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Judgment
Ramachandran Nair, J.—This is an appeal filed by the Revenue challenging the order of the Tribunal cancelling demand of interest u/s 234B(3) of the Income Tax Act (hereinafter called "the Act") in proceedings completed by the Assessing Officer u/s 154 of the Act. We have heard Senior Standing counsel appearing for the appellant and Adv. Sri. P. Balakrishnan appearing for the respondent assessee. When the return of the assessee filed for the year 1995-96 was processed u/s 143(1), the Assessing Officer found that the assessee had paid over 90% of the assessed tax as advance tax which included tax deducted at source as well. Even though the assessment was taken up for scrutiny and regular assessment u/s 143(3) was completed on 2.12.1997, the demand of tax remained the same and consequently there was no shortage of advance tax and so much so, interest was not levied u/s 234B(1) of the Act. However, the assessment was modified u/s 147 on 18.2.2002 which led to an additional demand of Rs. 84,824/-. Even though no interest was levied u/s 234B in the reassessment proceedings completed u/s 147. the Assessing Officer later rectified the reassessment u/s 154 levying interest u/s 234B(3) on the additional demand of tax. Even though first appeal was unsuccessful, the Tribunal on second appeal filed by the assessee, cancelled the demand of interest for the reason that interest u/s 234B(3) can be levied only if there was original levy of interest in first assessment u/s 234B(1) of the Act. The question raised by the Revenue is whether the Tribunal was justified in holding that interest u/s 234B(3) can be levied only if there was a levy of interest u/s 234B(1) of the Act. Since the question to be considered is on the interpretation of Section 234B(3). we have to necessarily refer to the said provision and for easy reference we extract it hereunder:
Where, as a result of an order of re-assessment or re-computation u/s 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 day following the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made as is referred to in sub-section (1) following the date of such regular assessment and ending on the date of the re-assessment or re-computation u/s 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the reassessment or re-computation exceeds the tax on the total income determined under sub-section (1) of section 143 or on the basis of the regular assessment aforesaid.
The question to be considered is whether the above sub-section is attracted only if there is levy of interest u/s 234B(1) in the intimation issued u/s 143(1) or in the regular assessment completed u/s 143(3) as held by the Tribunal. Admittedly in this case in the determination of total income under sub-section (1) of Section 143 and in the regular assessment completed u/s 143(3), the Assessing Officer found that the advance tax paid is 90% and above of the assessed tax and consequently there was no liability for the assessee to pay any interest u/s 234B(1) of the Act which provides for interest only if payment of advance tax is less than 90% of the assessed tax. However, when assessment was revised u/s 147 to bring to tax escaped income, the tax demand went up leading to shortfall of advance tax payable u/s 234B(1) of the Act. In other words, the advance tax paid was less than 90% of the tax finally assessed and found payable in the income escaping assessment completed u/s 147 of the Act. The contention of the assessee is that the words "the amount on which interest was payable under sub-section (1) is increased" referred to in sub-section (3) happens only when there was a shortfall in payment of advance tax in the original assessment itself leading to lev}'' of interest u/s 234B(1) so that when reassessment leads to further shortfall in payment of advance tax, interest liability arises u/s 234B(3) of the Act. Standing Counsel on the other hand submitted that for levy of interest u/s 234B(3), it is immaterial whether there was shortfall in advance tax in the regular assessment or not and according to him, even if Hie first assessment led to refund of excess tax paid, still interest could be demanded u/s 234B(3) if on reassessment completed u/s 147 advance tax paid is found less than 90% of the tax assessed in reassessment proceedings. Counsel for the assessee brought to our notice Section 234D which was introduced by Finance Act 2003 with effect from 1.6.2003. which provides for levy of interest in the course of regular assessment on excess tax refunded in proceedings completed u/s 143(1) of the Act. According to assessee''s counsel, Section 234B(3) could be invoked only for increasing the demand of interest levied in original assessment u/s 234B(1) and when no interest is demanded under the said provision in the original assessment, the Assessing Officer cannot invoke Section 234B(3) for levying interest for the first time after revision of assessment u/s 147 of the Act. We are unable to uphold the finding of the Tribunal and the contention of the counsel for the assessee because scheme of levy of interest for non-payment or short-payment of advance tax under various provisions of Section 234B is in stages. Interest u/s 234B(1) is attracted when the advance tax paid is found to be less than 90% of the assessed tax. While the advance tax paid remains a static amount, assessed tax will keep on changing depending on modifications made in assessment. The proceedings completed u/s 143(1) could be modified in a regular assessment u/s 143(3) which may lead to increase in demand of tax. Similarly when a regular assessment completed u/s 143(3) is revised u/s 147 and such a revised assessment leads to higher demand of tax, then the shortfall in advance tax naturally increases. Sub-section (1) and sub-section (3) provide for levy of interest for non-payment or short-payment of advance tax in stages. While in the regular assessment interest u/s 234B(1) is levied to the extent of shortfall in payment of advance tax upto date of such regular assessment, interest could be later levied if the assessment so completed is revised u/s 147 leading to higher demand of tax, thereby increasing the shortfall in payment of advance tax. However, it is specifically provided in sub-section (3) of Section 234B that the additional demand of interest under the said provision should be from the date following the date on which regular assessment was completed either u/s 143(1) or 143(3) of the Act. The only condition for levying interest u/s 234B(3) is increase in the shortfall in advance tax as a consequence of revision of assessment u/s 147 of the Act. While interest on shortfall in payment of advance tax is levied in the regular assessment u/s 234B(1) upto the date of completion of assessment, interest on further shortfall in advance tax with reference to tax determined on reassessment u/s 147 is levied under sub-section (3) of Section 234B. Increase in shortfall of advance tax on reassessment leads to levy of interest u/s 23B(3) and this Section does not require that in order to attract liability under it there should be a levy of interest in regular assessment u/s 234B(1) of the Act. In our view, even if the assessee is found to have paid full advance tax with reference to the income assessed in regular assessment and there was no occasion to levy any interest u/s 234B(1) of the Act. Still assessee will be liable to pay interest u/s 234B(3) if there is a shortfall in payment of advance tax with reference to the tax finally determined in reassessment completed u/s 147 of the Act. The scheme of various provisions of Section 234B is that interest for shortfall in advance tax is based on the tax finally determined under the provisions of the Act. Therefore, we hold that the assessee who was not liable to pay interest u/s 234B(1) of the Act in the regular assessment, is liable to pay interest u/s 234B(3) on the short payment of advance tax with reference to the tax assessed u/s 147 from the date following the regular assessment till date of completion of the revised assessment u/s 147.
The next contention to be considered is whether the Assessing Officer who did not levy interest u/s 234B(3) of the Act in reassessment, could levy interest in rectification proceedings completed u/s 154 of the Act. Here again. We are unable to accept the contention of the assessee that interest could not be levied in rectification proceedings u/s 154 because so long as interest u/s 234B(3) is mandatory, omission in the reassessment completed u/s 147 will make it defective warranting it''s rectification u/s 154 for levy of interest u/s 234B(3) of the Act. We, therefore, hold that the omission to levy interest u/s 234B(3) in reassessment completed u/s 147 could be made up in rectification proceedings u/s 154 of the Act. In view of the above findings, we allow the appeal by reversing the order of the Tribunal and by restoring in principle the levy of interest u/s 234B(3) of the Act. However, we notice that interest is demanded u/s 234B(3) on the entire balance demand of tax raised in reassessment proceedings. Interest could be demanded u/s 234B(3) on the shortfall of advance tax paid. In other words, advance tax payable should be first determined based on reassessment and reduce therefrom actual amount of advance tax paid and interest should be demanded only on the differential amount, that too, from the date following the regular assessment till date of completion of the assessment u/s 147. If there is mistake in the calculation of interest u/s 234B(3), there will be direction to the officer to correct the same in tune with the scheme of the Section as stated above.