Section 234B Interest Cannot Extend Beyond Self-assessment Tax Payment

Vimal Sureshbhai Mishra Vs Central Processing Unit (ITAT Ahmedabad)

Brief Facts

• The assessee filed an updated return of income under section 139(8A) on 03.04.2023, declaring total income of ₹20,47,420.
• On the same date, he discharged his entire self-assessment tax liability under section 140A.
• CPC, Bengaluru processed the return under section 143(1) on 29.10.2024. While accepting the returned income, CPC:
  • Charged interest under sections 234A & 234B, and
  • Raised a net demand of ₹1,04,840.

The assessee’s grievance was that interest under section 234B of ₹1,36,834 was wrongly computed up to the date of intimation (29.10.2024), instead of restricting it only till 03.04.2023, the date of payment of self-assessment tax.

A rectification petition under section 154, filed on 09.11.2024, was rejected by CPC on 14.02.2025.

On further appeal, the CIT(A) dismissed the plea and confirmed CPC’s action.

Assessee’s Contention

Scope of Section 234B

• Interest is compensatory in nature, meant to cover delay in payment of advance tax.
• Section 234B(1) read with 234B(2) provides two phases of computation:
  1. From 1st April of the assessment year to the date of payment of self-assessment tax.
  2. From that date till assessment, only if any further shortfall exists.
• Once self-assessment tax was discharged on 03.04.2023, no further interest liability survived.

Error Apparent on Record

• Since the assessed tax and returned tax were identical, there was no shortfall beyond 03.04.2023.
• Levying interest till 29.10.2024 was a mistake rectifiable under section 154.

Judicial Support

• Oasis Landmarks LLP vs. DCIT (ITAT Mumbai, 21.11.2024).
• Dhirendra Narbheram Sheth vs. ITO (ITAT Rajkot, 03.02.2023).
  Both decisions held that interest under section 234B can only be levied up to the date of self-assessment tax payment.

CIT(A)’s Findings

• Mandatory Levy: Section 234B provides for automatic levy of interest where advance tax paid is less than 90% of assessed tax.
• Two-Stage Mechanism: The CIT(A) acknowledged the two-stage interest mechanism but held that CPC had correctly applied the law.
• Scope of Section 154: According to CIT(A), the assessee’s plea to restrict interest only till 03.04.2023 involved a long-drawn interpretation, which was beyond the scope of rectification proceedings.

Accordingly, the rectification rejection by CPC was upheld.