Ita/1022/2009 Of The Commissioner Of Income Tax,Thrissur v. M/S.sego Resturant & Airland Lodgings

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN MONDAY, THE 14TH DECEMBER 2009 / 23RD AGRAHAYANA 1931 ITA.No. 1022 of 2009() ---------------------- ITA.489/COCH/2007 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT ---------------------------------------- THE COMMISSIONER OF INCOME TAX,THRISSUR. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): APPELLANT ------------------------ M/S.SEGO RESTAURANT & AIRLAND LODGINGS, ROUND NORTH,TRICHUR. ADV. SRI.P.BALAKRISHNAN (E) FOR R1 THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 14/12/2009, THE COURT ON 14/12/2009 DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. .................................................................... I.T. Appeal No.1022 of 2009 .................................................................... Dated this the 14th day of December, 2009. JUDGMENT Ramachandran Nair, J. This is an appeal filed by the Revenue challenging the order ofthe Tribunal cancelling demand of interest under Section 234B(3) ofthe Income Tax Act (hereinafter called “the Act”) in proceedingscompleted by the Assessing Officer under Section 154 of the Act. Wehave heard Senior Standing counsel appearing for the appellant andAdv.Sri.P.Balakrishnan appearing for the respondent-assessee. 2. When the return of the assessee filed for the year 1995-96 was processed under Section 143(1), the Assessing Officer found that theassessee had paid over 90% of the assessed tax as advance tax whichincluded tax deducted at source as well. Even though the assessmentwas taken up for scrutiny and regular assessment under Section 143(3) was completed on 2.12.1997, the demand of tax remained the same andconsequently there was no shortage of advance tax and so much so, interest was not levied under Section 234B(1) of the Act. However, theassessment was modified under Section 147 on 18.2.2002 which led toan additional demand of Rs.84,824/-. Even though no interest waslevied under Section 234B in the reassessment proceedings completedunder Section 147, the Assessing Officer later rectified thereassessment under Section 154 levying interest under Section 234B(3)on the additional demand of tax. Even though first appeal wasunsuccessful, the Tribunal on second appeal filed by the assessee,cancelled the demand of interest for the reason that interest underSection 234B(3) can be levied only if there was original levy of interestin first assessment under Section 234B(1) of the Act. The questionraised by the Revenue is whether the Tribunal was justified in holdingthat interest under Section 234B(3) can be levied only if there was alevy of interest under Section 234B(1) of the Act. Since the question tobe considered is on the interpretatio of Section 234B(3), we have tonecessarily refer to the said provision and for easy reference we extractit hereunder: “Where, as a result of an order of re-assessment or re-computation under section 147 or section 153A, the amounton which interest was payable under sub-section (1) isincreased, the assessee shall be liable to pay simple interestat the rate of one per cent for every month or part of amonth comprised in the period commencing on the dayfollowing the date of determination of total income undersub-section (1) of section 143 and where a regularassessment is made as is referred to in sub-section (1)following the date of such regular assessment and ending onthe date of the re-assessment or re-computation undersection 147 or section 153A, on the amount by which thetax on the total income determined on the basis of the re-assessment or re-computation exceeds the tax on the totalincome determined under sub-section (1) of section 143 oron the basis of the regular assessment aforesaid.” 3. The question to be considered is whether the above sub-sectionis attracted only if there is levy of interest under Section 234B(1) in theintimation issued under Section 143(1) or in the regular assessmentcompleted under Section 143(3) as held by the Tribunal. Admittedly inthis case in the determination of total income under sub-section (1) ofSection 143 and in the regular assessment completed under Section 143(3), the Assessing Officer found that the advance tax paid is 90% andabove of the assessed tax and consequently there was no liability for the assessee to pay any interest under Section 234B(1) of the Act whichprovides for interest only if payment of advance tax is less than 90% ofthe assessed tax. However, when assessment was revised underSection 147 to bring to tax escaped income, the tax demand went upleading to shortfall of advance tax payable under Section 234B(1) ofthe Act. In other words, the advance tax paid was less than 90% of thetax finally assessed and found payable in the income escapingassessment completed under Section 147 of the Act. The contention ofthe assessee is that the words “the amount on which interest waspayable under sub-section(1) is increased” referred to in sub-section (3)happens only when there was a shortfall in payment of advance tax inthe original assessment itself leading to levy of interest under Section234B(1) so that when reassessment leads to further shortfall in paymentof advance tax, interest liability arises under Section 234B(3) of theAct. Standing Counsel on the other hand submitted that for levy ofinterest under Section 234B(3), it is immaterial whether there wasshortfall in advance tax in the regular assessment or not and according to him, even if the first assessment led to refund of excess tax paid, stillinterest could be demanded under Section 234B(3) if on reassessmentcompleted under Section 147 advance tax paid is found less than 90%of the tax assessed in reassessment proceedings. Counsel for theassessee brought to our notice Section 234D which was introduced byFinance Act 2003 with effect from 1.6.2003, which provides for levy ofinterest in the course of regular assesment on excess tax refunded inproceedings completed under Section 143(1) of the Act. According toassessee's counsel, Section 234B(3) could be invoked only forincreasing the demand of interest levied in original assessment underSection 234B(1) and when no interest is demanded under the saidprovision in the original assessment, the Assessing Officer cannotinvoke Section 234B(3) for levying interest for the first time afterrevision of assessment under Section 147 of the Act. We are unable touphold the finding of the Tribunal and the contention of the counsel forthe assessee because scheme of levy of interest for non-payment orshort-payment of advance tax under various provisions of Section 234B is in stages. Interest under Section 234B(1) is attracted when theadvance tax paid is found to be less than 90% of the assessed tax.While the advance tax paid remains a static amount, assessed tax willkeep on changing depending on modifications made in assessment.The proceedings completed under Section 143(1) could be modified ina regular assessment under Section 143(3) which may lead to increasein demand of tax. Similarly when a regular assessment completedunder Section 143(3) is revised under Section 147 and such a revisedassessment leads to higher demand of tax, then the shortfall in advancetax naturally increases. Sub-section (1) and sub-section (3) provide forlevy of interest for non-payment or short-payment of advance tax instages. While in the regular assessment interest under Section 234B(1)is levied to the extent of shortfall in payment of advance tax upto dateof such regular assessment, interest could be later levied if theassessment so completed is revised under Section 147 leading to higherdemand of tax, thereby increasing the shortfall in payment of advancetax. However, it is specifically provided in sub-section (3) of Section 234B that the additional demand of interest under the said provisionshould be from the date following the date on which regular assessmentwas completed either under Section 143(1) or 143(3) of the Act. Theonly condition for levying interest under Section 234B(3) is increase inthe shortfall in advance tax as a consequence of revision of assessmentunder Section 147 of the Act. While interest on shortfall in payment ofadvance tax is levied in the regular assessment under Section 234B(1)upto the date of completion of assessment, interest on further shortfallin advance tax with reference to tax determined on reassessment underSection 147 is levied under sub-section (3) of Section 234B. Increasein shortfall of advance tax on reassessment leads to levy of interestunder Section 23B(3) and this Section does not require that in order toattract liability under it there should be a levy of interest in regularassessment under Section 234B(1) of the Act. In our view, even if theassessee is found to have paid full advance tax with reference to theincome assessed in regular assessment and there was no occasion tolevy any interest under Section 234B(1) of the Act, still assessee will be liable to pay interest under Section 234B(3) if there is a shortfall inpayment of advance tax with reference to the tax finally determined inreassessment completed under Section 147 of the Act. The scheme ofvarious provisions of Section 234B is that interest for shortfall inadvance tax is based on the tax finally determined under the provisionsof the Act. Therefore, we hold that the assessee who was not liable topay interest under Section 234B(1) of the Act in the regularassessment, is liable to pay interest under Section 234B(3) on theshortpayment of advance tax with reference to the tax assessed underSection 147 from the date following the regular assessment till date ofcompletion of the revised assessment under Section 147. 4. The next contention to be considered is whether the AssessingOfficer who did not levy interest under Section 234B(3) of the Act inreassessment, could levy interest in rectification proceedings completedunder Section 154 of the Act. Here again, we are unable to accept thecontention of the assessee that interest could not be levied inrectification proceedings under Section 154 because so long as interest under Section 234B(3) is mandatory, omission in the reassessmentcompleted under Section 147 will make it defective warranting it'srectification under Section 154 for levy of interest under Section 234B(3) of the Act. We, therefore, hold that the omission to levy interestunder Section 234B(3) in reassessment completed under Section 147could be made up in rectification proceedings under Section 154 of theAct. 5. In view of the above findings, we allow the appeal byreversing the order of the Tribunal and by restoring in principle thelevy of interest under Section 234B(3) of the Act. However, we noticethat interest is demanded under Section 234B(3) on the entire balancedemand of tax raised in reassessment proceedings. Interest could bedemanded under Section 234B(3) on the shortfall of advance tax paid.In other words, advance tax payable should be first determined basedon reassessment and reduce therefrom actual amount of advance taxpaid and interest should be demanded only on the differential amount,that too, from the date following the regular assessment till date of completion of the assessment under Section 147. If there is mistake inthe calculation of interest under Section 234B(3), there will bedirection to the officer to correct the same in tune with the scheme ofthe Section as stated above. C.N.RAMACHANDRAN NAIRJudge pms V.K.MOHANANJudge