Ita/1611/2009 Of The South Indian Bank Ltd.,Trichur v. Anjum M.h. Ghaswala, 252 Itr 1 Wherein Constitution Bench Of The Supreme Court Has Held That Interest Under Sections 234B And 234C Is Mandatory In Nature

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN WEDNESDAY, THE 2ND DECEMBER 2009 / 11TH AGRAHAYANA 1931 ITA.No. 1611 of 2009() ---------------------- ITA.539/COCH/2008 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT --------------------------------------- THE SOUTH INDIAN BANK LTD., TRICHUR. BY ADV. SRI.P.BALAKRISHNAN (E) RESPONDENT(S): RESPONDENT ------------------------- THE COMMISSIONER OF INCOME TAX, TRICHUR. ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 02/12/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C .N. RAMACHANDRAN NAIR &V.K. MOHANAN, JJ. -------------------------------------------- -------------------------------------------- Dated this the 2nd day of December, 2009 JUDGMENT Ramachandran Nair, J. The question raised in the appeal filed by the assessee is whetherthe Tribunal was justified in sustaining the demand of interest underSection 234B(3) of the I.T. Act, pursuant to income escapingassessment completed under Section 147 a second time for theassessment year 1999-2000. The assessee a banking company filedloss return for the assessment year 1999-2000 and the assessing officerwhile issuing intimation under Section 143(1)(a) granted refund ofabove Rs. 8 crores. However, later, the assessment was reopened andincome escaping assessment was made under Section 147 of the Acton 28.1.2004 assessing the net income of over Rs. 16 crores. Eventhough interest for non-payment of advance tax could be demandedunder Section 234B(3), pursuant to revised assessment under Section147, no such interest was levied. However, the assessment was again revised under Section 147 on 31.8.2006 revising the income to aroundRs. 44 crores. In the course of making second revision of assessmentunder Section 147, the assessing officer levied interest underSection234B (3) for non-payment of advance tax. Even though theassessee filed appeal before the first appellate authority, the same wasunsuccessful. On second appeal, the Tribunal though withoutconsidering in detail the grounds raised confirmed the levy. It isagainst this order of the Tribunal that the assessee has filed this appeal.We have heard Sri. P. Balakrishnan, counsel appearing for the assesseeand standing counsel appearing for the respondent. 2. The first contention raised by counsel for the assessee is thatwhen the first assessment which is Section 143(1)(a) proceeding didnot lead to any levy of interest under Section 234B(1) there is no scopefor demanding interest under Section 234B(3) of the Act which appliesonly when the income assessed is increased which leads to increase inshort fall in advance tax. The next contention raised is that when nointerest is levied under Section 234B(3) in the first round of revision ofassessment made under Section 147 of the Act, it cannot be levied inthe second revision of assessment made under Section 147 of the Act. In other words, according to counsel for the appellant, Section 234B(3)only provides for enhanced demand of interest originally charged underSection 234B(1) and in order to sustain the levy in the second round ofrevision of assessment effected under Section 147 interest should havebeen levied under the very same provision in the earlier assessmentalso completed under Section 147. Standing counsel appearing for therespondent on the other hand contended that since interest underSection 234B is mandatory it could be levied under any proceedingwhether it be in original assessment or in revised assessment. He hasalso brought to our attention the decision of the Supreme Court in CITV. ANJUM M.H. GHASWALA, 252 ITR 1 wherein ConstitutionBench of the Supreme Court has held that interest under Sections 234Band 234C is mandatory in nature. 3. Section 234B is as follows: 3. Section 234B is as follows: 234B. Interest for defaults in payment of advance tax. (1) Subject to the other provisions of this section, where, inany financial year, an assessee who is liable to pay advancetax under Section 209 has failed to pay such tax or, wherethe advance tax paid by such assessee under the ;provisionsof Section 210 is less than ninety per cent of the assessedtax, the assessee shall be liable to pay simple interest at therate of one per cent for every month or part of a month comprised in the period from the 1st day of April nextfollowing such financial year to the date of determinationof total income under sub-section (1) of section 143 andwhere a ;regular assessment is made, to the date of suchregular assessment, on an amount equal to the assessed taxor, as the case may be, on the amount by which the advancetax paid as aforesaid falls short of the assessed tax. Explanation 1:- In this section, "assessed tax" means thetax on the total income determined under sub-section (1) ofsection 143 and where a regular assessment is made, the taxon the total income determined under such regularassessment as reduced by the amount of,-- ..................... Explanation 2:-Where in relation to an assessment year, anassessment is made for the first time under section 147 orsection 153A, the assessment so made shall be regarded asa regular assessment for the purposes of this section. ..................... (3) 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 endingon the 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 total income determined under sub-section (1) of section 143 oron the basis of the regular assessment aforesaid. (4) Where, as a result of an order under section 154 orsection 155 or section 250 or section 254, or section 260 orsection 262 or section 263 or section 264 or an order of theSettlement Commission under sub-section (4) of section245D, the amount on which interest was payable under sub-section (1) or sub-section (3) has been increased orreduced, as the case maybe, the interest shall be increasedor reduced accordingly, and-- (i) in a case where the interest is increased, theAssessing Officer shall serve on the assessee a noticeof demand in the prescribed form specifying the sumpayable and such notice of demand shall be deemedto be a notice under section 156 and the provisions ofthis Act shall apply accordingly; (ii) in a case where the interest is reduced, the excessinterest paid, if any, shall be refunded.interest paid, if any, shall be refunded. (5) The provisions of this section shall apply in respect ofassessments for the assessment year commencing on the 1stday of April, 1989 and subsequent assessment years. 4. It is clear beyond doubt from the above provisions that interest payable under Section 234B (1) could be levied even in a reassessment completed under Section 147 on excess short fall of advance tax,consequent to increase in demand of tax pursuant to revision ofassessment under Section 147. In this case, the first assessment which (ii) in a case where the interest is reduced, the excessinterest paid, if any, shall be refunded.interest paid, if any, shall be refunded. (5) The provisions of this section shall apply in respect ofassessments for the assessment year commencing on the 1stday of April, 1989 and subsequent assessment years. 4. It is clear beyond doubt from the above provisions that interest payable under Section 234B (1) could be levied even in a reassessment completed under Section 147 on excess short fall of advance tax,consequent to increase in demand of tax pursuant to revision ofassessment under Section 147. In this case, the first assessment which is in the form of intimation under Section 143(1)(a) led to a refund ofabove Rs. 8 crores to the assessee, and therefore no interest could bedemanded under Section234B(1). Therefore obviously interest couldbe levied under Section 234B(3) when assessment was revised underSection 147 on 28.1.2004 which led to a demand of tax on a positiveincome of above Rs. 16 crores as against loss of around Rs. 7 croresinitially accepted by the Officer based on revised return filed.Admittedly interest that should have been levied under Section 234B(3) was not levied in the course of first revision of assessmentcompleted under Section 147 on 28.1.2004. The contention of theassessee that interest under Section 234B(3) cannot be levied withoutlevying interest under Section 234B(1) is not tenable because theremay be cases, as in this case, in the original assessment there may notbe any short fall in payment of advance tax which does not give rise toliability for interest under Section 234B(1) of the Act. Further underExplanation 2 to Section 234B(1) when the the assessment itself ismade for the first time under Section 147 interest under Section 234B(1) could be levied. This makes it clear that the purpose of providinginterest for the short-fall in payment of advance tax based on income escaping assessment under Section 147 is that interest is mandatory andit could be levied on the actual short fall in payment of advance taxwith reference to the tax ultimately determined in reassessment underSection 147. Therefore we are of the view that in order to levy interestin reassessment proceedings under Section 147, under Section 234B(3)there is no need for a pre-existing levy of interest under Section 234B(1) in the regular assessment. In other words, for the first time, interestcould be levied under Section 234B(3) in reassessment completedunder Section 147. 5. The next question to be considered is whether the omission ofthe Officer to levy interest under Section 234B(3) in the first revisionof assessment completed under Section 147 will deprive him of hisauthority to levy interest under the very same provision whenassessment for the very same assessment year is revised a second timeunder Section 147. We do not find any significance about the numberof reassessments carried out under Section 147 for the purpose of levy of interest under Section 234B(3). In fact, interest payable under this provision is for the increase in short-fall of advance tax with referenceto the original assessment and it is levied for the period commencing 5. The next question to be considered is whether the omission ofthe Officer to levy interest under Section 234B(3) in the first revisionof assessment completed under Section 147 will deprive him of hisauthority to levy interest under the very same provision whenassessment for the very same assessment year is revised a second timeunder Section 147. We do not find any significance about the numberof reassessments carried out under Section 147 for the purpose of levy of interest under Section 234B(3). In fact, interest payable under this provision is for the increase in short-fall of advance tax with referenceto the original assessment and it is levied for the period commencing from the date of completion of original assessment till date ofcompletion of revised assessment under Section 147. When the sectioncontemplates levy of interest in stages, interest under Section 234B(3)could be levied in all the reassessments completed under Section 147.Therefore interest could be levied under section 234B(3) in the secondrevision of assessment under section 147 even if in the firstreassessment proceeding completed under the very same provision,interest under Section 234B(3) was not levied. We therefore hold thatthe omission of the Officer to levy interest under Section 234B(3) inthe first reassessment completed under Section 147 which could havebeen rectified under Section 154 does not bar the Officer from levyinginterest under the very same provision, when the assessment was againrevised a second time under Section 147. In fact interest under Section234B(3) is on the differential amount of short-fall of advance tax withreference to the advance tax found to have been paid in the originalassessment. In this case, when the revised loss return was accepted, inoriginal assessment there was no liability for any advance tax and somuch so no interest was found payable under section 234B(1).Therefore the differential amount on which interest could be demanded under Section 234B(3) is actually on the total short fall in advance taxpayable with reference to the revised assessment completed underSection 147 of the Act. Therefore the contention of the assessee that inorder to levy interest under Section 234B(3) there should have been alevy of interest in regular assessment under Section 234B(1) is nottenable. We therefore dismiss the appeal by upholding the order of theTribunal confirming the levy. (C.N.RAMACHANDRAN NAIR) Judge. (V.K. MOHANAN) Judge. kk