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Facts
For AY 1997-98, the initial assessment was framed u/s 143(3) on 01-02-2000. Following a Tribunal order in 2016, a consequential assessment order was passed on 31-03-2017, where the AO charged interest u/s 234D. The assessee contended that Section 234D was not applicable as the original assessment was completed before the section's insertion date of 01-06-2003. The CIT(A) deleted the interest, leading to the revenue's appeal.
Held
The Tribunal upheld the CIT(A)'s decision, ruling that interest under Section 234D is not leviable if the regular assessment was completed before 01-06-2003, even if subsequent orders giving effect to higher authorities' directions are passed later. It emphasized that Explanation 2 to Section 234D requires the 'proceedings' for the assessment year to be completed after 01-06-2003 for its applicability, and the 'regular assessment' definition u/s 2(40) refers to initial assessments. The Tribunal relied on precedents from the Supreme Court and Madras High Court.
Key Issues
Whether interest under Section 234D can be charged for an assessment year where the original regular assessment was completed before 01-06-2003, but a consequential order giving effect to the Tribunal's directions was passed after this date.
Sections Cited
143(1), 143(3), 144, 147, 153A, 154, 234D, 254, 2(40), 43B
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Income Tax Appellate Tribunal, “A” BENCH, CHANDIGHARH
Before: HON’BLE SHRI RAJPAL YADAV & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by revenue for Assessment Year (AY) 1997-98 arises out of an order of learned Commissioner of Income Tax (Appeals)-2, Chandigarh dated 02-08-2018 in the matter of an assessment framed by Ld. Assessing Officer (AO) u/s 143(3) r.w.s. 254 of the Act on 31-03-2017. The revenue has filed revised Form No.36 on 10-09-2024 which is on record. The grounds of appeal read as under: - (i) Whether on the facts and circumstances of the case, the Ld. CIT(A) has not erred in law and fact in deleting the interest u/s 234D charged by the AO, in holding that making of an assessment u/s 143(2) is a sine qua no for imposition of interest u/s 234D, when the explanation to Sec.234D only refers to ‘proceedings’ and not assessment? (ii) Whether on the facts and circumstances of the case, the Ld. CIT(A) has not erred in law and fact in deleting the interest u/s 234D charged by the AO, in holding that interest should be charged up-to the original date of assessment u/s 143(3), when the assessment in this case was made for the first time on 01.02.2000 prior to insertion of Section 234D on 01-04-2003 and ignoring explanation to Sec.234D which clearly states that the provisions of this section shall also apply to AYs commencing before 01st day of June, 2003 of the proceedings in respect of such assessment years is completed after the said date? (iii) Whether in the facts and circumstances of the case and in law, the Ld. CIT(A)’s order is not perverse having erred in allowing the appeal of the assessee without appreciating the facts of the case? (iv) It is prayed that the order of Ld. CIT(A) be set aside and that of Assessing Officer may be restored. As is evident, the sole issue that arises for our consideration is chargeability of interest u/s 234D. Having heard rival submissions and upon perusal of case records, the appeal is disposed-off as under.
1. 2. From case records, it emerges that an order has been passed by Ld. AO u/s 143(3) r.w.s. 254 of the Act on 31-03-2017. In regular assessment framed u/s 143(3), Ld. AO made disallowance of Rs.11.94 Crores u/s 43B. The matter was set aside by Tribunal vide dated 05-04-2016. In consequential assessment, Ld. AO restricted the addition to the extent of Rs.6.19 Crores and revised the demand against the assessee at Rs.864.79 Lacs which included interest u/s 234D for Rs.262.05 Lacs. This order has been rectified u/s 154 on 12-01-2018 wherein the assessee contended that interest u/s 234D was not applicable to assessments completed before 01-06-2003 and therefore, charging of such interest was mistake apparent from Assessment Year: 1997-98 record. However, Ld. AO held that the proceedings attained finality only on 31-03-2016. Explanation-2 to Sec.234D was applicable which provide that the provisions of Sec.234D would apply to assessment year commencing before 01-06-2003 if the proceedings of such AY was completed after the said date. The proceedings in assessee’s case attained finality only on 31-03-2017 and accordingly, the said plea was rejected. However, computational errors were accepted and Ld. AO re- computed interest u/s 234D for Rs.233.43 Lacs and revised the demand to Rs.482.04 Lacs.
The Ld. CIT(A) concurred that making of assessment for the first time under relevant sections after 01-06-2003 would be sine-qua-non for imposition of interest u/s 234D. In the present case, the regular assessment was framed u/s 143(3) on 01-02-2000 which was much prior to 01-06-2003 i.e., the date on which the provisions of Sec.234D were inserted in the statute. The order passed on 31-03-2017 was to give effect to the directions of the Tribunal merely on two issues arising out of various additions / disallowances made in the regular assessment. The order passed on 31-03-2017 was not an order of regular assessment as envisaged u/s 234D. Accordingly, the interest as charged by Ld. AO was deleted against which the revenue is in further appeal before us. Our findings and Adjudication 4. The short issue that falls for our consideration is to adjudicate whether Sec.234D as inserted by Finance Act, 2003 w.e.f. 01-06-2003 would be applicable where regular assessment proceedings stood Assessment Year: 1997-98 completed much prior to that date. The provisions of Sec.234D read as under: - 234D. (1) Subject to the other provisions of this Act, where any refund is granted to the assessee under sub-section (1) of Section 143 and (a) no refund is due on regular assessment; or (b) the amount refunded under sub-section (1) of Section 143 exceeds the amount refundable on regular assessment, the assessee shall be liable to pay simple interest at the rate of one-half per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment. (2) Where, as a result of an order under section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount of refund granted under sub-section (1) of section 143 is held to be correctly allowed, either in whole or in part, as the case may be, then, the interest chargeable, if any, under sub-section (1) shall be reduced accordingly. Explanation 1 - 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 2 - For the removal of doubts, it is hereby declared that the provisions of this section shall also apply to an assessment year commencing before the 1st day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date.
It could be gathered that sub-section (1) provide that where any refund is granted to the assessee under sub-section (1) of section 143 and (a) no refund is due on regular assessment; or (b) the amount refunded under sub-section (1) of section 143 exceeds the amount refundable on regular assessment then in such a case, the assessee shall be liable to pay simple interest at the rate of one-half per cent on the whole or the excess amount so refunded, for every month or part of a month comprised in the period from the date of grant of refund to the date of such regular assessment. The sub-section (2) of section 234D provide for reduction of interest consequent to orders passed Assessment Year: 1997-98 u/s 154 / 155 or various other Sections. Explanation (1) provide that where an assessment is made for the first-time u/s 147 or Sec. 153A then the said assessment shall be regarded as a regular assessment for the purposes of Sec. 234D of the Act. Thus, the whole emphasis is on regular assessment only. Explanation-2 has been inserted for the removal of doubts and it has been declared that the provisions of Section 234D shall also apply to an assessment year commencing before the 1st day of June, 2003 if the proceedings in respect of such assessment year is completed after the said date.Explanations (1) and (2) were inserted by Finance Act, 2012 with retrospective effect from 01-06-2003. ‘Regular assessment' has been defined u/s 2(40) to mean the assessment made u/s 143(3) or Sec.144 only.
From written submissions of Ld. AR, it emerges thatin the present case, the assessee filed return of income which was initially processed u/s 143(1) and the same stood rectified u/s 154. The prima- facie adjustments were deleted by Ld. CIT(A) on 08-09-1999 and appeal effect order was passed on 28-10-1999. Subsequently, the return of income was scrutinized u/s 143(3) vide order dated 01-02- 2000 making various additions to the returned income. At the time of culmination of assessment proceedings, the provisions of Sec.234D were not in existence. The Ld. CIT(A), vide order dated 06-03-2002, partly allowed the assessee’s appeal which was given effect to by Ld. AO on 28-03-2002 which was again rectified on 15-05-2002. Thus, the regular proceedings stood completed well before 01-06-2003 when the provisions of Sec.234D were not in force. The department Assessment Year: 1997-98 preferred further appeal to Tribunal wherein the appeal stood partlyallowed vide order dated 05-04-2016. The same has been given effect to by Ld. AO on 31-03-2017 wherein Ld. AO has charged impugned interest u/s 234D. As noted in the preceding paragraphs, the provisions of Sec.234D refers to regular assessment only for the purpose of levy of interest and not to consequential assessment framed u/s 143(3) r.w.s.
The regular assessment as defined u/s 2(40) would mean only an assessment order passed u/s 143(3) / 144 of the Act. Explanation-1 has extended the meaning given to ‘regular assessment’ to even include assessment made for the first-time u/s 147 &153A of the Act. Therefore, a reference is to an order passed u/s 143(3) or 144 or 147 or 153A and passing of orders under these sections after 01-06-2003 is sine-qua-non for imposition of interest u/s 234D. Explanation-2 merely clarifies that the interest would be leviable in case proceedings for any assessment year stood completed after 01-06-2003. The same is not the case here. It could clearly be seen that the regular assessment stood framed before 01-06-2003 and therefore, impugned interest u/s 234D could not be charged from the assessee.
The Hon’ble Supreme Court in the case of CIT vs. Reliance Energy Ltd. (358 ITR 371) held that where the assessment was completed prior to 01-06-2003, provisions of section 234D could not be applied. The Hon’ble Madras High Court in the case of Sundaram Finance Ltd. (417 ITR 679), on similar facts, held that when the order u/s 143(3) was passed before 01-06-2003, the order passed by AO u/s Assessment Year: 1997-98 154r.w.s. 254 and 143(3) could not be treated as an order of regular assessment so as to attract the provisions of Sec.234D. Respectfully following the same, we would hold that the impugned order need not be interfered with.
The appeal stands dismissed. Order pronounced on 18-08-2025.