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Facts
The appellant contested the charging of interest under sections 234B and 234C of the Income Tax Act for AY 2023-24 on savings bank account interest. The appellant argued that this interest cannot be anticipated and advance tax cannot be paid on notional income.
Held
The Tribunal held that charging of interest under sections 234B and 234C is mandatory and automatic. The savings bank interest is credited quarterly and is ascertainable, making it subject to advance tax provisions. The appellant's arguments were found to be illogical and baseless.
Key Issues
Whether interest on savings bank account is an anticipated income and if interest under sections 234B and 234C can be levied on it.
Sections Cited
234B, 234C, 234A, 209, 210, 244A, 119(2)
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Income Tax Appellate Tribunal, Mumbai “E” Bench, Mumbai.
Before: Shri Sandeep Gosain (JM) & Shri Omkareshwar Chidara (AM)
The appellant filed appeal for A.Y. 2023-24 before the ITAT. The issue to be adjudicated is the same and relates to charging of interest under section 234B and 234C of the I.T. Act on the income earned on interest on savings Bank account.
The only ground of appeal raised by the appellant is reproduced for clarity : “Income from other sources includes interest income from Bank savings accounts. The credit of interest amount in the savings accounts can be calculated only after the interest component has been credited into the savings accounts for FY 2022-23 on the last working day of the financial year i.e., 31st March, 2023, by the Bank. With the Reserve Bank of India, changing the policy interest rates, bi- monthly during FY 2022-23 it was not possible to determine the interest income from savings Bank account to be accrued during the financial year at the beginning of the year i.e., on 1st April, 2022. Therefore, the presumption of paying Advance tax on the notional savings bank interest income to be accrued during the financial year is erroneous and defies logic.
2 K.N. Krishnamurthy
A tax payer cannot be penalized under u/s 234B and 234C for failure to deposit Advance tax quarterly for interest income to be accrued from Savings Bank accounts. How can a tax payer determine the savings account interest income to be accrued in advance, since I (the Tax payer) am unaware of my cash flow requirements during the course of the financial year which could also be augmented due to sudden cash withdrawals on account of personal exigencies. It is only logical and is realistically practical that an Individual Taxpayer will calculate the savings bank interest amount credited to his savings accounts, while filing the Income Tax Return for the specific financial year. The savings Bank interest income is not an income which can be anticipated at different points in time of the financial year, by an assessee nor is it practically feasible to assess the Advance Tax payable for interest to be credited by the Bank to the savings accounts of an Individual Taxpayer. Therefore, levy of penalty and interest u/s 234B and 234C for failure to deposit Advance Tax towards interest income credited in savings Bank accounts is perhaps done without application of mind and is beyond logic. I, the Taxpayer was not given an opportunity to present my case and put forth my submissions through videoconferencing when the Appeal was being decided by the Office of the Commissioner of Income Tax, Appeal.”
Aggrieved by the orders of the Ld. AO/Ld. CIT(A), the appellant filed the present appeal. The main argument of Ld. AR of the appellant before the ITAT is that Savings Bank interest cannot be anticipated and interest under section 234B and 234C of the Act cannot be charged on the tax payable by the appellant. The appellant pleads that the interest under section 234B and 234C of the Act are penal in nature, as he is using the words “penalised” “penalty” in grounds of appeal
for the charge of interest under these sections. It was also argued before the Bench that it is only logical and realistically practical than an individual tax payer will calculate the savings bank account interest amount credited to his savings account, while filing Income Tax Return for the F.Y. The Ld. AR of the appellant has submitted that the savings bank account interest income is not anticipated at different points in time of the year, by an appellant nor is it practically feasible to 3. K.N. Krishnamurthy assess the advance tax payable for interest credited by the bank to savings bank account of an individual tax payer. The next argument of the tax payer is that the he cannot determine the savings account interest income accrued in advance, since he is unaware of his cash outflow/inflow requirements during the course of F.Y. which could also be augmented due to sudden cash withdrawals on account of personal emergencies. Therefore, the Ld. AR finally concluded that the presumption of paying advance tax on the notional savings bank interest income to be accrued during the financial year is erroneous and defies logic. Thirdly, the Ld. AR of the appellant relied on the decision of Bombay High Court in the case of Prime Securities Ltd. Vs. ACIT (ITA No. 711 of 2004), where the charging of interest was deleted by the Court. Fourthly, the appellant claims that he has to keep certain amount in savings bank account for medical emergencies in Covid Pandemic period. Fifthly, the Ld. AR of the appellant in his written submissions states that income from salary and dividend can be anticipated incomes, but not savings bank account interest.
4. Per contra, Ld. DR has argued that charging of interest under section 234B and 234C is mandatory as the words used are “shall” in all these sections. Once charging of advance tax is attracted, the default of the same attracts interest under section 234A, 234B and 234C of the Act. In the written submissions filed by the Ld. DR, it was mentioned that the appellant should have a credit balance of Rs. 16 lakhs to 17 lakhs in his savings bank account by reversing the working since the appellant paid Rs. 30,355/- as self assessment tax. Secondly, the appellant has not submitted the detailed break up of interest as directed by the Bench. Thirdly, the reliance placed on the decision of Hon'ble Bombay High Court by the Ld. AR of the appellant is not applicable to the facts of the case, because the Prime Securities case relied on by the appellant relates to issue of invalid ITR earlier Vs. filing of correct ITR subsequently and hence the facts are totally different. Fourthly, the appellant paid self assessment tax on 9.7.2023, even though, the appellant knows the information relating to interest earnings every quarter
4 K.N. Krishnamurthy and final figures are known by 1.4.2023. So, the appellant is duty bound to pay Advance tax installments as per the timing mentioned in the Act and as he defaulted, the interest under section 234B and 234C of the Act were correctly levied.
Both the parties are heard and perused the written submissions of both parties alongwith the bank interest details as per bank statement of the appellant for the A.Y. 2023-24 which was filed by the Ld. AR of the appellant. The Bench has come to the conclusion that charging of interest under section 234B and 234C of the Act by the Revenue is correct for following reasons :- a) The first argument of appellant is that the interest on savings bank account balance is credited on the last day of financial year. But, from the bank statement filed by the appellant, it is observed that savings bank account interest is credited every quarter and not on the last day of financial year, and appellant knows the quantum of interest income every quarter end itself. It is accrued, received and ascertainable. b) The second and third grounds of appeal that Reserve Bank changes rate of interest every year and interest income is notional, are factually incorrect again because interest was credited at the end of every quarter. It is not notional income but actual receipt. c) As the Ld. AR of the appellant has placed heavy reliance on the case of Prime Securities Ltd., (supra) the decision of Hon'ble Bombay High Court was perused and analysed. At para 8, it was held that the impugned appellant had also to estimate all the incomes. It implies interest income of savings bank account, which is definite and ascertainable because the rate of interest is known to everyone and appellant is in the exclusive knowledge of interest credited every quarter. If the appellant does not pay advance tax on this income
5 K.N. Krishnamurthy which was credited every quarter in his bank account, it is clearly a default and interest under section 234B and 234C is clearly attracted. For example, for A.Y. 2023-24 on 1.7.2023, 1.10.2023, 1.1.2024, and 1.4.24, the appellant was credited in his savings bank account with interest of Rs. 9,322/-, Rs. 10,354/-, Rs. 11,458/- and Rs.10,107/- respectively. As the rate of interest is ascertainable and known to appellant, the necessary advance tax has to be paid, failing which interest under section 234B and 234C are to be paid. Hence, the appellant’s argument that savings bank interest is credited on the last date of financial year is factually incorrect because the interest is credited every quarter. d) From the bank statement copy filed by the appellant, it is observed that he is receiving dividends of Rs. 11,718/-, Rs. 2,228/-, Rs. 43,620/-, Rs. 7,350/- and Rs. 225/- quarterly which is not uniform. On this unanticipated income, appellant was ascertaining tax liability and paying taxes, but on bank interest which is credited regularly every quarter, appellant argues that it is not anticipated and hence has not paid advance tax, which is illogical and baseless. e) The appellant is having huge cash balances of more than Rs. 12 lakhs and more consistently and uniformly throughout the year, it can be observed from the bank statement filed for A.Y. 2023-24. So, the appellant’s argument that he has to keep necessary balances for medical emergencies does hold water. If he withdraws money for medical emergency, he will have reduced bank balance and reduced bank interest and consequently, the appellant’s argument is not logical. f) Before 31.3.2023, the appellant knows the total amount of savings bank account interest credited to his and account fully, but did not pay advance tax on the same and interest which is compensatory has 6 K.N. Krishnamurthy to be paid. For example, the appellant paid advance tax of Rs. 60,000/- on 12.3.2023 and Rs. 30,555/- SA tax on 9.7.2023. As the appellant knows his total interest income by 31.3.2023, he had to pay advance tax as per the installments mentioned under section 209 and 210 of the I.T. Act failing which interest under section 234B and 234C are leviable. g) The cardinal principle of levying interest/paying interest is that if appellant keeps the money of Revenue i.e. tax, without adhering to the provisions of law, appellant has to pay interest and if the Revenue keeps the money of appellant, the Revenue has to pay the interest under section 244A to the appellant as per law. If this cardinal principle is applied, appellant has to pay interest as he kept Revenue’s money, payable as per time limits of section 209 and 210 of the I.T. Act and hence levy of interest under section 234B and 234C of the Act for both assessment years is correct and legal. h) Reliance is placed on the decision of Mrs. Prabha Lal (269 ITR 212) (Patna) for the proposition that even income accrued unexpectedly after the due date of installment is not a valid reason for non-levy of interest and interest under section 234B and 234C shall be charged. i) Charging of interest is mandatory and automatic and apart from the exceptions given in provisions of section 234B and 234C, any other reason, or cause for deferment in payment of advance tax is immaterial. (CIT Vs. Salem Agricultural Producers Cooperative Marketing Society Ltd., 76 Taxman.com 225 (Mad). j) In Kotak Mahindra Finance Ltd. case (265 ITR 119)(Bom), it was held that (para 7) interest under section 234A, 234B and 234C inserted w.e.f. 1.4.1989, are compensatory in nature and not penal. The levy is automatic once the appellant committed default.
7 K.N. Krishnamurthy k) In the case of Anjum Ghaswala (supra), Hon'ble Bombay High Court and Hon'ble Supreme Court have held that the words used are “shall” levy of interest under section 234A, 234B and 234C and hence they are mandatory and compulsory. The appellant does not come under these exceptions nor did he file an application for the same before the CBDT. l) Only CBDT has the power to reduce/waive interest under section 234A, 234B and 234C, under section 119(2) and the conditions/exceptions are mentioned.
In view of the above, the appeal filed by the appellant is dismissed.
Order pronounced in the open Court on 15/04/2025.