Section 234D Interest on Subsequent Reassessment Deleted by ITAT Mumbai

Sanjana Cryogenic Storages Ltd. Vs DCIT (ITAT Mumbai)

Section 234D Interest Cannot Be Levied on Reassessment Following an Earlier Scrutiny Assessment
The controversy

The Mumbai Tribunal directed deletion of ₹73,45,144 charged as interest under section 234D, holding that a reassessment under section 147, preceded by an assessment under section 143(3), was not a “regular assessment” for this purpose.

The Department argued that the first reassessment under section 147 qualified as a regular assessment, even though an earlier scrutiny assessment existed. The Tribunal rejected this interpretation. “Assessment made for the first time” means the first assessment of the year—not merely the first occasion on which section 147 is invoked. viewOrder (35)(9)

Refund granted, followed by scrutiny assessment

The company filed its return for AY 2019-20 declaring total income of approximately ₹3.95 crore and book profit under section 115JB of ₹99,77,081.

Its revised return was processed under section 143(1) on 7 June 2020, determining a refund of ₹3,41,57,590.

Following the assessee’s rectification application, CPC passed an order under section 154 on 7 October 2020, revising the refund to ₹3,41,63,600. The refund was partly received and partly adjusted against outstanding demands.

The case was subsequently selected for scrutiny. An assessment under section 143(3) was completed on 29 September 2021, determining total income at ₹24,59,53,234. The resulting demand included recovery of the refund previously granted.

Reassessment followed—and interest was added through rectification

The Department later reopened the case by issuing a section 148 notice dated 11 April 2023.

The reassessment under section 147 read with section 143(3) was completed on 15 March 2024, determining total income at ₹24,88,65,540.

The Assessing Officer noticed that the computation added back the earlier refund under “Refund Already Issued”, but did not charge interest under section 234D. Treating this omission as a mistake apparent from the record, he initiated rectification.

The assessee objected that the reassessment was not a regular assessment within section 234D and that the disputed legal interpretation could not be corrected under section 154.

Nevertheless, by a rectification order dated 21 August 2025, the Assessing Officer charged ₹73,45,144 under section 234D.

The Department’s interpretation

The Assessing Officer relied on Explanation 1 to section 234D, which treats an assessment made for the first time under section 147 or section 153A as a regular assessment for that section.

According to the Department, the order dated 15 March 2024 was the first assessment under section 147, and therefore satisfied the Explanation.

The CIT(A) upheld this approach. It considered the reassessment to be the operative determination of tax liability against the earlier refund and held that the existence of a previous section 143(3) assessment did not prevent section 234D from applying.

The assessee challenged that reading before the Tribunal.

The statutory distinction: first assessment versus first reassessment

The Tribunal examined section 234D(1), which provides for interest where a refund granted under section 143(1) exceeds the refund due on regular assessment, or where no refund is due on such assessment.

Under section 2(40), a regular assessment means an assessment under section 143(3) or section 144.

Explanation 1 to section 234D extends this meaning where the assessment is made for the first time under section 147 or section 153A.

The Tribunal held that the Explanation did not mean that every first reassessment under section 147 became a regular assessment. It covered a situation where the assessment under section 147 was itself the first assessment, without an earlier assessment under section 143(3).

Here, the scrutiny assessment dated 29 September 2021 had already been completed. The subsequent reassessment dated 15 March 2024 could not acquire the character of a regular assessment merely because it was the first reopening.

Authorities followed and relief granted

The Tribunal relied particularly on CIT v. United India Insurance Co. Ltd. [2021] 438 ITR 302 (Mad.) and Dredging Corporation of India Ltd. v. ACIT [2011] 13 taxmann.com 37 (Visakhapatnam ITAT).

These authorities supported the distinction between an assessment made initially under section 147 and a reassessment following an earlier scrutiny assessment.

The Tribunal reversed the CIT(A)’s finding and directed deletion of the section 234D interest. The appeal was allowed.

Since the interest levy failed on substantive applicability, the separate ground concerning the permissibility of section 154 rectification became academic and was not adjudicated. viewOrder (35)(9)

Author’s comments
The decisive words are “assessment made for the first time”. They cannot be read as “section 147 invoked for the first time” while ignoring an earlier scrutiny assessment.

The decision also shows why recovery of an earlier refund and liability for statutory interest require separate examination. The existence of a refund does not eliminate the need to satisfy the particular charging provision.

The scope of the ruling must nevertheless remain clear. It concerns the levy founded on the subsequent reassessment. It does not hold that section 234D could never have applied when the earlier regular assessment was completed, nor does it decide whether that earlier order could have been rectified.

Likewise, the Tribunal did not rule on the assessee’s argument that the matter was too debatable for section 154. Relief came from its interpretation of section 234D itself.

A first reopening is still a reassessment when the first assessment has already taken place.

Cases Discussed

• CIT v. United India Insurance Co. Ltd. (2021) — 438 ITR 302 (Madras High Court) TaxGuru judgment link requires verification
• Dredging Corporation of India Ltd. v. ACIT (2011) — 13 taxmann.com 37 (ITAT Visakhapatnam)
• Darshan Lal Gulati v. CIT (2008) — 173 Taxman 268 (Punjab & Haryana High Court)
• CIT v. Bishal Enterprises (2002) — 125 Taxman 52 (Madras High Court)
• K. Govindan & Sons v. CIT (2001) — 247 ITR 192 (Supreme Court)
• CIT v. S. Antony (2000) — 242 ITR 363 (Madras High Court)
• CIT v. K. P. Baburaj (1998) — 234 ITR 718 (Kerala High Court)
• Modi Industries Ltd. v. CIT (1995) — 216 ITR 759 (Supreme Court)

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The present appeal emanating from the appellate order dated 24.03.2026 is preferred by the assessee against the order passed by the Learned Commissioner of Income-tax, Appeal, CIT(A)-50, Mumbai [hereinafter referred to as “CIT(A)”] pertaining to Rectification order passed u/s. 154 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 21.08.2025 for the Assessment Year [A.Y.] 2019-20.

2. The grounds of appeal are as under:

General

1. On the facts and in the circumstances of the case and in law, the Ld. CIT erred in upholding the rectification order dated 21 August 2025 passed by the Deputy Commissioner of Income Tax Act (Central Circle)-8(3), Mumbai (‘ AO’) under section 154 of the Act.

Charge of Interest under S. 234D-Rs. 73,45,144

2. On the facts and in the circumstances of the case and in law, the Ld. CIT erred in upholding the rectification order passed by the AO on 21st August 2025 whereby the AO has illegitimately charged interest of Rs. 73,45,144 under section 234D in respect of tax computed in respect of an order passed under section 147 on 15^thMarch 2024.

3. CIT failed to appreciate that a regular assessment order under section 143(3) having been passed on 29^thSeptember 2021, the re­assessment order so passed on 15^thMarch 2024 was not the first assessment and infact it was the second assessment (re-assessment) and hence not a regular assessment within the meaning of explanation 1 of section 234D read with section 2(4) of the Income tax Act, 1961.

4. On facts and in law and in the circumstances of the case, Ld. CIT failed to appreciate that there being no apparent mistake in the re­assessment order passed under section 147 with regard to charge of interest under section 234D which could have been rectified under section 154 of the Income Tax Act, 1961.

The Appellant prays that the illegitimate charge of interest under section 234D may kindly bedeleted.

3. Ground no.1 is general in nature requiring no adjudication while in in ground nos. 2 and 3, the assessee has contested charging of interest u/s 234D of the Act.

4. Briefly stated facts of the case as culled from the impugned order reveals that the assessee company filed its original return of income for the year declaring total income at Rs.3,94,63,635/- and Book Profit u/s 115JB of the Actat Rs.99,77,081/-. Subsequently, it filed revised return of income declaring total income of Rs.3,94,63,635/- and Book Profit u/s 115JB amounting to Rs.99,77,081/-. The case was selected for scrutiny under CASS and assessment proceeding u/s. 143(3) of the Act was completed assessing total income of the assessee at Rs.24,59,53,234/- and Book Profit u/s. 115JB amounting to Rs.99,77,081/-. Thereafter, based on the information received, case of the assessee was reopened vide notice u/s 148 of the Act and assessment order u/s. 143(3) r.w.s. 147 was passed assessing total income of the assessee at Rs.24,88,65,540/- and Book Profit u/s. 115JB amounting to Rs.99,77,081/-. In the instant case, therefore, regular assessment u/s. 143(3) of the Act was made on 29.09.2021 and reassessment u/s. 147 r.w.s. 143(3) was made first time on 15.03.2024.

4.1 On perusal of tax computation sheets, it was found by the AO that refund of Rs.3,41,63,600/- was added back under the head ‘Refund Already Issued’, however, interest u/s. 234D was not charged. Since, it was a mistake apparent from the record notice u/s. 154 of the Act was issued to assessee in response to which, it objected to charging of such interest. It was stated that in this case provisions of section 154 of the Act could not be invoked to charge interest u/s. 234D of the Act as the re-assessment order passed u/s. 147 on 15.03.2024 was not a regular assessment. However, the AO rejected the contention by observing that as per the Explanation 1 to section 234D of the Act, the assessment made for the first time under section 147 or section 153A is a regular assessment for the purposes of the section 234D of the Act. Explanation is reproduced as under:-

Explanation [1]-Where, in relation to 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.

5. Aggrieved, the assessee filed further appeal before the first appellate authority who noted that the assessee filed its original Return of Income for A.Y. 2019-20 on 31.10.2019 under Section 139(1) of the Act, declaring a total income of Rs. 3,94,63,640/-. A revised return was filed on 13.03.2020 which was processed by the Centralized Processing Centre (CPC) under Section 143(1) of the Act on 07.06.2020, and a tax refund of Rs. 3,41,57,590/- was determined. In response to an application filed by it under Section 154 of the Act, the intimation dated 07.06.2020 was rectified by the CPC, and a revised order under Section 154 was passed on 07.10.2020. Pursuant thereto, a tax refund of Rs. 3,41,63,600/- was determined. The said refund was partly received by the assessee and partly adjusted against outstanding tax demands. The case was selected for regular scrutiny under CASS. The AO passed a regular assessment order under Section 143(3) of the Act on 29.09.2021, assessing the total income at Rs. 24,59,53,234/-and the Book Profit under Section 115JB at Rs. 99,77,081/-. Certain additions were made and a tax demand of Rs. 7,07,78,313/- was raised, which included the refund amount earlier paid to the assessee by the CPC under Section 143(1) of the Act. Pursuant to information received, the case of the assessee was reopened by issuing a notice under Section 148 of the Act dated 11.04.2023. The AO thereafter passed a re-assessment order under Section 147 r.w.s. 143(3) of the Act on 15.03.2024, assessing the total income at Rs. 24,88,65,540/- and the Book Profit under Section 115JB at Rs. 99,77,081/-, by making further additions. A fresh tax demand of Rs. 6,13,69,600/- was raised, after crediting a sum of Rs. 1,29,98,559/- paid by the assessee under protest. The AO did not charge any interest under Section 234D of the Act in the re-assessment order dated 15.03.2024.The AO went on to charge interest u/s 234D of the Act by holding that the re-assessment order under Section 147 was made for the first time on 15.03.2024 and accordingly, fell within the scope of Explanation 1 to Section 234D of the Act.

5.1 In this regard, the assessee contended before the ld.CIT(A) that the reassessment order was not a ‘Regular Assessment’. The AR contended that such characterisation is legally untenable as,

(a) Section 2(40) of the Act defines ‘regular assessment’ to mean the assessment made under sub-section (3) of Section 143 or Section 144 of the Act. A reassessment under Section 147 is not a ‘regular assessment’ as ordinarily defined. Parliament has expressly excluded re-assessments from the general definition.

(b) Explanation 1 to Section 234D extends the meaning of ‘regular assessment’ to assessment ‘made for the first time under Section 147 or Section 153A’. The operative phrase is ‘for the first time’. This necessarily presupposes a situation where no prior assessment of any kind has been made in the case, and the assessment under Section 147 constitutes the very first occasion on which the income of the assessee is being assessed.

(c) In the instant case, a full-fledged regular assessment under Section 143(3) was completed on 29.09.2021, prior to the re-assessment under Section 147. The reassessment order dated 15.03.2024 is thus not the first assessment—it is the second assessment. It cannot, by any stretch of statutory interpretation, be said to be ‘made for the first time under Section 147’.

5.2 The AR further submitted that section 154 of the Act enables rectification only of a ‘mistake apparent from the record’. Where the non-charging of interest under Section 234D in the re-assessment order was a considered and conscious decision of the AO based on a legally debatable question of interpretation and such a decision cannot constitute a ‘mistake apparent from the record’. The AR claimed that a debatable question of law cannot be the subject of rectification under Section 154. Since theapplicability of Section 234D to re-assessment orders was itself a contested legal position, there was no ‘apparent mistake’ in the re-assessment order that warranted rectification.

5.3 The ld.AR placed reliance on certain judicial precedents in K. Govindan & Sons v. CIT [2001] 247 ITR 192 (SC), Modi Industries Limited v. CIT [1995] 216 ITR 759 (SC). The Hon’ble Supreme Court, while interpreting Explanation 2 to Section 214 (also analogous in terms to Explanation 1 to Section 234D), held that the words ‘made for the first time under Section 147’ in the Explanation furnish an ‘unmistakable indication’ that Parliament used the expression ‘regular assessment’ in the sense of the ‘first assessment’. The Hon’ble Supreme Court further held that it is only where the assessment under Section 147 is the first assessment made in the case that it acquires the character of a regular assessment for the purpose of interest provisions. The AR urged that this ratio, emanating from the Apex Court,binds all courts and authorities in the land. In CIT v. United India Insurance Co. Ltd. [2021] 438 ITR 302,the Hon’ble Madras High Court, on identical facts involving Section 234D specifically, held that a re-assessment order passed under Section 143(3) r.w.s. 147, which was not the first assessment but was preceded by a regular assessment under Section 143(3), cannot be regarded as a ‘regular assessment’ for the purpose of Section 234D. The Hon’ble High Court answered the substantial questions of law against the Revenue and dismissed the Revenue’s appeal. In Dredging Corporation of India Ltd. v. ACIT [2011] 13 taxmann.com 37 (ITAT, Visakhapatnam),theITAT, on identical facts, held that the re-assessment order passed subsequent to the order under Section 143(3) could not be called a ‘regular assessment’ for the purpose of Explanation 1 to Section 234D and therefore, no interest under Section 234D could be charged. In Darshan Lal Gulati v. CIT [2008] 173 Taxman 268 (P&H),the Hon’ble High Court, while dealing with the analogous expression ‘regular assessment’ for the purpose of interest under Section 217, held that where a first or initial assessment has already been made, the subsequent re-assessment proceedings could not be termed the ‘first assessment’ and do not come within the meaning of the expression ‘regular assessment’. Consequently, the interest provisions cannot be applied to such re-assessment orders.

5.4 The AR also drew the attention of the ld.CIT(A) to the fact that expressions identical to Explanation 1 to Section 234D appear in several other provisions of the Act, including Explanation 2 to Section 214 (dealing with interest on advance tax), Explanation 2 to Section 139(8) (dealing with interest on delayed filing), and Section 215(6) (dealing with interest on advance tax). The courts have uniformly interpreted these analogous provisions to mean that only the firstever assessment in the case, whether under Section 143, 144, or for the first time under Section 147, constitutes a ‘regular assessment’. Second and subsequent re-assessments are expressly excluded. There is no reason to adopt a different interpretation in the context of Section 234D. The assessee contended that the reassessment under Section 147 cannot be treated as a “regular assessment” for the purposes of Section 234D and therefore interest charged under that provision is not sustainable.

6. The ld.CIT(A), however, rejected the contentions observing that section 234D of the Act provides that where any refund is granted to the assessee under Section 143(1) and, on regular assessment, it is found that no refund or a lesser refund is due, the assessee shall be liable to pay interest on the excess amount so refunded. Section 2(40) defines “regular assessment” to mean an assessment made under Section 143(3) or Section 144. However, Explanation 1 to Section 234D specifically enlarges the scope of this expression by providing that where an assessment is made for the first time under Section 147, such assessment shall also be regarded as a regular assessment for the purposes of Section 234D of the Act. The legislative intent behind the Explanation is to ensure that where a refund granted at the stage of processing under Section 143(1) is subsequently found to be excessive upon a later determination of income under Section 147, the Revenue is compensated through statutory interest. In the present case, the assessee had already received a refund under Section 143(1) amounting to Rs. 3,41,63,600/-, and the reassessment under Section 147 dated 15.03.2024 resulted in a determination of higher taxable income. Consequently, the reassessment constituted the operative assessment determining the correct tax liability vis-a-vis the refund already granted. The existence of earlier scrutiny assessment under Section 143(3) did not dilute the statutory effect of Explanation 1, as the Explanation deems the first assessment made under Section 147 for the relevant assessment year to be a regular assessment for the limited purpose of computing interest on excess refund. Thus, the reassessment under Section 147, which ultimately determined the tax liability after reopening, was rightly treated as the relevant “regular assessment” for invoking Section 234D in respect of the excess refund previously granted.

6.1 The ld.CIT(A) further held that judicial precedents, including the decision of the Madras High Court in CIT v. United India Insurance Co. Ltd. and the decision of the ITATin Dredging Corporation of India Ltd., were materially distinguishable from the present case. In those decisions, the question of levy of interest arose in situations where no refund had been granted under Section 143(1) prior to the reassessment, and therefore the statutory trigger required under Section 234D, namely the existence of an excess refund, was absent. In the present case, however, the assessee had already received a substantial refund under Section 143(1) amounting to Rs. 3,41,63,600/-.Further, contention of the assessee that the reassessment under Section 147 cannot be treated as the “first assessment” for the purposes of Explanation 1 to Section 234D was also not sustainable. Explanation 1 refers to the first assessment made under Section 147 for the relevant assessment year and creates a legal fiction whereby such assessment is deemed to be a regular assessment for the purposes of computing interest onexcess refund. The purpose of this deeming provision is to ensure that where the income originally processed under Section 143(1) is subsequently reassessed and the earlier refund is found to be excessive, the statutory mechanism for recovery of compensatory interest operates effectively. In the present case, the reassessment dated 15.03.2024 represents the first assessment made under Section 147 for AY 2019-20 and therefore squarely falls within the ambit of the Explanation. Levy of interest under Section 234D is compensatory in nature and arises automatically upon fulfilment of the statutory conditions prescribed under the Act. Once it is established that a refund granted under Section 143(1) has subsequently been found to be excessive upon completion of assessment or reassessment, the liability to pay interest follows as a matter of law and does not depend upon the discretion of the AO. In the present case, the excess refund granted to the assessee became evident upon determination of the correct tax liability in the reassessment proceedings, and therefore, the levy of interest under Section 234D represented the statutory consequence flowing from such determination. The rectification carried out under Section 154 merely ensures that the computation of tax liability conforms to the mandate of the Act and did not amount to a review of the reassessment order.

6.2 The assessee further submitted that the AO could not have invoked Section 154 on the ground that there was no “mistake apparent from the record” in the reassessment order. This submission was not acceptableas section 154 empowers the AO to rectify any mistake apparent from the record in any order passed by him. The scope of this provision includes correction of manifest omissions that are evident from the record and which arise from failure to give effect to mandatory statutory provisions. In the present case, the record clearly showed that a refund had been granted to the assessee under Section 143(1), and upon completion of reassessment under Section 147 it was evident that such refund had become excessive. Section 234D mandates levy of interest in such circumstances. The omission to levy interest while passing the reassessment order was, therefore, a clear and patent omission apparent from the record, which required rectification so that the statutory consequence prescribed under the Act could be correctly applied. The rectification carried out by the AO did not involve any re-appreciation of facts or reconsideration of a debatable legal issue; it merely gives effect to a mandatory statutory provision which had inadvertently not been applied earlier. The ld.CIT(A), accordingly rejected the contentions of the assessee in this regard as well.

6.3 The ld.DR supported the orders of the authorities below.

7. We have carefully considered the impugned issue relating to the interest charged u/s 234D of the Act. The only contentious issue in the instant case is whether for levying such interest u/s 234D of the Act regular assessment as per Explanation would refer to any reassessment order passed u/s 147 of the Act for the first time or not? While the Revenue claims that for the said purpose, the assessment made for the first time under s. 147 of the Act is treated as “regular assessment”. The assessment made for the first time under s. 147 of the Act is to be treated as “regular assessment” for the purpose of s. 234D of the Act and hence, interest is leviable in the hands of the assessee. On the contrary, the stand of the assesse is that the impugned section is applicable only in cases where the refund granted under s. 143(1) became collectable in a regular assessment. In the instant case, the impugned assessment is a reassessment made under s. 147 of the Act, since the original assessment had already been completed under section 143(3) of the Act.

7.1 We find that similar issue came for adjudication before the hon’ble Madras High Court in the case of CIT v. United India Insurance Co. Ltd.(supra) which decided the issue in favour of the assessee. Relevant parts of the order are extracted below for the sake of brevity:

“3. When the matter came up for admission before the Division Bench, to which one of us (TSSJ) was a party, the substantial questions of law were re-framed by order dated 21.03.2014. For better appreciation, we quote the operative portion of the order hereunder:-

“2. It is seen from the narration of the facts that originally as per the proceedings under Section 143(1) of the Income Tax Act, 1961, the assessee was granted refund of a sum of Rs.27,53,15,828/-. However, there afterwards, the assessment was taken up for scrutiny and the same was completed under Section 143(3) of the Act resulting in additional income of Rs.38,61,15,000/-. In view of the demand thus made, interest under Section 234D was sought to be levied therein. As against this order, the assessee went on appeal. In the meantime, by order dated 26.12.2008 the assessment was re-opened and an order under Section 143(3) r/w 147 of the Income Tax Act, 1961 was made. As per the revised assessment order, the liability of the assessee was arrived at a sum of Rs.45,64,03,628/-. The Officer also levied interest under Section 234D at an amount of Rs.10,50,78,864/- as against the interest levied at Rs.2,71,08,878/-.

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6. Since the issue raised herein is a substantial one in the context of Explanation (2) to Section 234D of the Act, we ordered notice to the respondent/assessee. Accordingly the respondent/assessee is before us today.

7. Learned Counsel appearing for the assessee submitted that even though Explanation (2) inserted w.e.f. 1.6.2003, may apply to the assessment year 2001- 02, yet, considering the facts prevailing herein Section 234D itself would not be of any assistance to the Revenue to levy interest. He submitted that the said Section would have relevance only to a case of regular assessment. The assessee’s case herein relates to an assessment order under Section 143(3) r/w 147 of the Act. Hence, the said Section would not apply to the proceedings under Section 147 of the Act.

8. We find that the said issue was not raised or considered before the Tribunal The assessee’s appeal before the Tribunal was allowed going by the provisions of 234D as it then stood, where the order therein was made on 11.08.2011 and the Tribunal confirmed the order passed by the Commissioner of Income Tax (Appeals). Thus even though the insertion of Explanation (2) to Section 234D would be of relevance to the assessment herein as the Explanation itself was introduced w.e.f. 1.6.2003 under Finance Act, 2003, the question as to whether the provisions would be applicable to the proceeding under Section 147 of the Act was not raised or considered in the context of the facts as narrated above.

9. In the circumstances, satisfied of the question of law arising on the facts of the case, as to the applicability of the Explanation (2) to Section 234D to the proceedings under Section 147, we deem it fit to admit this Tax Case (Appeal) by reframing the questions of law as under:-

i. Whether Section 234D of the Income Tax Act, in the context of the language used in the said provision is referable to re-assessment under Section 147 revising the original assessment order made under Section 143(3) of the Act?

ii. Whether the assessment made under Section 143(3) r/w 147 as by way of re-opening would also be covered by Section 234D?”

4. From the above order, it is seen that the above substantial questions of law framed for consideration in this appeal, were not the grounds, which were canvassed before the Tribunal. Under normal circumstances, an appellant, who prefers an appeal under Section 260A of the Act, will be entitled for his appeal to be heard only on the questions so formulated and the respondent, shall at the hearing of the appeal, be allowed to argue that the case does not involve such question.

5. The proviso under sub-section (4) of Section 260A provides that nothing in sub-section (4) shall be deemed to take away or abridge the power of the Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question. Precisely, the Division Bench while passing the order dated 21.03.2014, exercised its power under the proviso to sub-section (4) of Section 260A and re-framed the substantial questions of law, despite that such question was not an issue before the Tribunal.

Therefore, we shall proceed to consider and decide the following substantial questions of law:-

(i) Whether Section 234D of the Income Tax Act, in the context of the language used in the said provision is referable to re-assessment under Section 147 revising the original assessment order made under Section 143(3) of the Act? and

(ii) Whether the assessment made under Section 143(3) r/w 147 as by way of re-opening would also be covered by Section 234D?”

6. ……………………………..

7. The facts, which are necessary for deciding the above substantial questions of law are culled out as hereunder:-

7.1. The assessee, the United India Insurance Company Ltd., filed its return of income income on 31.10.2001, declaring a total loss of Rs.91,70,56,335/-. The assessment was completed under Section 143(3) on 31.03.2004. Subsequently, notice was issued under Section 148 of the Act on 28.03.2008, informing the assessee that the Revenue proposes to reopen the assessment and calling upon the assessee to file its return of income pursuant to the notice issued under Section 148 of the Act. The assessee by letter dated 27.04.2008, requested the original return filed on 31.10.2001 to be treated as a return in response to the notice under Section 148 of the Act.Subsequently, notice under Section 143(2) was issued and thereafter, the assesseesought for reasons for reopening and the reasons were furnished and there was change of jurisdiction and ultimately, the assessment was completed by order dated 26.12.2008, under Section 143(3) read with Section 147 of the Act. There was an order of rectification passed under Section 154 of the Act dated 24.03.2010 and the total income was arrived at Rs.90,51,95,515/-.

7.2 .The assessee preferred appeal against the said order of reassessment before the Commissioner of Income Tax (Appeals), Large Taxpayer Unit (LTU), Chennai (for brevity “the CIT(A)”) challenging the levy of interest under Section 234D and on other issues as well. The appeal filed by the assessee was allowed holding that Section 234D will not be applicable for the assessment year 2001-02, as the said provision was introduced by Finance Act, 2003 with effect from 01.06.2003. Aggrieved by the same, the Revenue preferred appeal before the Tribunal, but the Tribunal dismissed the appeal by the impugned order, which is questioned before us in this tax case appeal.

8. As mentioned above, the questions to be decided were not an issue either before the CIT(A) or before the Tribunal. Thus, we are required to decide as to whether the assessment under Section 143(3) read with Section 147 of the Act dated 26.12.2008, would also be covered by Section 234D of the Act.

8.1. Section 234D deals with ‘interest on excess refund’.

8.2. Sub-section (1) of Section 234 states that subject to the other provisions of the Act, where any refund is granted to the assessee under sub-section (1) of Section 143 and (a) no refund is due on regular assessment; or (b) the amount refunded under sub-section (1) of Section 143 exceeds the amount refundable on regular assessment, the assessee shall be liable to pay simple interest at the rate of one-half per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment.

8.3. Sub-section (2) of Section 234D deals with cases where an order is passed 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 Settlement Commission under sub-section (4) of Section 245D and in such case, the amount of refund granted under sub-section (1) of Section 143 is held to be correctly allowed, either in whole or in part, as the case may be, then the interest chargeable, if any, under sub-section (1) shall be reduced accordingly.

8.4. Explanation (1) in Section 234D states 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 a regular assessment for the purposes of Section 234D of the Act.

8.5. Explanation (2) has been inserted for the removal of doubts and it has been declared that the provisions of Section 234D shall also apply to an assessment year commencing before the 1st day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date.

8.6. Explanations (1) and (2) were inserted by Finance Act, 2012 with retrospective effect from 01.06.2003. Thus, the issue, which was before the CIT(A) and the Tribunal, which was the basis for the assessee to succeed, does not any longer survive on account of the provisions being given retrospective effect and admittedly, the assessment having been passed after 01.06.2003, Section 234D would stand attracted. But the only important a shuttle distinction in the case on hand is that whether the assessment, which has been completed on 26.12.2008, is an assessment made for the first time under Section 147 of the Act and if it is so, can it be regarded as a ‘regular assessment’.

8.7. ‘Regular assessment’ has been defined under Section 2(40) of the Act to mean the assessment made under sub-section (3) of Section 143 or Section 144.

9. The facts noted by us in the preceding paragraphs as well as the facts, which can be culled out from the assessment order dated 26.12.2008 are as follows:-

9.1. The assessee filed its return of income on 31.10.2001, the assessment under Section 143(3) was made on 31.03.2004. Subsequently, notice under Section 148 was issued on 28.03.2008. The assessee, by letter dated 27.04.2008, requested to treat the original return filed on 31.10.2001 as a return in response to the notice under Section 148 of the Act. The reasons for reopening were furnished and the assessee objected to the reopening and ultimately, the assessment stood completed under Section 143(3) read with Section 147 of the Act, by order dated 26.12.2008. Thus, the facts clearly show that there was an assessment, which was made under Section 143(3) on 31.03.2004. In such circumstances, can the assessment order dated 26.12.2008 passed under Section 143(3) read with Section 147 of the Act be regarded as the assessment made for the first time to be regarded as a regular assessment in terms of the definition contained in Section 2(40) of the Act.

10. The following decisions cited at the Bar would have facilitate us in answering the substantial questions of law, which have been framed for consideration:-

10.1. In Darshan Lal Gulati vs. CIT [(2008) 173 Taxman 268 (Punjab & Haryana)], the assessee filed its return of income for the assessment year 1988-89 on 31.08.1988. The Assessing Officer, however, issued notice under Section 148 and completed the reassessment and also charged interest under Section 217 of the Act. The order was upheld by the CIT(A) and confirmed by the Tribunal. On appeal to the High Court, it was held that in a case, an assessment has been framed in response to the return filed on 31.08.1988, then it was manifest that first or initial assessment made by the Assessing Officer would be treated as a regular assessment and in that situation, the assessment, in pursuance to reassessment proceedings, could not be termed as “first assessment” and it did not come within the meaning of ‘regular assessment’. Accordingly, it was held that interest under Section 217 of the Act could not have been charged. The operative portion of the judgment reads as follows:-

“9.Sub-section (40) of section 2 defines “regular assessment”. According to the aforesaid section, at the relevant time, any assessment made under section 143 or section 144 of the Act is regarded as regular assessment. However, section 215 of the Act with effect from 1-4-1985 by way of amendment by Taxation Laws (Amendment) Act, 1984 (for short the “Amendment Act”) has brought about important changes in the scheme of interest by the assessee.

After the aforesaid amendment, sub-section (6) of section 215 provides that where in respect to an assessment year, an assessment is made for the first time under section 147, the assessment so made would be regarded as a regular assessment for the purposes of this section and sections 216, 217 and 273.

10. Firstly, taking up the case that an assessment had been framed in response to the return filed on 31-8-1988, then it is manifest that first or initial assessment made by the Assessing Officer would be treated as regular assessment and in that situation assessment in pursuance to re-assessment proceedings cannot be termed as “first assessment” and does not come within the meaning of the expression ‘regular assessment’. Accordingly, the interest under section 217 of the Act could not have been charged.” 10.2.In K.Govindan and Sons vs. CIT, Cochin [(2001) 1 SCC 460 (SC)], the Hon’ble Supreme Court, after noting the provisions viz., Sections 139, 142, 143(3), 147 and 148, held that an initial assessment made by the Assessing Officer either on the assessee voluntarily furnishing a return of income or furnishing such a return on being served a notice under Section 148, is a ‘regular assessment’ under Section 2(40) of the Act, but an order passed by the Assessing officer making a reassessment or revised assessment in a case where an assessment had been made, does not come within the meaning of the said expression.

10.3. In Modi Industries Ltd. vs. CIT [(1995) 216 ITR 759 (SC)], after examining the scheme of the Act without taking into consideration the amendments made to Section 2(40) from time to time, the Hon’ble Supreme Court held that if regular assessment means the final assessment made after and pursuant to the appellate order under Section 250, then the sub-section becomes meaningless. It was further pointed out that the sub-section speaks of the amount on which interest is payable under sub-section (1) being increased or decreased as a result of the appellate order, which necessarily means that the order of regular assessment referred to in sub-section (1) is not the order of assessment made pursuant to the appellate order, but the original assessment order, Explanation (2) introduced by the Amendment Act states that where in relation to an assessment year, an assessment is made for the first time under Section 147, the assessment so made shall be regarded as a regular assessment for the purposes of the said section. The Hon’ble Supreme Court emphasised on the words “made for the first time under Section 147“ of the Act. Further, it was pointed out that even against an assessment made under Section 147, there can be an appeal and revision just as against an assessment made under Sections 143/144. If the assessment made for the first time under Section 147 is to be regular assessment for the purposes of sub-section (1) of Section 214, it cannot be otherwise in respect of the assessment made in the ordinary course under Sections 143/144, spoken of in sub-section (1) of Section 214. Therefore, it was held that a ‘regular assessment’ would mean the ‘first assessment’.

11. The learned counsel for the respondent-assessee placed reliance on a decision of the Vishakapattinam Bench of the Tribunal in Dredging Corporation of India Ltd. vs. Assistant Commissioner of Income-tax, Circle 3(1), Visakhapatnam [(2011) 13 taxmann.com 37 (Visakhapatnam)]. In the said case, the assessee was given a refund of Rs.11.02 Crores while processing the return under Section 143(1). In the assessment order passed under Section 143(3), the refund amount was determined of Rs.11.08 Crores. In the reassessment proceedings under Section 147, the refundable amount got reduced to Rs.8.75 Crores. The Assessing Officer levied interest on the sum of Rs.2.33 Crores which became collectable under Section 234D of the Act. The assessee challenged the said order before the Commissioner (Appeals), who held that interest was not chargeable in the hands of the assessee-company in re-assessment proceedings. The Revenue was on appeal before the Tribunal and the Tribunal held as follows:-

“5.3. The second issue in “Other grounds” raised by the revenue in assessment year 2006-07 relates to the chargeability of interest under section 234D of the Act. As stated earlier, the assessee was given a refund of Rs. 11.02 crores while processing the return under section 143(1) of the Act. In the assessment order passed under section 143(3) of the Act, the refund amount was determined at Rs. 11.08 crores to the assessee. However, in the reassessment proceedings carried under section 147 of the Act, the amount refundable to the assessee got reduced to Rs. 8.75 crores. Hence a sum of Rs. 2.33 crores became collectible from the assessee. The Assessing Officer levied interest of Rs. 29,14,110 under section 234D of the Act on the amount so became collectible. The assessee challenged the said interest charged under section 234D of the Act before Learned CIT(A), who held that the interest under section 234D is not chargeable in the hands of the company in reassessment proceeding. The revenue has challenged the said decision of Learned CIT(A) before us.

5.3.1. The learned Departmental Representative submitted that the interest under section 234D can be charged if the amount of refund already granted became collectible in a regular assessment. For the said purpose, the assessment made for the first time under section 147 of the Act is treated as “regular assessment”. The impugned assessment is the assessment made for the first time under section 147 of the Act, i.e., there is no other section 147 assessment earlier. The only assessment order available is the assessment order made under section 143(3) of the Act. Accordingly, he submitted that the assessment made for the first time under section 147 of the Act is to be treated as “regular assessment” for the purpose of section 234D of the Act and hence interest is leviable in the hands of the assessee. On the contrary the learned Authorised Representative submitted that the impugned section is applicable only in cases where the refund granted under section 143(1) became collectable in a regular assessment. He submitted that, in the instant case, the impugned assessment is a reassessment made under section 147 of the Act, since the original assessment has already been completed under section 143(3) of the Act. Accordingly, he contended that the provisions of section 234D shall not apply in the facts and circumstances of the case.

5.3.2. We have heard the parties on this issue. For the sake of convenience, we extract below the sub-section (1) of section 234D:

“234D(1) Subject to the other provisions of this Act, where any refund is granted to the assessee under sub-section (1) of section 143 and (a) no refund is due on regular assessment; or (b) the amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment, the assessee shall be liable to pay simple interest at the rate of one – half per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment”.

On a plain reading of the above said section, we notice that the interest under section 234D is leviable only if the refund granted to the assessee under section 143(1) of the Act become collectable in the order passed under “regular assessment”. The term “regular assessment” has been defined under section 2(40) of the Act as under: “(40) “regular assessment” means the assessment made under sub­section (3) of section 143 or section 144;”. Under the Explanation given under section 234D the meaning of “regular assessment” is extended further as under:

“Explanation—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”.

Now the question that arises is whether the reassessment made in the instant case under section 147 of the Act can be termed as a “regular assessment” for the purpose of section 234D of the Act. According to the learned Departmental Representative the impugned assessment is the assessment made for the first time under section 147 of the Act and hence it can be called as regular assessment for the purpose of charging interest under section 234D, i.e., according to learned Departmental Representative the second and subsequent reassessments made under section 147 of the Act after the completion of first reassessment under section 147 of the Act are only excluded from the purview of section 234D of the Act. However, we are not able to agree with the said contentions of the learned CIT(DR). According to us the interpretation made by the learned CIT(A) appears to be acceptable. For the sake of convenience, we extract below the relevant observations of the learned CIT(A):

“9.1 After hearing the learned Authorised Representative and on a careful consideration of the facts relating to the issue, it may be stated that regular assessment has been defined to mean assessment order passed under section 143(3) or under section 144 or where the assessment has been made for the first time under section 147 or under section 153A. Thus, reassessment proceedings under section 147 after completion of the assessment under section 143(3) is excluded from the purview of “regular”assessment. Such exhaustive definition of “regular” assessment when considered in the light of the fact that in the appellant company’s case the assessment under section 147 has been made not for the first time, but after the completion of an assessment under section 143(3), the same cannot be termed as “regular” assessment and, consequently, the provisions of sec.234D cannot apply in the appellant company’s case, although as a logical corollary, the appellant company is liable to pay interest on the excess refund granted to it earlier in the manner where interest under section 144A is granted to the appellant company on the excess taxes paid by it. In this view of the matter, no interest under section 234D is chargeable in the appellant company’s case”.

Accordingly we uphold the order of the learned CIT(A) on this issue.

12. The Tribunal agreed with the views expressed by the CIT(A), who held that re-assessment proceedings under Section 147 after completion of the assessment under Section 143(3) is excluded from the purview of regular assessment and taking note of the definition of regular assessment, in the facts of the said case, the assessment under Section 147 having not been made for the first time, but after the completion of the assessment under Section 143(3), the same cannot be termed as “regular assessment” and consequently, the provisions of Section 234D cannot be applied to the assessee’s case.

13. We are informed that the decision in Dredging Corporation of India Ltd. (supra) has attained finality, as the research done as to whether any appeal has been preferred does not indicate the appeal to the High Court.

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19. Thus, what is important to note is that the provision namely Section 234D of the Act was made applicable to any proceedings, which have completed on or after 01.6.2003 irrespective of the assessment year, to which, it pertains. In our considered view, Explanation (2) cannot be read in isolation from Sub-Section (2) of Section 234D of the Act and the entire Section should be read as a whole. If we adopt such a procedure, the correct legal position emanates because the charging provision is Sub-Section (1) of Section 234D of the Act. In the said Sub-Section namely SubSection (1), in three places, the expression ‘regular assessment’ occurs namely in Section 234D(1)(a), Section 234D(1)(b) and the remaining portion of Section 234D of the Act.

20. The question would be as to whether the order passed by the Assessing Officer dated 20.6.2008 could be taken as a regular assessment.

21. In our considered view, the same cannot be done so because an order passed under Section 154 cannot be taken to be framing of a regular assessment for such a year. Further, in our opinion, the regular assessment in the assessee’s case is the assessment order passed under Section 143(3) of the Act on 30.3.2001. Admittedly, in the said order dated 30.3.2001, there was no levy of interest on the assessee. Furthermore, it is clear that Sub-Section (2) of Section 234D of the Act would be attracted only if reduction occurs and it cannot be made applicable when there is an increase.

22. The Hon’ble Supreme Court, in the case of Reliance Energy Limited has clarified the legal position and has spelt out the legislative intent and as to how the provisions of Section 234D of the Act should be applied. In the said case, it was held that Explanation (2), which has been inserted by the Finance Act, 2012, in Section 234D of the Act, declared that the provisions of the said Section shall also apply to an assessment year commencing from 01.6.2003 if the proceedings in respect of such assessment year is completed after the said date. The High Court, in the said case, was dealing with an assessment of the year 1998-99. It was an admitted case that the assessment of that year was completed prior to 01.6.2003 taking note of the fact that the Supreme Court held that having regard to the legal position, which has been clarified by the Parliament, by insertion of Explanation (2) to Section 234D of the Act, in the said case, where the assessment was completed prior to 01.6.2003, it was held that retrospectivity of Section 234D of the Act does not arise. The above decision would be squarely applicable to the case of the assessee, as, admittedly, the regular assessment was completed under Section 143(3) of the Act much prior to 01.6.2003 i.e. On 30.3.2001. For the above reasons, we are of the view that no interest can be charged under Section 234D of the Act for the assessment year in question.

23. In the result, the appeal filed by the assessee is allowed, the order passed by the Tribunal is set aside and the substantial questions of law are answered in favour of the assessee. No costs.”

17. In CIT vs. Bishal Enterprises [(2002) 125 Taxman 52 (Madras)], the substantial question of law, which fell for consideration, was whether interest under Section 139(8) and under Section 217 of the Act is leviable in the case of assessment years 1979-80 and 1980-81, since the assessments have been completed for the first time under Section 147 read with Section 143(3).The Hon’ble Division Bench answered the question against the assessee by following the decision in the case of CIT vs. S.Antony [(2000) 242 ITR 363 (Madras)] noting that on facts in the said case, the assessment under Section 147 read with Section 143(3) was the assessment done for the first time.

18. In CIT vs. K.P.Baburaj [(1998) 234 ITR 0718 (Kerala)], it was held that any assessment made for the first time by resort to Section 147 will also be a ‘regular assessment’ for the purpose of invoking Section 147 of the Act. Though the legal position which emerges from the above decision is that Explanation (1) would stand attracted, if an assessment is made for the first time under Section 147 or Section 153A and the assessment if it is done for the first time, it shall be regarded as a ‘regular assessment’ under Section 2(40) of the Act.

19. In the instant case, admittedly, the assessment order dated 26.12.2008 under Section 143(3) read with Section 147 was not the first assessment, as the assessment was under Section 143(3) dated 31.03.2004, which fact is not disputed.

20. The decision in the case of CIT vs. Fertilizers & Chemicals Travancore Ltd. [(2019) 307 CTR 0349 (Ker.)] would also help us in answering the substantial questions of law, though it was a case arising under Section 234B(3) of the Act wherein, it was held that interest payable under sub-section (1) of Section 234B was levied in the regular assessment and on re-assessment, the liability for advance tax was also stood increased and in such circumstances, the differential tax of reassessment has to be levied interest at the rate provided under sub-section (3) of Section 234B of the Act.

21. To be noted, that there is no such provision in Section 234B of the Act and conspicuously, no provision in pari materia with Section 234B(3) is found in Section 234B of the Act.

22. Thus, in the light of the above discussion, we are of the clear view that the assessment framed under Section 143(3) read with Section 147 dated 26.12.2008, being not the assessment made for the first time, the same cannot be regarded as a ‘regular assessment’ for the purposes of Section 234D and therefore, no interest can be levied on the respondent-assessee.

23. For the above reasons, the appeal filed by the Revenue is dismissed and the substantial questions of law are answered against the Revenue. No costs.”

7.2 For the sake of convenience, we extract below the sub-s. (1) of section 234D of the Act:

“234D(1) Subject to the other provisions of this Act, where any refund is granted to the assessee under sub-section (1) of section 143 and (a) no refund is due on regular assessment; or (b) the amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment, the assessee shall be liable to pay simple interest at the rate of one – half per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment”.

7.3 On a plain reading of the above said section, we notice that the interest under s. 234D is leviable only if, the refund granted to the assessee under s. 143(1) of the Act become collectable in the order passed under “regular assessment”. The term “regular assessment” has been defined under s. 2(40) of the Act as under :

“(40) ‘regular assessment’ means the assessment made under sub-s. (3) of s. 143 or s. 144.”

Under the Explanation given under s. 234D the meaning of “regular assessment” is extended further as under :

“Explanation : Where, in relation to an assessment year, an assessment is made for the first time under s. 147 or s. 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section.”

7.4 Now the question that arises is whether the reassessment made in the instant case under s. 147 of the Act can be termed as a “regular assessment” for the purpose of s. 234D of the Act ? According to the ld.CIT(A), the impugned assessment is the assessment made for the first time under s. 147 of the Act and hence, it can be called as regular assessment for the purpose of charging interest under s. 234D, i.e. according to him the second and subsequent reassessments made under s. 147 of the Act after the completion of first reassessment under s. 147 of the Act are only excluded from the purview of s. 234D of the Act. However, we are not able to agree with the said contentions of the appellate authority. Regular assessment has been defined to mean assessment order passed under s. 143(3) or under s. 144 or where the assessment has been made for the first time under s. 147 or under. 153A. Thus, reassessment proceedings under s. 147 after completion of the assessment under s. 143(3) is excluded from the purview of ‘regular’ assessment. Such exhaustive definition of ‘regular’ assessment when considered in the light of the fact that in the instant case the assessment under s. 147 has been made not for the first time, but after the completion of an assessment under s. 143(3), the same could not be termed as ‘regular’ assessment and, consequently, the provisions ofsection 234Dof the Act cannot apply in the case.In this view of the matter, no interest under s. 234D of the Act is chargeable in this case.

7.5 Accordingly, in view of the above discussion taking into consideration the above decisions and more specifically Madras High Court in United Insurance Co. Ltd(supra) and Dredging Corporation of India Ltd.(supra), we set aside the appellate order on this issue and consequently,hold that the AO was not justified in levying interest u/s. 234D of the Act. He is therefore, directed to delete the same. thus allowing the grounds of appeal in this regard.

8. The ground no.4 relating to applicability of the provisions of section 154 of the Act has become academic since the main grounds pertaining to section 234D have already been allowed.

9. In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 12/10/2026.