Interest u/s 234B from first day of AY to give effect to order of Settlement Commission

By | July 25, 2016
(Last Updated On: July 25, 2016)

IN THE ITAT JAIPUR BENCH

Anil Hastakala (P.) Ltd.

v.

Assistant Commissioner of Income-tax, Central Circle, Alwar

T.R. MEENA, ACCOUNTANT MEMBER
AND LALIET KUMAR, JUDICIAL MEMBER

IT APPEAL NOS.605 AND 606 (JP.) OF 2015
[ASSESSMENT YEARS 2003-04 & 2004-05]

APRIL  28, 2016

P.C. Parwal, CA for the Appellant. Kailash Mangal, JCIT for the Respondent.

ORDER

Laliet Kumar, Judicial Member – These are two appeals filed by the assessee against the order of ld. CIT (Appeals), Alwar dated 29.04.2015 for the A.Y. 2003-04 & 04-05. The ground raised by the assessee is as under :—

ITA No. 605/JP/2015

“The ld. CIT (A) has erred on facts and in law in upholding the chargeability of interest u/s 234B under sub-section (1) and not under sub-section (3) resulting into the excess charge of interest u/s 234B by Rs. 4,26,149/- (1441236-1015087).”

ITA No. 606/JP/2015

“The ld. CIT (A) has erred on facts and in law in upholding the chargeability of interest u/s 234B under sub-section (1) and not under sub-section (3) resulting into the excess charge of interest u/s 234B by Rs. 2,93,574/- (685768 – 392194).”

2. The brief facts of the case are that the AO while giving effect to the order passed by the Settlement Commission under section 245D(4) of the IT Act charged interest under section 234B from 1st day of assessment year under section 234B(1) resulting in excess interest charged by the AO. Against this order charging interest under section 234B(1), the assessee has filed rectification application under section 154 praying rectification of the AO’s order on the ground that the AO has wrongly charged the interest under section 234B(1) of the IT Act instead of charging the interest under section 234B(3). The assessee’s contention was that interest should be charged from the date of determination of total income u/s 143(1) as provided in section 234B(3). The AO on perusal of the record found that no assessment order has been passed after processing of the return under section 143(1) of the Act. Further, explanation 2 to section 234B(1) provides that where in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as regular assessment for the purpose of this section. Therefore, the AO held that interest is chargeable under section 234B(1) and not under section 234B(3). He, therefore, rejected the application of the assessee filed under section 154 of the Act.

3. Aggrieved by the order of AO, assessee filed appeal before ld. CIT (A), who confirmed the order of the AO by observing as under :—

“4.5. Having considered the material available on record, I do not find any force in the contentions of the appellant as the provisions of section 234B(1) of the IT Act are very clear and the present situation is well covered within the meaning of Explanation 2 to section 234B(1) or the IT Act. The provisions of sub section (3) of section 234B would come into play only if subsequently this assessed income is increased by any appellate authority. Therefore, AO was justified in computing the interest u/s 234B of the IT Act. I do not find any infirmity in the order of the AO on this account.”

4. Now the assessee is in appeal before us.

4.1 The ld. A/R submitted that the following dates are relevant for deciding the issue :—

Particulars A.Y. 2003-04 A.Y. 2004-05
Date of filing of return u/s 139 27.11.2003 01.11.2004
Date of intimation u/s 143(1) 28.05.2004 31.05.2005
Date of Notice u/s 153A 7.9.2006 7.9.2006
Filing of return in response to notice u/s 153A 12.10.2006 12.10.2006
Date of filing of settlement petition 22.12.2006 22.12.2006
Date of deemed admission u/s 245D(1) 31.07.2007 31.07.2007
Date of order passed u/s 245D(4) 7.2.2013 7.2.2013

He submitted that in the case of the assessee total income is determined under section 143(1) on the dates mentioned above. Thereafter, there was a search and assessee was required to file the return under section 153A. Assessee after filing the return under section 153A moved petition before Hon’ble Settlement Commission to settle the case by passing order under section 245D(4). Therefore, the order passed by the AO for giving effect to the order passed by Hon’ble Settlement Commission is an order under section 245D(4) read with section 153A. Such order is similar to the order passed under section 143(1)/147 or under section 143(3)/263 or u/s 143(1)/153A. Therefore, the order passed by the AO giving effect to the order of Settlement Commission is an order passed under section 153A/245D(4). The ld. A/R further argued that as per section 234B(3) whereas result of an order of reassessment or recomputation under section 147 or u/s 153A, the amount on which interest was payable under section 234B(1) is increased, assessee is liable to pay simple interest @ 1% per month following the date of determination of total income under section 143(1) and ending on the date of reassessment or re-computation under section 147 or u/s 153A. In the case of the assessee, there is an assessment under section 143(1) and thereafter there is an order giving effect to the order of Settlement Commission which is passed under sec. 153A/245D(4), therefore, interest is payable under sec. 234B(3) from the date of processing of return u/s 143(1) and not from first day of the relevant assessment year. He further stated that explanation 2 to section 234B(1) is not applicable as it is not a case of assessment made for the first time under sec. 147 or 153A for the reason that income of the assessee is already determined under sec. 143(1). It was further contended that ld. CIT (A) has wrongly interpreted that section 234B(3) would come into play only if the assessed income is subsequently increased by the order of any appellate authority by ignoring that there is no such provision under sec. 234B(3). The ld. A/R therefore argued that the direction be given to charge interest u/s 234B as per sub-section (3) from the date of determination of total income u/s 143(1) and not from 1st April of the relevant assessment year under sub section (1) of sec. 234B.

4.2 The ld. D/R supported the orders of the authorities below.

4.3 We have heard rival contentions and perused the material on record. The short controversy involved in the present appeal is 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 in respect of ITA No. 605/2015. Before we decide the issue, we reproduce the relevant provisions hereunder:

“Section 234B. Interest for defaults in payment of advance tax.

(1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 has failed to pay such tax or, where the advance tax paid by such assessee under the provisions of section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax.
Explanation 2. – Where, in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section.
(2) Where, as a result of an order of reassessment or recomputation under section 147 or section 153A, the amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the the rate of one per cent, for every month or part of a month comprised in the period commencing on the 1st day of April next following such financial year and ending on the date of the reassessment or recomputation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or recomputation exceeds the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment as referred to in sub-section (1), as the case may be.

Application for settlement of cases.

Section 245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided :

Provided that no such application shall be made unless, –

(i) In a case where proceedings for assessment or reassessment for any of the assessment years referred to in clause (b) of sub-section (1) of section 153A or clause ( b) of sub-section (1) of section 153B in case of a person referred to in section 153A or section 153C have been initiated, the additional amount of income-tax payable on the income disclosed in the application exceeds fifty lakh rupees,
(ia) in a case where –
(A) The applicant is related to the person referred to in clause (i) who has filed an application (hereafter in this sub-section referred to as “specified person”); and
(B) The proceedings for assessment or re-assessment for any of the assessment years referred to in clause (b) of sub-section (1) of section 153A or clause (b ) of sub-section (1) of section 153B in case of the applicant, being a person referred to in section 153A or section 153C, have been initiated,
the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees,
(ii) In any other case, the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees,

and such tax and the interest thereon, which would have been paid under the provisions of this Act had the income disclosed in the application been declared in the return of income before the Assessing Officer on the date of application, has been paid on or before the date of making the application and the proof of such payment is attached with the application.”

As per section 245C, the assessee is required to make an application for settlement of cases in the prescribed format as mentioned in section 245C(1) to the Settlement Commission and if such case is arising out of the proceedings for assessment or reassessment u/s 153A, then the additional amount of income tax payable should exceed Rs. 50 lakhs, as in the present case, and the assessee is required to pay such tax and interest thereon which would have been paid under the provisions of this Act had the income been disclosed in the return of income.

If the assessee discloses excess income in the return of income or has disclosed income in the settlement proceedings but has not paid payable tax or advance tax on such amount then the assessee is liable to pay interest on the unpaid tax along with the unpaid tax at the time of filing of the return or filing of the settlement application. In our view, the assessee is liable to pay the interest in accordance with section 234B from the 1st day of April of next following such financial year (sic) i.e. 1.4.2004 in the present case on the same reasoning and the analogy. As the tax is required to be paid in the form of advance tax etc. before 1st April of the next following financial year (sic) as tax became due and payable before the said date and if the tax was wrongly withheld by the assessee beyond 1st April, then the revenue would have been deprived from the use of the tax amount. Since the assessee has wrongly withheld the amount or has not deposited the tax amount before 1st April, therefore, the Assessee as is required to be deposit the tax payable upto 1st April, along with return of income along with interest. Similarly, if any amount is found to be due and payable in the proceedings initiated for assessment or reassessment or recomputation, then the interest is required to be paid from the date of 1st April next following such financial year, as the income assessed, reassessed or recomputed shall relate back or deemed to have been filled in the return of income and the principals for pay the interest as applicable for the return of income shall mutatis mutandis be applicable in these cases as well. 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 section234B(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 next following such financial year (sic). In view thereof, the appeals of the assessee are dismissed.

5. In the result, assessee’s appeals are dismissed.

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