year 1989-90 to provide for penal interest at higher rates for the defaults in late furnishing of the return of income, defaults in payment of advance tax and for deferment of advance tax respectively and omitted separate penalty provisions for these defaults. The interest payable under these sections was mandatory and there was no provision for reduction or waiver of the penal interest, as was provided specifically in this behalf prior to 1989. As a result, several taxpayers faced unintended hardships in certain circumstances. 2. The Central Board of Direct Taxes, in exercise of powers, specified in section 119(2)( a ) has decided to authorise Chief Commissioners and Directors-General (Investigation) to reduce or waive penal interest charged under the aforesaid sections in the following circumstances, namely:— ( i ) where, in the course of search and seizure operation, books of account have been taken over by the Department and were not available to the taxpayer to prepare his return of income; ( ii ) where, in the course of search and seizure operation, cash had been seized which was not permitted to be adjusted against arrears of tax or payment of advance tax instalments falling due after the date of the search. ( iii ) any income other than "capital gains" which was received or accrued after the date of first or subsequent instalment of advance tax, which was neither anticipated nor contemplated by the taxpayers and on which advance tax was paid by the taxpayer after the receipt of such income; ( iv ) where, as a result of any retrospective amendment of law or the decision of the Supreme Court after the end of the relevant previous year, certain receipts which were hitherto treated as exempt, become taxable. Since no advance tax would normally be paid in respect of such receipts during the relevant financial year, penal interest is levied for the default in payment of advance tax; ( v ) where return of income is filed voluntarily without detection by the Income-tax Department and due to circumstances beyond control of the taxpayer such return of income was not filed within the stipulated time-limit or advance tax was not paid at the relevant time. 3. The Chief Commissioners and Directors-General are being authorised to reduce or waive penal interest under sections 234A, 234B and 234C with reference to assessment year 1989-90 and any subsequent assessment year subject to certain specified conditions. This is a major step taken by the Central Board of Direct Taxes to mitigate the hardships in deserving cases