Interest u/s 234B cannot be levied unless AO specifies in Assessment Order

Issue is squarely covered by the decision of the Apex Court in the case of Commissioner of Income Tax and others v. Ranchi Club Ltd., reported in (2001) 247 ITR 209. In the said decision, the Apex Court held that in absence of any specific direction giving reference to the section charging interest in the assessment order, no interest can be levied through a notice of demand.

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX APPEAL No. 84 of 2000

ASSTT. C.I.T.
Versus
S.K. PATEL  FAMILY TRUST

CORAM: HONORABLE MR.JUSTICE AKIL KURESHI and

HONORABLE MS.JUSTICE HARSHA DEVANI

Date : 19/06/2012

ORAL JUDGMENT

(Per : HONORABLE MR.JUSTICE AKIL KURESHI)

1. Revenue is in appeal against the judgement of the Income Tax Appellate Tribunal (“the Tribunal” for short) dated 8.3.2000. While admitting this appeal, by an order dated 20.9.2000, Division Bench of this Court had formulated the following two questions of law :

“[1] Whether the Appellate Tribunal is right in law and on facts in directing to allow depreciation under section 32 on plant and machinery relating to toilet soap unit, which were not put to use during the year?

[2] Whether the Appellate Tribunal is right in law and on facts in holding that if interest under section 234B is not levied specifically in the assessment order, the same cannot be charged in the demand notice?”

2.   The appeal involves assessment year 1991-92. The respondent – assessee had claimed depreciation on plant and machinery installed in its toilet soap unit. The Assessing Officer on the premise that such plant and machinery was not put to use during the year under consideration, disallowed the assessee’s claim of depreciation relatable to such plant and machinery. The assessee carried the matter in appeal. The Commissioner (Appeals) confirmed the view of the Assessing Officer. The matter was carried further in appeal before the Tribunal by the assessee. Before the Department as well as the Tribunal, the assessee had contended that the toilet soap was produced in the earlier years and for the plant and machinery in question, depreciation was also allowed in the earlier years. It was contended that since depreciation is to be calculated with reference to a block of assets, individual assets would lose its significance and such depreciation cannot be disallowed merely on the ground that temporarily such asset was not put to use during the year under consideration. The Tribunal upheld the contention of the assessee and allowed the appeal making following observations :