GODREJ PROJECTS NORTH STAR LLP ,MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE41(2)(1), MUMBAI

The Appellant LLP objects to the erroneous levy of interest under Section 2348 of the Act for the year under consideration. It is respectfully submitted that the Assessing Officer Centralized Processing Centre, Bengaluru has exceeded his/its juri iction and the erroneous levy of interest under Section 234B of the Act is unwarranted.

The Intimation issued under Section 143(1) of the Act is illegal and without juri iction as it raises a debatable issue.

The Appellant LLP denies the liability towards the erroneous excess levy of interest under Section 234B of the Act amounting to Rs. 1,51,086/- and submits that the same be deleted.

The Assessing Officer and the learned Commissioner of Income-tax (Appeals) erred in holding that self assessment tax paid on April 30, 2024 and October 28, 2024, is to be apportioned first towards interest. The Appellant LLP submits that the Assessing Officer and the learned Commissioner of Income Tax (Appeals) are misreading and misconstruing the provisions of Section 140A read with Section 234B of the Act. Having regard to the facts and circumstances of the case and the provision of law, the Appellant LLP submits that the Assessing Officer be directed to re-compute the said interest correctly.”

The assessee is a partnership firm and filed the return of income for AY 2024-25 on 29.10.2024 declaring a total income of Rs. 24,93,27,370/-. The return was processed under section 143(1) of the Act raising a demand of Rs. 1,50,630/-. The remand is arising due to the fact that the tax paid by the assessee after 01.04.2021 but before filing the return of income has been adjusted first towards the interest under section 234B and the balance against the tax payable as per the computation of income. Aggrieved the assessee filed further appeal before the CIT(A). The CIT(A) upheld the order under section 143(1) by holding that “6. Decision 6.1 In Ground No 1 to 4, the appellant has raised the issue of interest charged U/S 234B of the Act for Rs.3,22,400/-

1.2 The contention raised by the appellant has been carefully examined in detail and is not found to be valid upon thorough consideration. A review of the intimation issued under Section 143(1) of the Income Tax Act indicates that the appellant has offered interest under Section 2348 of the Act, amounting to Rs. 1,71,314/-

interest shall be calculated in accordance with the foregoing provisions of this section up to the date on which the tax is so paid, and reduced by the interest, if any, paid under section 140-A towards the interest chargeable under this section;

thereafter, interest shall be calculated at the rate aforesaid on the amount by which the tax so paid together with the advance tax paid falls short of the assessed tax."

The ld. AR at the outset submitted that the issue stands covered by the decision of the Co-ordinate Bench in the case of Oasis Landmarks LLP vs. DCIT (ITA No. 580/Mum/2024 dated 21.11.2024) where it has been held that “10. We have given thoughtful consideration to the rival submission, applicable provisions and the judicial precedents cited during the course of the hearing.

We are, in the present appeal, concerned with the method of computation of interest under Section 234B(2) of the Act for default/delay in payment of advance tax. Section 234B of the Act, as applicable at the relevant time, reads as under:

A perusal of Section 234B of the Act shows that Section 234B(1) of the Act deals with a general method of calculating interest for default/delay in payment of advance tax as it provides for levy of interest for the period

This takes us to Section 140A of the Act which reads as under:

On perusal of the above provisions of Section 140A of the Act we find that as per Section 140A(1) of the Act an assessee is required to pay tax along with 8 ITA 4258/Mum/2025 Godrej Projects North Star LLP interest before the filing the return of income. Explanation to Section 140A(1) of the Act contains the rule of appropriation which comes into application in case the amount paid by an assessee falls short of aggregate tax and interest (payable as per the returned income). According to the aforesaid Explanation, the amount paid is first to be appropriated towards interest and then towards regular tax. As a result, the aforesaid shortfall in payment made by an assessee on account of application of the aforesaid rule of appropriation of payments would constitute a shortfall in payment of regular tax which can be subjected to compensatory interest.

For the purpose of Section 140A(1) of the Act, the interest under Section 234B of the Act is to be computed as per the provisions contained in Section 140A(1B) of the Act which was inserted by way of Finance Act, 2001 (w.e.f 01/04/1989). Section 140A(1B) of the Act prescribes the method of computing interest under Section 234B of the Act payable at the time of filing return of income and provides that for the purpose of Section 140A(1) of the Act, interest payable under section 234B shall be computed on an amount equal to the ‘assessed tax’ or on the amount by which the advance tax paid falls short of the ‘assessed tax’. It would be pertinent to note that the term ‘assessed tax’ has been defined in Explanation to Section 140A(1B) of the Act to mean tax on total income as declared in the return of income as reduced by the tax deducted at source, any tax relief allowed under Section 90/90A of the Act etc. Thus, the basis of computation of ‘assessed tax’ or shortfall in the ‘assessed tax’, as the case may be, under Section 140A(1) read with Section 140A(1B) of the Act is tax on total income as declared in the return of income. At the time of filing return of income and payment of self assessment tax, an assessee could not be expected to anticipate the amount of assessed tax on determination of income under Section 143(1)/(3) of the Act, and therefore, for the purpose of payment of self assessment tax (including interest under Section 234B of the Act) under Section 140A(1) of the Act, the returned income has been taken as basis. At the time of filing return of income the payments made by an assessee are appropriated between interest paid under Section 234B of the Act and towards regular tax as per Explanation to Section 140A(1) of the Act. The appropriation so made remains constant as it does not vary depending upon the income assessed. Thus, amount of interest under Section 234B paid under Section 140A of the Act gets determined at the time of filing return of income. In our view, Section 234B(2)(i) of the Act provides for adjustment/reduction of the aforesaid amount. As noted hereinabove, the computation of interest under Section 234B of the Act is based upon assessed income (and not tax on returned income). Section 234B(2)(i) of the Act provides for adjustment of the amount of interest computed and payable under Section 234B(1) of the Act [computed on the basis of the assessed income] by the amount of interest computed on the basis of returned income and paid

We note that identical view has been taken by the Mumbai Bench of the Tribunal in the case of M/s. Great Easter Shipping Co. Ltd. Vs. DCIT,CC-47 in ITA No.2282/M.2005 passed on 09/04/2008 the relevant extract of which reads as under “5. With reference to the working of interest, the CIT(A) has analysed the provision of section 140A(1B) and 234B(2) and came to a finding which is as under:

I have considered the submissions of the Authorized Representative carefully. I find merit in the contentions of the Authorized Representative. The appellant paid total self assessment tax of Rs.2,22,38,841/- including interest u/s 234B and 234C. The self assessment tax paid by the appellant was a sum of Rs. 1,84,88,928/-, The Assessing Officer did not appreciate the amendments inserted by the Finance Act 2001 w.e.f. 1.4.1989 in Sec. 140A. Section 140A(1B) stipulates that interest payable u/s 234B shall be computed on an amount equal to the assessed tax on the amount by which advance tax paid falls short of the assessed tax. The “assessed tax" is defined in explanation to sec. 140A(1B) of the I.T. Act. According to this definition "assessed tax" means the tax on the total income as declared in the return as reduced by the amount of Tax Deducted or collected at source. This definition of the "assessed tax" is for the purpose of computation of interest u/s 234B at the time of filing of the return. The finance Act, 2001 clarified that for the purpose of computation of 10 ITA 4258/Mum/2025 Godrej Projects North Star LLP interest u/s. 234B, the returned income becomes the basis. Explanation- 1 to Section 234B(1) has been inserted by the Finance Act, 2001 w.e.f. 1.4.89 which defines the "assessed tax" on completion of the regular assessment. According to this definition, the assessed tax means the tax on the total income determined u/s 143(3) reduced Tax or collected at source. Further, sub Sec.2 of Sec. 234B has stipulated the procedure for calculation of 234B interest, where tax is paid by way of self assessment tax or otherwise before completion of the regular assessment. To the facts of present case, the provisions of Section 234B(2) are applicable. In accordance with the provision of Section 234B(2), interest has to be calculated from 1st day of April next following ach Financial year till the date in which self assessment tax paid. The interest so calculated requires to be reduced by the interest paid by the assessee u/s. 140A towards interest u/s. 234B. Thereafter, interest shall be calculated on the amount by which tax so paid (SA) together with advance tax paid falls short of the assessed tax. The appellant calculated the interest in accordance with the provisions of sec. 234B(2) of the IT. Act. The Self Assessment tax cannot be changed from time to time by the A.O. The appellant paid the interest and self assessment tax while filing the return of income and no tax or interest was due on the returned income. The calculation of interest u/s 234B made by the assessee is in accordance with the provisions of the Act."

Nothing has been brought on record by the DR how this order of the CIT(A) is not correct. The CIT(A) has correctly analyzed the provisions and examined the working given by the assessee and the Assessing Officer and given the directions. We do not find any reason to interfere with the orders of the CIT(A).

In the result, appeal dismissed.”

Similarly, in the case of Patson Transformers Ltd. Vs. Deputy Commissioner of Income Tax, Special Range – VII [2006] 6 SOT 673 (AHD), Co-ordinate Bench of the Tribunal had, while examining identical issue in similar facts and circumstances, held as under:

Thus, we find that approach of revenue for calculation of interest under Section 234B is not correct, therefore, the orders of lower authorities are set-aside and the claim of the assessee is allowed. The Assessing Officer is directed to calculate interest under section 234B as per above discussion 17. In the result, appeals are allowed”. (Emphasis Supplied)

In view of the above, we accept the computation of income under Section 234B of the Act made by the Appellant and delete the levy of interest of INR.1,65,348/- under Section 234B of the Act. Thus Ground No.2 raised by the Appellant is allowed while Ground No.1 is dismissed as being general in nature.

In result, the appeal preferred by the Assessee is allowed.”

The ld. AR further submitted that the tax paid by the assessee before filing the return of income cannot fall within the purview of section 140A and therefore the provisions of section sub-section (2) of section 140A cannot be applied. The ld. AR accordingly submitted that the demand arising out of incorrect calculation of interest under section 234B done by the AO should be deleted.

The ld. DR on the other hand relied on the order of the lower authorities.

We heard the parties and perused the material on record. The assessee filed the return of income declaring a total income of Rs. 24,93,47,270/-. The assessee while filing the return of income has claimed a refund of Rs. 461/- the relevant extract of the computation is as given below:

In this regard we notice that in the intimation under section 143(1) there is no variation proposed to the total income of the assessee. The demand of Rs. 1,50,625/- is arising due to the reason that the tax payment of Rs. 1,53,72,240/- has been adjusted first towards interest under section 234B and 234C and not against the tax amount. From the perusal of the revised computation done by the CPC, we notice that the interest under section 234B is calculated at the time of payment of tax on 30.04.2024 to be Rs.1,56,236. Accordingly the amount paid on 30.04.2024 is appropriated first towards interest under section 234B & 234C and the balance is treated is paid towards tax due. On perusal of the above judicial precedence we notice that the ratio laid down is that the interest under section 234B is to be calculated as per section 140A(1B) which provides that interest under section 234B is to be calculated on the tax on the assessed tax i.e. returned income as reduced by the advance and adhoc payment of tax. When we apply the said ratio to the present case it is clear that calculating interest under section 234B at the time when the adhoc tax payment is made on 30.04.2024 by the AO is not sustainable and that the interest under section 234B by the assessee at the time of filing the return of income on 28.10.2024 is to be considered as correct. In view of these discussions and respectfully following the above ratio as laid down by the 13 ITA 4258/Mum/2025 Godrej Projects North Star LLP coordinate bench we hold that the adjustment done by the AO while processing the return under section 143(1) is incorrect and accordingly we direct the AO to delete the demand.

In result appeal of the assessee is allowed.