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Facts
The assessee sold agricultural land on March 18, 2016, realizing capital gains. The Income Tax Department levied interest under Section 234C for default in advance tax payment, arguing that the capital gains were part of the book profit under Section 115JB. The assessee contended that the capital gains arose after the last advance tax installment due date and were therefore not estimable.
Held
The Tribunal held that interest under Section 234C is not applicable where the shortfall in advance tax payment is due to capital gains that arose after the last installment date and were not estimable. The Tribunal relied on the proviso to Section 234C(1) and previous judgments, including a sister concern's case with identical facts.
Key Issues
The key legal issue is whether interest under Section 234C can be levied on capital gains that arise after the last advance tax installment date, especially when the tax liability is determined under MAT provisions.
Sections Cited
Section 234C, Section 115JB, Section 143(1)
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Income Tax Appellate Tribunal, JABALPUR BENCH “DB”, JABALPUR
Before: SHRI KUL BHARAT & SHRI, ANADEE NATH MISSHRA
PER KUL BHARAT, VICE PRESIDENT.:
This appeal, filed by the assessee, against the order dated 18.12.2024 of learned Addl/JCIT Commissioner Income Tax (Appeals)-12, Delhi [hereinafter referred as to “Ld. Addl/JCIT CIT(A)”] pertaining to the assessment year 2016-17. The assessee has raised the following grounds of appeals: -
1. That the Ld. Hon'ble Commissioner of Income tax (Appeals) has erred on the facts and circumstances of the case. Accordingly, the order needs to be quashed.
2. That on the facts and circumstances of the case the Ld. Hon'ble Commissioner of Income tax (Appeals) has failed to appreciate the statement of facts and grounds of appeal filed by the appellant at the time of filling with Hon'ble Commissioner of Income Tax (Appeals).
3. That on the facts and circumstances of the case the Ld. Hon'ble Commissioner of Income tax (Appeals) has failed in appreciating the fact that the assessee company had earned capital gains in the last quarter for the A.Y 2016 and the provisions of section 234C is not applicable where there is short fall in the payment of tax on account of underestimate or failure to estimate the amount of capital gains (second proviso to section 234C).
4. That on the facts and circumstances of the case Ld. Hon'ble Commissioner of Income tax (Appeals) has failed to consider the fact that the appellant company filed Tax as per the MAT provisions and ITR-6 Form in which the Return of Income was filed, only considers the taxable capital gains considered under the normal provisions of Income Tax Act, Page 2 of 7 1961 after setting off the current year as well as brought forward capital losses. Also, there is no column in Schedule CG for furnishing quarter wise details of Long-Term Capital. Whereas, under the MAT provisions total Capital Gain earned during the year is considered while computing Book Profit u/s 115JB. Therefore, the assessee company is bound to create a chart to calculate interest u/s 234C of the Income Tax Act, 1961, which cannot be disclosed in ITR Form.
5. That on the facts and circumstances of the case the Ld. Hon'ble Commissioner of Income tax (Appeals) erred by wrongly quoting the case laws by stating that Interest u/s 234C is mandatory and consequential to the determination of total income. Although the Interest u/s 234C is mandatory, however, provision of section 234C is not applicable to any short fall in the payment of the tax due on the returned income, where such shortfall is on account of underestimate or failure to estimate the amount of capital gains.
6. That the appellant craves permission to add, amend alter or vary all or any of the ground of appeal
on or before the date of hearing of the appeal.”
2. The facts giving rise to the present appeal are that while processing the Income Tax Return (ITR) of the assessee made adjustment and vide order dated 11.08.2017 pertaining to the A.Y. 2016-17 assessed capital gain at Rs.15,67,224/-. Thus, the AO computed deemed income u/s 115JB of the Act of Rs.81,33,535/- and computed tax of Rs.15,04,704/-. Aggrieved by this, the assessee preferred in appeal before the Ld. CIT(A) who sustained the addition and dismissed the appeal of the assessee. Now the assessee is in appeal before this Tribunal.
3. Apropos the grounds of appeal, the Ld. Counsel for the assessee contended that the impugned order was passed ex parte to the assessee. Further, the Ld. CIT(A) failed to consider the submissions as made in the written submissions filed before the Ld. CIT(A). For the sake of clarity, the submissions of the assessee are reproduced as under:-
“1. That the appellant, during the Assessment Year 2016-17, sold agricultural land on 18.03.2016 to M/s City Realty for a total sale consideration of ₹80,45,000 (Rupees Eighty Lakh Forty-Five Thousand Only). The said property was purchased during the financial year 2006- 07. Following is the detailed capital gain on the said property: Sales Consideration: ₹80,45,000 Less:
Page 3 of 7 Indexed Cost of Acquisition in 2006-07 ₹15,85,952 Indexed Cost of Improvement in 2010-11 ₹1,43,958 Indexed Cost of Improvement in 2011-12 23,53,899 Indexed Cost of Improvement in 2015-16 23,93,967 Total long-term gain 14,07,282 The tax payable under normal rates amounted to ₹2,81,456 (Rupees Two Lakh Eighty One Thousand Four Hundred Fifty Six).
That the book profit during the year under section 115JB was 81,33,535 (Rupees Eighty-One Lakh Thirty-Three Thousand Five Hundred Thirty-Five only), and the tax payable at 18.5% of book profits along with a 3% cess amounted to ₹15,49,845 (Rupees Fifteen Lakh Forty-Nine Thousand Eight Hundred Forty-Five only).
That the capital gain arose after the last advance tax instalment due on 15.03.2016, and tax on such income was ultimately paid along with self- assessment tax. While processing the return under section 143(1), CPC levied interest under section 234C for the entire year, treating the Assessee as in default of advance tax on MAT income.
4. That the limited controversy before this Hon'ble Tribunal is whether interest under section 234C can be levied in a MAT case where the triggering income (capital gains) arose after the last advance tax instalment date and was incapable of estimation.
That the return of income was filed on 31.03.2017 by the appellant in the said return. TDS deducted during the year was 280,450, resulting in a net tax liability of ₹14,69,395. The interest liability for the year under various provisions is as follows: 234A on 214,69,395 @ 1% for 6 months: Rs.88,158 234B on 14,69,395 @ 1% for 12 months: ₹1,76,316 Total interest payable ₹2,64,474 The aforesaid capital gains and MAT liability were duly disclosed in the return of income and the entire tax was discharged by way of self- assessment tax, resulting in no loss to the revenue.
6. That the interest under section 234C pertains to charging interest for default in payment of advance tax. However, it is essential to note that the proviso to section 234C(1), which carves out an express exception in cases of capital gains and other incomes incapable of estimation, affects the applicability of these provisions in cases where the income includes capital gains. Interest for deferment of advance tax. 234C. (1) Where in any financial year,- (a) an assessee, other than the assessee referred to in clause (b), who is liable to pay advance tax under section 208 has failed to pay such tax or- (1) the advance tax paid by such assessee on its current income on or before the 15th day of June is less than fifteen per cent of the tax due on the returned income or the amount of such advance tax paid on or before Page 4 of 7 the 15th day of September is less than forty-five per cent of the tax due on the returned income or the amount of such advance tax paid on or before the 15th day of December is less than seventy-five per cent of the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent per month for a period of three months on the amount of the shortfall from fifteen per cent or forty-five per cent or seventy-five per cent, as the case may be, of the tax due on the returned income; (ii) the advance tax paid by the assessee on the current income on or before the 15th day of March is less than the tax due on the returned income, then the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income: Provided that if the advance tax paid by the assessee on the current income, on or before the 15th day of June or the 15th day of September, is not less than twelve per cent or, as the case may be, thirty-six per cent of the tax due on the returned income, then, the assessee shall not be liable to pay any interest on the amount of the shortfall on those dates; (b) an assessee who declares profits and gains in accordance with the provisions of sub-section (1) of section 44AD or sub-section (1) of section 44ADA, as the case may be, who is liable to pay advance tax under section 208 has failed to pay such tax or the advance tax paid by the assessee on its current income on or before the 15th day of March is less than the tax due on the returned income, then, the assessee shall be liable to pay simple interest at the rate of one per cent on the amount of the shortfall from the tax due on the returned income: Provided that nothing contained in this sub-section shall apply to any shortfall in the payment of the tax due on the returned income where such shortfall is on account of under-estimate or failure to estimate- (a) the amount of capital gains; or (b) income of the nature referred to in sub-clause (ix) of clause (24) of section 2; or (c) income under the head "Profits and gains of business or profession" in cases where the income accrues or arises under the said head for the first time; or (d) income of the nature referred to in sub-section (1) of section 115BBDA, and the assessee has paid the whole of the amount of tax payable in respect of income referred to in clause (a) or clause (b) or clause (c) or clause (d), as the case may be, had such income been a part of the total income, as part of the remaining instalments of advance tax which are due or where no such instalments are due, by the 31st day of March of the financial year: The Proviso to section 234C carves out a specific exception in respect of income arising by way of capital gains or income which is incapable of estimation at the relevant instalment dates. Further, it is a matter of fact that the scheme of section 115JB makes it evident that book profit can be determined only after finalisation of accounts at the end of the financial year.
Page 5 of 7 7. That MAT is calculated based on book profits, which can only be determined after finalising the annual accounts, audit adjustments, provisions, and statutory disclosures. During the year, especially before the advance tax instalments, the Assessee could not reasonably foresee that its final tax liability would be governed by section 115JB.
That capital gain admittedly arose on 18.03.2016, i.e., after 15.03.2016, the due date of the last instalment. Therefore, there was no statutory obligation to include such income when calculating advance tax instalments. Interest under section 234C is compensatory and cannot be levied where the default itself is impossible in law, "lex non cogitadimpossibilia."
That interest levied under section 234C has been imposed mechanically, without considering: The nature of MAT provisions, and The timing of accrual of income. Such adjustment travels beyond the scope of a mere arithmetical processing and results in patent illegality. Arguments in favour of the case 10. Incorrect Interpretation: The AO's action contradicts the explicit provisions of the proviso to section 234C(1), which clearly states that interest under section 234C does not apply when the income includes capital gains. The AO's mistaken interpretation of the law has led to an unfair demand and the imposition of interest.
That the appellant's case falls squarely within the scope of the proviso to section 234C(1), as the income in question is classified under the head of capital gains. The provision of section 234C should not be misapplied to cases where its applicability is explicitly excluded by law.
That it is an established law that provisions of section 234C apply in cases of income chargeable to tax under sections 115JA/115JB, subject to the provisos provided in section 234C, 13. That if, on a specific due date for advance tax, circumstances suggest there is no obligation to pay advance tax, failing to make the payment on time may not be enough to justify charging interest under Section 234C. If reported income increases due to unexpected earnings received after earlier due dates, the shortfall in the previous instalment's advance tax may not attract interest. For income classified under business or profession, interest under Section 234C of the Act will not be charged for default in advance tax payment, limited only to the first year of business or profession. For income characterized as windfall gain or unexpected income under other income categories, the provisions of Section 234C(1) will not apply to any shortfall in advance tax payment related to such income, as it is of unpredictable nature beyond the taxpayer's control, making estimation for advance tax payment impossible. However, the relaxation of advance tax instalment requirements is subject to the condition that the taxpayer bas paid the entire tax due on their total income, including any windfall gains, either through subsequent instalments after the gain occurs or if no further instalments are due.
That the contentions presented above have been supported by the decision of the esteemed ITAT Mumbai Bench regarding (Assessment Year: 2018-19). This case closely resembles Page 6 of 7 the appellant's case, where Book Profits were accumulated within the scope of Capital Gains and these gains were realized only in the fourth quarter, specifically on the dates 28-02-2018 and 28-03-2018. In this context, the Hon'ble ITAT Mumbai Bench has distinguished its ruling from the judgment of the Supreme Court in CIT Vs. Rolta India Ltd., Civil Appeal No. 135 of 2011. Additionally, emphasis is placed on the Hon'ble Bombay High Court decision concerning of 2017 and No. 1237 of 2017. These rulings highlight the denial of interest under Section 234C where the income was not foreseeable at the time of making the advance tax payments.
That further reliance is placed on the decision of the sister concern of the Appellant, M/s Prachi Agrotech (P) Ltd, in ITA 12/JAB/2023, where an identical issue had arisen since the property was also sold on 18.03.2016, and the department had charged interest under section 234c. However, this Hon'ble Tribunal decided in favour of the assessee regarding the non- applicability of section 234C interest. A copy of the order Prayer for Relief: Considering the above circumstances, it is humbly requested to consider the following: 1. Quash the demand raised, as the provisions of section 234C do not apply to cases involving capital gains, in accordance with the first proviso to section 234C.
2. The principle of judicial consistency and parity requires identical treatment as established in the case of M/s Prachi Agrotech (P) Ltd in ITA 12/JAB/2023.
3. Waive the interest charged under section 234C, as its applicability is explicitly excluded by the aforementioned proviso when capital gains are involved.
4. Pass such other order(s) as this Hon'ble Tribunal may consider appropriate given the facts and circumstances of the case.”
On the other hand, the Ld. Departmental Representative for the Revenue supported the orders of the authorities below.
5. We have heard rival contention and perused the materials available on records. It is seen from the record that the assessee had filed certain explanation which has not been considered by the Ld. CIT(A). It is observed that the Ld. CIT(A) had given opportunity by issuing two notices dated 06.12.2024 and 12.12.2024 in a short span. The assessee was not provided adequate time for making effective representation. Even before AO there was no representation on behalf of the assessee. Therefore, looking to the totality of the facts and the material Page 7 of 7 placed before us, we are of the considered view that to sub-serve the principles of natural justice, assessee should be given one more opportunity to represent his case effectively. We, therefore, hereby set aside the impugned order and restore the assessment to the file of the Assessing Officer to make assessment afresh, after giving adequate opportunity to the assessee. The assessee is hereby directed not to seek any adjournment without any medical exigency. Grounds of appeal of the assessee are allowed for statistical purposes.
In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 27/02/2026.