MOSIAC LANDMARKS LLP,MUMBAI vs. INCOME TAX OFFICER WARD 41(2)(3), MUMBAI

This appeal filed by the assessee is directed against the order dated 08.10.2025 passed by the learned Additional/Joint Commissioner of Income Tax (Appeals)-2, Noida [hereinafter referred to as the ‘learned CIT(A)’] under section 250 of the Income-tax Act, 1961 (‘the Act’), arising out of the assessment order dated 10.12.2018 passed by the Assessing Officer under section 143(3) of the Act for the assessment year 2016-17.

The assessee has raised the following grounds of appeal:

Brief facts of the case are that the assessee is a limited liability partnership engaged in the business of property development. The assessee filed its return of income for the assessment year under consideration on 14.10.2016. The assessment was completed under section 143(3) of the Act on 10.12.2018. In the appeal before the learned CIT(A), apart from challenging the disallowance of interest expenditure and seeking credit of tax deducted at source, the assessee specifically disputed the levy of interest under section 234B of the Act and contended that its advance-tax liability had to be computed with reference to the law in force when such liability was required to be discharged and could not be enlarged on account of a retrospective change in law made after the end of the relevant previous year.

The learned CIT(A), while disposing of the grounds concerning sections 234B and 234D of the Act, observed that levy of interest was mandatory in view of the decision of the Hon’ble Supreme Court in CIT v. Anjum M.H. Ghaswala & Others, 252 ITR 1 (SC), and certain other decisions. The learned CIT(A) further directed the Assessing Officer to give consequential effect while passing the order giving effect to the appellate order and dismissed the relevant grounds. Aggrieved, the assessee is in appeal before the Tribunal.

The learned Authorised Representative submitted that the learned CIT(A) had not adjudicated the specific grounds raised by the assessee. He submitted that the controversy was not whether interest under section 234B was generally mandatory, but whether such interest could be levied on the additional advance-tax liability arising only because of a retrospective change in law made after the end of the relevant previous year. He relied upon the order of the Co-ordinate Bench in ITA No. 7901/Mum/2025 dated 13.05.2026, wherein it was held that an assessee cannot be charged interest for failure to pay advance tax on income which became chargeable as a consequence of a retrospective amendment introduced after the relevant dates for payment of advance tax.

The learned Departmental Representative relied upon the order of the learned CIT(A).

We have heard the rival submissions and perused the material available on record. The grievance of the assessee is confined to the computation of interest under section 234B of the Act. The assessee had specifically contended before the learned CIT(A) that advance-tax liability had to be determined with reference to the law as it stood when the advance tax became payable and that a retrospective change in law made thereafter could not result in levy of interest for an anterior period. The 3 learned CIT(A), however, disposed of the ground merely by stating that levy of interest under section 234B is mandatory. The general proposition stated by the learned CIT(A) is correct; however, it does not answer the distinct issue raised by the assessee.

Section 234B compensates the Revenue for default in payment of advance tax. A default necessarily presupposes an obligation which the assessee could have discharged on the relevant dates. Where an additional tax liability arises solely by reason of a retrospective amendment enacted after the dates on which advance tax was payable, the assessee could not have anticipated the later amendment and paid advance tax on that basis. The law does not compel performance of an impossible act. The Hon’ble jurisdictional High Court in CIT v. JSW Energy Ltd., 379 ITR 36 (Bom), while considering interest under sections 234B and 234C arising from a retrospective amendment, held that no interest could be charged on the additional tax liability resulting from such subsequent retrospective amendment. The Co-ordinate Bench in ITA No. 7901/Mum/2025 dated 13.05.2026 has followed the same principle and held that interest under section 234B cannot be levied on the portion of tax liability which arose only because of a retrospective amendment made after the relevant advance-tax dates.

Respectfully following the aforesaid decisions, we hold that interest under section 234B cannot be charged on the incremental tax liability, if any, arising solely on account of a retrospective change in law made after the relevant dates for payment of advance tax. The Assessing Officer is directed to recompute the interest under section 234B accordingly and work out the amount in accordance with law. Interest otherwise chargeable on the tax liability arising under the law as it stood on the relevant advance-tax dates shall remain unaffected. The grounds raised by the assessee are allowed.

In the result, the appeal filed by the assessee is allowed.