The South Indian Bank Ltd. vs Commissioner of Income Tax

C.N. Ramachandran Nair, J.—The question raised in the appeal filed by the assessee is whether the Tribunal was justified in sustaining the demand of interest u/s 234B(3) of the Income Tax Act, pursuant to income escaping assessment completed u/s 147 a second time for the assessment year 1999-2000. The assessee, a banking company filed loss return for the assessment year 1999-2000 and the assessing officer while issuing intimation u/s 143(1)(a) granted refund of above Rs. 8 crores. However, later, the assessment was reopened and income escaping assessment was made u/s 147 of the Act on 28-1-2004 assessing the net income of over Rs. 16 crores. Even though interest for non-payment of advance tax could be demanded u/s 234B(3), pursuant to revised assessment u/s 147, no such interest was levied. However, the assessment was again revised u/s 147 on 31-8-2006 revising the income to around Rs. 44 crores. In the course of making second revision of assessment u/s 147, the assessing officer levied interest u/s 234B(3) for non-payment of advance tax. Even though the assessee filed appeal before the first appellate authority, the same was unsuccessful. On second appeal, the Tribunal though without considering in detail the grounds raised confirmed the levy. It is against this order of the Tribunal that the assessee has filed this appeal. We have heard Sri P. Balakrishnan, counsel appearing for the assessee and standing counsel appearing for the respondent.

The first contention raised by counsel for the assessee is that when the first assessment which is Section 143(1)(a) proceeding did not lead to any levy of interest u/s 234B(1) there is no scope for demanding interest u/s 234B(3) of the Act which applies only when the income assessed is increased which leads to increase in shortfall in advance tax. The next contention raised is-that when no interest is levied u/s 234B(3) in the first round of revision of assessment made u/s 147 of the Act, it cannot be levied in the second revision of assessment made u/s 147 of the Act. In other words, according to counsel for the appellant, Section 234B(3) only provides for enhanced demand of interest originally charged u/s 234B(1) and in order to sustain the levy in the second round of revision of assessment effected u/s 147 interest should have been levied under the very same provision in the earlier assessment also completed u/s 147. Standing counsel appearing for the respondent on the other hand contended that since interest u/s 234B is mandatory it could be levied under any proceeding whether it be in original assessment or in revised assessment. He has also brought to our attention the decision of the Supreme Court in Commissioner of Income Tax, Mumbai Vs. Anjum M.H. Ghaswala and Others, wherein Constitution Bench of the Supreme Court has held that interest under Sections 234B and 234C is mandatory in nature.

Section 234B is as follows:

234B. Interest for defaults in payment of advance tax.- (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax u/s 209 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,

Explanation 2- Where in relation to an assessment year, an assessment is made for the first time u/s 147 or Section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section.

(3) Where, as a result of an order of reassessment or recomputation 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 reassessment or recomputation 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 recomputation exceeds the tax on the total 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 u/s 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, 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 of demand shall be deemed to be a notice u/s 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 assessments for the assessment year commencing on the 1-4-1989 and subsequent assessment years.

It is clear beyond doubt from the above provisions that interest payable u/s 234B(1) could be levied even in a reassessment completed u/s 147 on excess shortfall of advance tax, consequent to increase in demand of tax pursuant to revision of assessment u/s 147. In this case, the first assessment which is in the form of intimation u/s 143(1)(a) led to a refund of above Rs. 8 crores to the assessee, and therefore no interest could be demanded under, Section 234B(1). Therefore obviously interest could be levied u/s 234B(3) when assessment was revised u/s 147 on 28-1-2004 which led to a demand of tax on a positive income of above Rs. 16 crores as against loss of around Rs. 7 crores initially accepted by the officer based on revised return filed. Admittedly interest that should have been levied u/s 234B(3) was not levied in the course of first revision of assessment completed u/s 147 on 28th Jan., 2004. The contention of the assessee that interest u/s 234B(3) cannot be levied without levying interest u/s 234B(1) is not tenable because there may be cases, as in this case, in the original assessment there may not be any shortfall in payment of advance tax which does not give rise to liability for interest u/s 234B(1) of the Act. Further, under Explanation 2 to Section 234B(1) when the assessment itself is made, for the first time u/s 147 interest u/s 234B(1) could be levied. This makes it clear that the purpose of providing interest for the shortfall in payment of advance tax based on income escaping assessment u/s 147 is that interest is mandatory and it could be levied on the actual shortfall in payment of advance tax with reference to the tax ultimately determined in reassessment u/s 147. Therefore we are of the view that in order to levy interest in reassessment proceedings u/s 147, u/s 234B(3) there is no need for a pre-existing levy of interest u/s 234B(1) in the regular assessment. In other words, for the first time, interest could be levied u/s 234B(3) in reassessment completed u/s 147.

The next question to be considered is whether the omission of the officer to levy interest u/s 234B(3) in the first revision of assessment completed u/s 147 will deprive him of his authority to levy interest under the very same provision when assessment for the very same assessment year is revised a second time u/s 147. We do not find any significance about the number of reassessments carried out u/s 147 for the purpose of levy of interest u/s 234B(3). In fact, interest payable under this provision is for the increase in shortfall of advance tax with reference to the original assessment and it is levied for the period commencing from the date of completion of original assessment till date of completion of revised assessment u/s 147. When the Section contemplates levy of interest in stages, interest u/s 234B(3) could be levied in all the reassessments completed u/s 147. Therefore interest could be levied u/s 234B(3) in the second revision of assessment u/s 147 even if in the first reassessment proceeding completed under the very same provision, interest u/s 234B(3) was not levied. We therefore hold that the omission of the officer to levy interest u/s 234B(3) in the first reassessment completed u/s 147 which could have been rectified u/s 154 does not bar the officer from levying interest under the very same provision, when the assessment was again revised a second time u/s 147. In fact interest u/s 234B(3) is on the differential amount of shortfall of advance tax with reference to the advance tax found to have been paid in the original assessment. In this case, when the revised loss return was accepted, in original assessment there was no liability for any advance tax and so much so no interest was found payable u/s 234B(1). Therefore the differential amount on which interest could be demanded u/s 234B(3) is actually on the total shortfall in advance tax payable with reference to the revised assessment completed u/s 147 of the Act. Therefore the contention of the assessee that in order to levy interest u/s 234B(3) there should have been a levy of interest in regular assessment u/s 234B(1) is not tenable.

We therefore dismiss the appeal by upholding the order of the Tribunal confirming the levy.