SHRI DHIRENDRA NARBHERAM SHETH,RAJKOT vs. THE INCOME TAX OFFICER- WARD 2 (3) (5), RAJKOT, RAJKOT

The Assessee has raised following grounds of appeals: “1. That the learned CIT(Appeals) has grievously erred in law and on facts in upholding the action of the learned A.O. in charging the interest u/s 234A and 234B beyond the date on which self-assessment tax including interest u/s 234A, 234B and 234C up to that date is already paid. 2. That the learned CIT(Appeals) has grievously erred in law and on facts in not appreciating the contention of the appellant that interest u/s. 234A and 234B are

The only issue raised by the assessee is that the learned CIT-A erred in confirming the order of the AO by levying the interest under section 234A and 234B of the Act up to the date of the assessment order.

In the present case, the assessee is an individual and derives income under the head salary and interest income. The assessee did not file his return of income for the AY 2011-12 under section 139 of the Act. The assessee has filed the return of income as on 13/04/2018 in response to the notice issued under section 148 of the Act declaring an income of Rs. 6,20,156/- only which was accepted by the AO in the assessment framed under section 147 of the Act. Besides, the AO has levied interest under section 234A, 234B and 234C of the Act till the date of completion of assessment i.e. 29/11/2018.

The assessee against the levy of interest under section 234A and 234B of the Act, among other grievances, has moved an application dated 2 January 2019 under section 154 of the Act to rectify the same. As per the assessee, he has paid the self-assessment tax along with interest dated 19 March 2015 amounting to ₹ 71,070.00 and therefore there should not have been charged any interest under section 234A and 234B of the Act.

It was submitted by the assessee that the interest under the provisions of Sec 234A, 234B and 234C are compensatory in nature. The Government should not incur loss of revenue on account of late payment of taxes. As the assessee has already paid the taxes to the Government, there is no loss of revenue after 19th March 2015.

However, the Ld. CIT(A) has disregarded the contentions of the assessee by treating the provision of section 234A, 234B and 234C as mandatory and penal in nature. The Ld. CIT(A) observed as under: “6.2 The computation of the interest u/s 234A/234B is driven by the Act. Interest u/s 234A is charged from the original due date of filing the return to the date of actual filing of the return. Similarly, interest u/s 234B is charged from start of the AY to the date of determination of income u/s 143(1) or regular assessment including u/s 147. Section 234B(2) mandates that credit for self-assessment tax paid before the completion of assessment would be allowed. Explanation to Section 140A mandate that self-assessment tax is first to be adjusted against interest and then against the tax. 6.3 Since the levy of interest under section 234A and 234B of the Act is mandatory in nature being fastened by the statute automatically, in my considered opinion, the AO has no authority to restrict/curtail the same. Thus, the A.O. has correctly charged the interest as per the stated provisions of the Act, and the request of the appellant for curtailing the interest u/s 234A/234B upto the date of payment of self-assessment tax, being beyond the scope of section 154, has not been allowed by the AO. These grounds of the appellant therefore do not succeed.”

The learned AR before us filed a paper book running from pages 1 to 46 and case law compilation running from pages 1 to 46 and contended that the interest charged under section 234A and 23B is compensatory in nature. Once, the assessee has paid the taxes including the interest under section 234A and 234B up the date of self-assessment tax on the income declared in the income tax return which has been accepted by the revenue, there cannot be any element of interest to be charged beyond the date of tax paid by the assessee as self-assessment tax i.e. 19 March 2015. The learned AR in support of his contention has relied on various case laws which are available on record.

On the other hand, the learned DR vehemently supported the order of the authorities below.

We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee has not filed his return of income in response to the notice issued under section 148 of the Act. Likewise, the assessee has also paid the self-assessment tax along with interest under section 234A and 234B of the Act after the due date of filing the return of income specified under section 139 of the Act but before filing the return of income under section 148 of the Act.

The Revenue has charged the interest under section 234A and 234B up-to the date of passing the order under section 147 of the Act dated 29/11/2018 whereas as per the assessee interest shall be chargeable up-to the payment of self-assessment tax paid 19-3-2015.

As per the facts discussed above the issue before us is to decide whether the interest under the provisions of section 234A and 234B are compensatory or penal in nature. The scheme and the purpose of Income Tax Act is to realize direct taxes. It is not correct to refer to the levy of such interest as a penalty.

When the amount of tax has been paid by the assessee with interest up-to the date of payment, there is no point to charge the interest till the date of filing of return of income as the revenue is not incurring any loss on account of non- filing of ITR. The issue, however, is no longer res-integra. The Hon’ble Supreme Court and Various Hon’ble High Court thorough judgements have well settled that when the statute says interest, which would be compensatory in nature, would be levied upon happening of a particular event or action.

It has been held by the Hon'ble Supreme Court in the case of CIT v. Prannoy Roy 309ITR231/[2009] 179 Taxman 53 (SC) that the interest under section 234A of the Act on default in furnishing return of income shall be payable only on the amount of tax that has not been deposited before the due date of filing of the income-tax return for the relevant assessment year. The impugned provisions are only compensatory in nature and no part thereof is penal in character. The Hon’ble Delhi High Court in the case of Commissioner of Income- tax-II v. Anand Prakash reported in 316 ITR 141 has held as under:

In the result, the appeal filed by the assessee is allowed.