SHRUTI SHIBULAL,JAYANAGAR, BANGALORE vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(1), BANGALORE, BMTC BUILDING, KORMANGALA

We have heard the Ms. Suman Lunkar, CA authorised representative of the assessee, and Shri Pradeep S the Senior Departmental Representative, an Additional Commissioner of Income Tax.

Briefly, the appellant is an individual resident in India. The assessee filed the return of income on 18 August 2018, declaring total income of ₹421,974,290. The return was later revised under section 139(5) on 30 March 2019, declaring total income of ₹436,972,820, which was also the assessed income. The assessee’s income comprised income from house property, capital gains, and income from other sources, both in India and abroad, including income from the United States of America. The return was assessed on 10 February 2021 under section 143(3) read with sections 143(3A) and 143(3B) of the Income-tax Act, 1961. The returned income was accepted, but a demand of ₹644,456 was raised on account of computation. The Assessing Officer computed interest under section 234C at ₹700,499, whereas the assessee contended that the interest payable, as reflected in the return of income, was only ₹56,047. The assessee therefore filed an appeal before the learned CIT(A).

The learned CIT(A), by order dated 24 February 2026, noted that the assessee had challenged the assessment order only on the ground that interest under section 234C had been incorrectly computed and should have been restricted to ₹56,047, as per the revised return filed on 30 March 2019. The CIT(A) held that the assessee’s contention that interest under section 234C should be computed only on the returned income ignored the statutory scheme. The expression “tax due on the returned income” in section 234C must be read harmoniously with the definition of “assessed tax” in Explanation 1 to section 234B, which excludes TDS, relief under sections 90 and 91, and other specified credits. Interest is computed on the shortfall in advance tax payments with reference to the tax liability determined in accordance with law. Since the revised return declared substantial income under various heads, including house property, capital gains, and other sources, the tax liability after statutory credits formed the basis for computing advance-tax instalments. Relying on the decision of the Hon’ble Delhi High Court in CIT v. Insilco Ltd., the CIT(A) held that interest is mandatory and interference is warranted only where the computation is shown to be incorrect. As the assessee failed to identify any specific arithmetical error in the computation annexed to the assessment order, the CIT(A), after referring to judicial precedents, dismissed the appeal.

Aggrieved, the assessee is in appeal before us. The assessee explained the scheme of section 234C, which applies where there is a shortfall in payment of advance tax. Under section 234C, an assessee is required to pay advance tax in instalments: 12% of the tax due on the returned income on or before 15 June, 36% on or before 15 September, 75% on or before 15 December, and 100% on or before 15 March. Thus, to avoid interest under section 234C, the assessee must pay the entire tax due by 15 March of the relevant financial year.

We find that, according to the Assessing Officer, the tax payable was ₹64,377,400. The assessee was entitled to relief under section 90 of ₹11,168,827 and credit for tax deducted at source of ₹407,076. After allowing these credits, the net tax payable was ₹52,801,497. Against this, the assessee paid advance tax of ₹49,000,000 and self- assessment tax of ₹3,801,497, along with interest under section 234C of ₹56,047, resulting in total self-assessment tax paid of ₹3,857,540.

The section 234C computation shows that the assessee paid ₹7,500,000 by 15 June 2017, whereas 12% of the tax due on ₹52,801,497 was only ₹6,336,180; therefore, there was no shortfall in the first instalment. For the second instalment, 36% of ₹52,801,497 amounted to ₹19,008,539, while the assessee had paid ₹25,000,000 by 15 September 2017; therefore, there was no shortfall in the second instalment either. For the third instalment, 75% of the tax payable amounted to ₹39,601,123, while the assessee had paid ₹39,000,000 by 15 December 2017. The shortfall of ₹601,123 attracted interest at 1% per month for three months, amounting to ₹18,033. For the fourth instalment, the assessee was required to pay 100% of the tax payable, i.e., ₹52,801,497, but had paid advance tax of ₹49,000,000 by 15 March 2018. The shortfall of ₹3,801,497 attracted interest at 1% for one month, amounting to ₹38,014. Thus, the total interest payable under section 234C was ₹56,047.

The assessee computed and paid this interest along with the balance self-assessment tax. However, the Assessing Officer computed interest under section 234C at ₹700,499 without providing the manner of computation. The Departmental Representative could not dispute the assessee’s calculation. On examining section 234C, we find that, under Explanation 1, tax due on the returned income must be computed after granting relief under section 90 for taxes paid outside India. The tax due on the returned income means the tax chargeable on the total income declared in the return. The assessee declared tax of ₹64,377,400, from which relief under section 90 of ₹11,168,827 and TDS credit of ₹407,076 must be reduced, leaving net tax payable of ₹52,801,497. This amount must be tested against each advance-tax instalment, as explained above. Accordingly, the assessee’s computation of interest is correct.

In view of the above facts, we direct the Assessing Officer to recompute the interest payable under section 234C as set out above and grant consequential relief to the assessee.

Before parting, we note that the assessee is stated to be one of the promoters, or a relative of the founders, of Infosys Ltd. The error in computing interest under section 234C appears to have arisen from the Income Tax Department’s software, which was developed by Infosys Ltd. Many taxpayers are reportedly facing hardship because of computational deficiencies in the software or its improper operation by the Department. In this case, even a person connected with the company that developed the software has suffered due to such an error. This should serve as a reminder of the difficulties faced by taxpayers and as an opportunity to promptly identify and correct the software deficiency.

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