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

This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/Addl./JCIT(A)-1, Vadodara [In short 'FAA'] passed under section 250 of the Income Tax Act, 1961 (the Act) dated 25.04.2025 for Assessment Year (AY) 2024-25. The assessee has raised the following the grounds of appeal:

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 jurisdiction 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 jurisdiction as it raises a debatable issue.

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: “234B. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under section 208 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, 5 ITA 4258/Mum/2025 Godrej Projects North Star LLP (i) any tax deducted or collected at source in accordance with the provisions of Chapter XVII on any income which is subject to such deduction or collection and which is taken into account in computing such total income; (ii) any relief of tax allowed under section 90 on account of tax paid in a country outside India; (iii) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section; (iv) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and (v) any tax credit allowed to be set off in accordance with the provisions of section 115JAA58[or section 115JD]. Explanation 2.—Where, in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section. Explanation 3.—In Explanation 1 and in sub-section (3) "tax on the total income determined under sub-section (1) of section 143" shall not include the additional income-tax, if any, payable under section 143. (2) Where, before the date of determination of total income under sub- section (1) of section 143 or completion of a regular assessment, tax is paid by the assessee under section 140A or otherwise: (i) 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 140A towards the interest chargeable under this section; (ii) 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” (Emphasis Supplied) 12. 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 6 ITA 4258/Mum/2025 Godrej Projects North Star LLP commencing from 1st April next following the relevant previous year to the date of determination of total income under Section 143(1) of the Act or regular assessment, as the case may be. The amount on which interest for the aforesaid period is to be calculated is the ‘assessed tax’ or the amount by which the advance tax paid falls short of the ‘assessed tax’. The expression ‘assessee tax’ has been defined in Explanation 1 to Section 234B of the Act to mean tax on total income computed under Section 143(1)/143(3) of the Act 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, is tax on total income computed under Section 143(1) of the Act or on regular assessment. Section 234(B)(2) of the Act provides for calculation of interest in cases where the tax is paid before determination of total income under Section 143(1) or before the completion of regular assessment. As per Section 234B(2)(i) of the Act, the interest is to be calculated in the manner provided for Section 234B(1) of the Act upto the date of payment and thereafter, the interest so computed is to be reduced by the interest, if any, ‘paid’ under Section 140A of the Act towards the interest chargeable under Section 234B of the Act. The bone of contention in the present appeal is the computation of the aforesaid interest under Section 234B of the Act paid under Section 140A of the Act which in turn impacts the computation of interest under Section 234B(2) of the Act.

This takes us to Section 140A of the Act which reads as under: “140A. (1) Where any tax is payable on the basis of any return required to be furnished under section 115WD or section 115WH or section 139 or section 142 or section 148 or section 153A or, as the case may be, section 158BC, after taking into account: (i) the amount of tax, if any, already paid under any provision of this Act; (ii) any tax deducted or collected at source; (iii) xx xx (iv) xx xx (v) xx xx the assessee shall be liable to pay such tax together with interest and fee payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax, interest and fee Explanation.—Where the amount paid by the assessee under this subsection falls short of the aggregate of the tax, interest and fee as 7 ITA 4258/Mum/2025 Godrej Projects North Star LLP aforesaid, the amount so paid shall first be adjusted towards the fee payable and thereafter towards the interest payable as aforesaid and the balance, if any, shall be adjusted towards the tax payable. (1A) For the purposes of sub-section (1), interest payable under section 234A ……………… (1B) For the purposes of sub-section (1), interest payable under section 234B shall be computed on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid falls short of the assessed tax. Explanation. For the purposes of this sub-section, "assessed tax" means the tax on the total income as declared in the return as reduced by the amount of: (i) tax deducted or collected at source, in accordance with the provisions of Chapter XVII, on any income which is subject to such deduction or collection and which is taken into account in computing such total income; (ii) any relief of tax or deduction of tax claimed under section 90 or section 91 on account of tax paid in a country outside India; (iii) any relief of tax claimed under section 90A on account of tax paid in any specified territory outside India referred to in that section; and (iv) any tax credit claimed to be set off in accordance with the provisions of section 115JAA or section 115JD. (2) After a regular assessment under section 115WE or section 115WF or section 143 or section 144 or an assessment under section 153A or section 158BC has been made, any amount paid under subsection (1) shall be deemed to have been paid towards such regular assessment or assessment, as the case may be. (3) If any assessee fails to pay the whole or any part of such tax, interest or fee in accordance with the provisions of sub-section (1), he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax, interest or fee] remaining unpaid, and all the provisions of this Act shall apply accordingly.”

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 9 ITA 4258/Mum/2025 Godrej Projects North Star LLP under Section 140A of the Act before filing return of income. Thus, we accept the contention of the Appellant that the rule of appropriation contained in Explanation to Section 140A(1) of the Act would be attracted only at the time of payment of self assessment tax at the time of filing return of income. While giving effect to the provisions contained in Section 234B(2)(i) of the Act the aforesaid amount shall be reduced from the interest computed under Section 234B(1) of the Act. Our view also draws support from the provisions contained in Section 140A(2) of the Act which, inter alia, provides that after regular assessment under Section 143 of the Act amount paid under Section 140A(1) of the Act as self assessment tax is deemed to have been paid towards such regular assessment. That being the case, the question of changing the appropriation of amount paid at the time self assessment under Section 140A of the Act between interest and tax on determination of income under Section 143(1)/(3) of the Act does not arise. The Assessing Officer cannot change the amount of interest paid under Section 234B of the Act at the time of filing return of income under Section 140A of the Act on determination of income under Section 143(1)/(3) of the Act.

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: 4. 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."

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: “14. In the light of above discussion, we are of the considered view that adjustment towards interest payable under section 234B is to be considered only at the time of filing return of income i.e., when payment of self-assessment under section 140A is required to be made. Before that interest under section 234B is independently required to be calculated only in accordance with the provisions provided in section 234B(i). If at the time of filing return it is found short payment after adjustment of 11 ITA 4258/Mum/2025 Godrej Projects North Star LLP interest out of tax paid under section 140A, further interest is required to calculate in accordance with section 234B(2)(ii), on balance amount which is assessed tax minus advance tax and ad hoc payment.

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 result appeal of the assessee is allowed.