Computation of interest U/s. 234B when Assessment order was subjected to revision U/s. 263

S. Vijayalakshmi Vs ITO (ITAT Chennai)

In the present case, regular assessment order u/s.143(3) r.w.s.147 of the Act completed on 31.12.2009 was subject to revisional order of ld. CIT. Consequent to order of the ld. CIT passed u/s.263 of the Act dated 28.03.2012, the AO finally concluded the impugned assessment on 20.03.2013 and he charged the interest u/s.234B of the Act from First day of the assessment year till the date of completion of assessment i.e. on 20.03.2013. The effect of revisional order by ld. CIT in this case resulted in enhancement of the assessed income. The amount by which the advance tax paid by the assessee falls short of the assessed tax, which has been increased as a result of the order passed by the ld. CIT. This is the amount on which the interest was payable under sub-section (1) for, if the assessee were to make a correct disclosure of her income in the first instance, the assessee would have been liable to pay interest under sub-section(1) on the short fall. The words, “the interest shall be increased”, would contemplate both a situation where interest both a situation where interest had been levied on the assessee in the first instance and a situation where no interest has been levied on the assessee in the original order of assessment. There is no reason or justification for the Bench on the basis of the plain language used in sub-section(4) to exclude the latter category of cases as contended by the ld.A.R frofm the liability to pay interest. In accepting the submission of the assessee, it would be lead to adopting an interpretation, which would be contrary both to the language used by the Legislature and the intent that is embodied in sub-section(4) of s.234B.

 In our opinion, the assessee’s case falls under purview of Sec.234B(1) r.w.s.234B(4) only and not u/s.234B(3) and it would be even encountered that no interest is chargeable for that portion of the income forming part of the total income as determined by the ld.CIT in his order u/s.263, which was not earlier part of the income determined by the ld. Assessing Officer. In other words, the interest charged in terms of Sec.234B become payable on the income already disclosed in the return filed, together with the income determined bythe AO in consequent to the order passed u/s.263 of the Act. The concerned interest shall be on the consolidated amount of income i.e. both  determined in re-assessment order and income determined in consequent to revisional order passed u/s.263, when the reassessment order was subject to revision u/s.263 of the Act. Accordingly, we hold that the interest u/s.234B of the Act to be charged in these cases from the first day of each assessment year to relevant to assessment year till the date of the completion of assessment made i.e. 20.03.2013 and not to the date, the reassessment order was passed i.e. 31.12.2009.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

These four appeals of the assessee are directed against the common order of the Commissioner of Income-tax (Appeals), Puducherry dated 22.05.2017 pertains to assessment years 200304, 2004-05, 2005-06, 2006-07. Since Grounds raised in these four appeals are common in nature, these appeals are clubbed together, heard together, disposed off by this common order for the sake of convenience.

2. The assessee has raised the following grounds for our adjudication.

1. The order of the learned Commissioner of Income-tax (Appeals) confirming the order of the assessing officer partly is illegal, arbitrary, against the weight of evidence and all probabilities of the case. The same is not sustainable in law.

2. The appellant submits that the Commissioner of Income-tax, Pondicherry has set aside the assessment made under section 143(3) r/w 147 of the Act by his order under section 263 and the assessing officer has completed the set aside assessment of this very same order as per the directions of the Commissioner of Income-tax. The Commissioner of Income-tax (Appeals) is therefore not correct in rejecting the various grounds of appeal on the ground that the assessment passed and in appeal was not an order under section 147 of the Act.

3. The appellant submits that the order appealed against was an order passed under section 143(3) r/w 147 r/w, 263 and therefore the learned Commissioner of Income-tax (Appeals) ought to have considered the ground raised on the validity of re-opening of the assessment itself.

4. The assessing officer erred in assessing equal amount in each of the four assessment years especially when the Commissioner of Income-tax has specifically directed the assessing officer to apportion the unexplained investment among the relevant assessment years in the same ratio of the cost of construction as declared by the assesse in his returns of income.

5. The appellant submits that admittedly the housing loan was obtained only in the financial year 2004-05 relevant to the assessment year 2005-06 where major construction would have taken place and in the earlier years the construction was not equal as presumed by the assessing officer.

6.  The learned Commissioner of Income-tax (Appeals) erred in dismissing the ground raised against levy of interest u/s 234A and 234B as only consequential without considering the claim of the appellant.

7. The appellant submits that the assessing officer was not correct in levying interest under section 234B from the 1^stday of the assessment year till the date of completion of the assessment made on 20/3/2013 when the regular assessment was completed on 31/12/2009 itself.

8. The appellant submits that the levy of interest is contrary to the provisions of section 234B(4) of the Act and against the law laid down by the Income-tax Appellate Tribunal Ahmedabad in ITA No. 2426/Ahd/2009 dated 5/8/2011 in the case of ACIT Vs. Sallaluddin M. Kadri.

9. The appellant submits that in any view of the matter, the value determined by the District Valuation Officer is on the high side and not in accordance with the prevailing market rate

10. The appellant therefore prays that the order of the assessing officer may be cancelled and the addition made may be deleted. The assessing officer may also be directed to re-compute the interest levied u/s 234B in terms of section 234B(4) of the Act and render justice.

3. The first ground raised by the assessee in all her appeals is too general and does not require adjudication. Hence, this ground is rejected.

3.1 At the time of hearing, the ld. Counsel made an endorsement that the ground Nos.2, 3, 6 & 9 are not pressed. Accordingly, we dismiss these grounds Nos. 2,3,6 & 9, as not pressed.

4. The ground No.4 is with regard to action of the AO in apportioning the cost of construction equally in all assessment years and treated the same as unexplained investment.

5. In Ground No.5, the assessee stated that since the housing loans are availed by the assessee in the financial year 2004-05 relevant to assessment year 2005-06 where the major construction would have taken place and in the earlier years the construction was not equal as presumed by the AO. However, the ld.A.R was unable to place any evidence to show the relevant cost of construction incurred by the assessee in respective assessment years so as to determine the unexplained investment towards cost of construction in proportion to the cost of construction incurred by the assessee in relevant to assessment years. Being so, we are not in a position to give any direction to the AO on the basis of argument of assessee’s counsel. In view of lack of evidence on the cost of construction incurred by the assessee in each assessment year, this ground raised in all the assessment years stands dismissed.

6. The next ground Nos.7, 8 & 10 is with regard to levy of interest u/s.234B of the Act whether it is from the 1^stday of the assessment year till the date of completion of the assessment i.e. 20.03.2013 when the regular assessment u/s.143(3) r.w.s.147 was completed on 31.12.2009.

7. The facts of the case are that the assessee filed her return of income for the Assessment Year 2003-2004 on 12.03.2008 in response to notice u/s 148 declaring total taxable income `46,000/-. The return was taken for scrutiny and notice u/s 143 (2) was sent on 10.04.2008. Subsequently, a notice under section 142(1) with questionnaire was issued on 05.08.2009. Thereafter, the assessing officer has conducted proceedings under section 143(2) and the assessment was completed u/s 143(3) r.w.s. 147 and the order was passed on 31.12.2009. In the said order, the assessing officer added a sum of `7,77,170/ as unexplained investment u/s. 69 on proportionate basis for four assessment years from assessment year 2003-2004 to 2006-2007. Being aggrieved by the order of the Assessing officer, the assessee preferred an appeal before the Learned CIT(A). On appeal, the Ld.CIT(A) decided the cost of construction for `13,22,496/- in total for four Assessment Years 20032004 to 2006-2007 and directed the Assessing Officer to revise the order accordingly vide its order dated 02.02.2011. The ld. Assessing Officer revised the taxable income for `3,76,620/- in obeying the Ld.CIT(A)’s instruction strictly vide his order dated 28.03.2011. Subsequently the Learned Commissioner of Income Tax, Pondicherry issued a show cause notice u/s 263 requesting the assessee to explain as to why the difference between the district valuation report and the approved engineer’s valuation report for `5,97,841/- should not be considered for further taxation u/s.69 vide his letter C. No 9127A(35)CIT/PDY/2011-12 dt 29.08.2011. The assessee submitted her reply on various occasions from time to time. Finally the Learned Commissioner of Income Tax , Pondicherry passed order u/s 263 vide order dt.28.03.2012 directing the Assessing Office to redo the assessment de-novo after taking into judicial pronouncements on the issue of estimation of CPWD rates and the deduction for self-supervision and other contentions raised by the assessee. In obedience to the said order of the learned Commissioner, the ld. Assessing Officer issued notice u/s 143(2) dt. 22.08.2012 and the ease was heard in further hearings. Thereafter, the assessing officer has conducted proceedings under section 143(2) and the assessment was completed u/s 143(3) r.w.s. 254 of the Act and the order was passed and dated as 20.03.2013. In the said order, the assessing officer added a sum of `4,81,546/- as unexplained investment u/s.69 of the Act on proportionate basis for four assessment years from assessment year 2003-2004 to 2006-2007. The assessing officer has also levied interest under section 234B of the Act for `1,60,320/-. The AO considered the period from First day of the assessment year till the date of completion of assessment i.e. on 20.03.2013 when the regular assessment u/s.143(3) r.w.s.147 was completed on 31.12.2009. The order of ld. Assessing Officer was confirmed by the Ld.CIT(A). Against this, the assessee is in appeal before us.

8. Before us, the contention of the ld.A.R is that the interest u/s.234B of the Act is required to be charged from the first day of assessment year till the completion of original assessment i.e 31.12.2009 and not the till the date of order passed u/s.143(3) r.w.s.147 of the Act r.w.s.263 of the Act i.e.20.03.2013. The ld.A.R placed reliance in the Order of Ahmedabad Tribunal in the case of ACIT Vs. Sallauddin in ITA No.2426/Ahd./2009 for assessment year 1997-98 vide order dated 05.08.2011.

9. On the other hand, ld.D.R submitted that liability to pay interest u/s.234 is mandatory and consequential in nature.

10. We have heard both the parties and perused the material on record. Sub-sections (1) and (4) of section 234B are of particular relevance to the controversy which arises in these proceedings. For aiding the discussion, it would be appropriate to extract in entirety, the statutory provision :

“234B. (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 1.—In this section, ‘assessed tax’ means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of,—

(i) any tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income ;

(ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India ;

(iii) any relief of tax allowed under section 90A on account o f tax paid in a specified territory outside India referred to in that section ;

(iv) any deduction, from the Indian Income-tax payable, allowed under section 91, on account of tax paid in a country outside India ; and

(v) any tax credit allowed to be set off in accordance with the pro visions of section 115JAA.

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 assess ment for the purposes of this section.

Explanation 3.—In Explanation 1 and in sub-section (3), ‘tax on the total income determined under sub-section (1) of section 143 ‘ shall not include the additional Income-tax, if any, payable under section 143.

(2) Where, before the date of determination of total income under sub-section (1) of section 143 or completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise,—

(i) interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140A towards the interest chargeable under this section ;

(ii) thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax.

(3) Where, as a result of an order of reassessment or re-computation under section 147 or section 153A, the amount on which interest was payable under sub-section (1) is increased, 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 commencing on the date following the date o f determination of total income under sub-section (1) of section 143 and where a regular assessment is made as is referred to in subsection (1) following the date of such regular assessment and ending on the date of the reassessment or re-computation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis o f the reassessment or re-computation exceeds the tax on the tota l income determined under sub-section (1) of section 143 or on the basis of the regular assessment aforesaid.

(4) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the A.O under subsection (4) of section 245D, the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased or reduced, as the case may be, the interest shall be increased or reduced accordingly, and

(i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice o f demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly ;

(ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded.

(5) The provisions of this section shall apply in respect of assess ments for the assessment year commencing on the 1st day o f April, 1989, and subsequent assessment years. “

11. Section 234B provides for the payment of interest on default in the payment of advance tax. The provision is attracted where in any financial year:

(i) an assessee who is liable to pay advance tax has failed to do so ; or

(ii) where the advance tax paid by the assessee is less than ninety per cent. of the assessed tax.

The assessee in such a case is liable to pay interest as specified in the section from the first day of April next following the financial year to the date of determination of the total income under section 143(1) and, where a regular assessment is made, to the date of the regular assessment. Interest is payable 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”. Sub-section (4) of section 234B applies in a situation where, as a result of orders passed under section 154, 155, 250, 254, 260, 262, 263 or 264 or an order of the A.O under section 245D(4), “the amount on which the interest was payable under sub-sections (1) or (3) has been increased or reduced, as the case may be.” Thereupon, the provision is that interest shall be increased or reduced accordingly. In a case where the interest is increased, the Assessing Officer has to serve on the assessee a notice of demand whereas if the interest is reduced, the excess interest has to be refunded.

12. In the present case, the issue before us arises out of the order of the A.O u/s.143(3) r.w.s.147 of the Act r.w.s.263 of the Act and the question is as to whether the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased or reduced. Now, in sub-section (1) of section 234B, interest is payable on an amount equal to the assessed tax (where the assessee who is liable to pay advance tax has failed to pay such tax) or on the amount by which the advance tax paid falls short of the assessed tax. In a situation where the assessee has paid advance tax which is less than ninety per cent. of the assessed tax, interest is payable on the difference between the assessed tax and the advance tax paid. Subsection (4) of section 234B refers to a situation where “the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased or reduced” inter alia as a result of an order of the A.O. The amount which is referred to in sub-section (4), is the amount on which interest is payable under sub-section (1) or sub-section (3). That amount is the amount by which the advance tax paid falls short of the assessed tax. When sub-section (4) of section 234B refers to “the amount on which interest was payable under sub-section (1) or sub-section (3)”, that amount is the difference between the advance tax paid and the assessed tax. The words “on which interest was payable” have been used in a descriptive sense to identify the amount specified in sub-section (1), or as the case may be, in sub-section (3). In sub-section (1), the amount is the difference between the advance tax and the assessed tax. These words do not impose a condition that for interest to be attracted under section 234B(4) interest should actually have been levied under the original order of assessment under sub-section (1).

13. In the present case, regular assessment order u/s.143(3) r.w.s.147 of the Act completed on 31.12.2009 was subject to revisional order of ld. CIT. Consequent to order of the ld. CIT passed u/s.263 of the Act dated 28.03.2012, the AO finally concluded the impugned assessment on 20.03.2013 and he charged the interest u/s.234B of the Act from First day of the assessment year till the date of completion of assessment i.e. on 20.03.2013. The effect of revisional order by ld. CIT in this case resulted in enhancement of the assessed income. The amount by which the advance tax paid by the assessee falls short of the assessed tax, which has been increased as a result of the order passed by the ld. CIT. This is the amount on which the interest was payable under sub-section (1) for, if the assessee were to make a correct disclosure of her income in the first instance, the assessee would have been liable to pay interest under sub-section(1) on the short fall. The words, “the interest shall be increased”, would contemplate both a situation where interest both a situation where interest had been levied on the assessee in the first instance and a situation where no interest has been levied on the assessee in the original order of assessment. There is no reason or justification for the Bench on the basis of the plain language used in sub-section(4) to exclude the latter category of cases as contended by the ld.A.R frofm the liability to pay interest. In accepting the submission of the assessee, it would be lead to adopting an interpretation, which would be contrary both to the language used by the Legislature and the intent that is embodied in sub-section(4) of s.234B.

14. In our opinion, the assessee’s case falls under purview of Sec.234B(1) r.w.s.234B(4) only and not u/s.234B(3) and it would be even encountered that no interest is chargeable for that portion of the income forming part of the total income as determined by the ld.CIT in his order u/s.263, which was not earlier part of the income determined by the ld. Assessing Officer. In other words, the interest charged in terms of Sec.234B become payable on the income already disclosed in the return filed, together with the income determined bythe AO in consequent to the order passed u/s.263 of the Act. The concerned interest shall be on the consolidated amount of income i.e. both  determined in re-assessment order and income determined in consequent to revisional order passed u/s.263, when the reassessment order was subject to revision u/s.263 of the Act. Accordingly, we hold that the interest u/s.234B of the Act to be charged in these cases from the first day of each assessment year to relevant to assessment year till the date of the completion of assessment made i.e. 20.03.2013 and not to the date, the reassessment order was passed i.e. 31.12.2009. Further, assessee’s counsel relied on the order of Tribunal, Ahmedabad Bench in the case of ACIT Vs. Sallaluddin M. Kadri (supra), which was delivered on different set of facts and the said order has no application to the facts of the present case.

15. In the result, the appeals of the assessee for assessment years 2003-04, 2004-05, 2005-06 & 2006-07 are dismissed.

Order pronounced on 11^th October, 2017, at Chennai.