Explanation 4 to s.234A deems income under s.143(1) or regular assessment as returned income for s.140A

HC held that when no return is filed, Explanation 4 to s.234A deems the income as determined under s.143(1) or regular assessment to be the returned income for s.140A, permitting interest under ss.234A/234B/234C to be computed on tax so deemed. The court found the Supreme Court's J.K. Synthetics ratio may not fully apply to this provision, referred the consequential question to a larger Bench in related cases, and allowed the taxpayers' writs.

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Issues Involved:
1. Chargeability of interest u/s 234A, 234B, and 234C on returned or assessed income.
2. Bona fide belief of the assessee regarding tax liability.
3. Levy of interest through notice of demand u/s 156 without specific order.
4. Sufficiency of phrases like "charge interest, if any" in assessment orders.
5. Appealability of orders charging interest u/s 234A and 234B.

Summary:

Issue 1: Chargeability of Interest u/s 234A, 234B, and 234C
The court examined whether interest under sections 234A and 234B should be charged on the tax payable on the returned income or the assessed income. The earlier decision in Ranchi Club Ltd. v. CIT [1996] 217 ITR 72 (Patna) held that interest should be charged on the tax on the total income as declared in the return. The Revenue questioned this interpretation, suggesting that interest should be calculated on the assessed income. The court referred this issue to a larger Bench for an authoritative decision.

Issue 2: Bona Fide Belief of the Assessee
The court considered whether interest was chargeable only on the tax payable on such returned income which the assessee bona fide and in good faith believed to be the income liable to tax. This issue was not separately resolved but was intertwined with the primary issue of chargeability of interest.

Issue 3: Levy of Interest through Notice of Demand u/s 156
The court found that a notice of demand claiming interest can only be issued when there is a specific order in the assessment order levying interest. Phrases like "charge interest, if any" or "charge interest as per rules" were deemed insufficient. Consequently, the court quashed the notices of demand in several cases where the assessment orders did not specifically levy interest.

Issue 4: Sufficiency of Phrases in Assessment Orders
The court held that the order to charge interest must be specific and clear. General phrases like "charge interest, if any" do not constitute a valid order for charging interest. The court emphasized that the assessee must be made aware that the Assessing Officer has specifically ordered the charging of interest under the relevant sections.

Issue 5: Appealability of Orders Charging Interest
The court addressed whether an appeal lies against the order for charging interest under sections 234A and 234B. It was noted that the Commissioner of Income-tax (Appeals) had observed that such orders were not appealable. The court concluded that while the assessee could challenge the levy of interest in a quantum appeal, there was no statutory provision for a direct appeal against the charging of interest. Therefore, the assessee could challenge the levy of interest in writ jurisdiction.

Conclusion:
The court referred the primary issue of whether interest under sections 234A and 234B should be charged on the returned income or assessed income to a larger Bench. It quashed the notices of demand in cases where the assessment orders did not specifically levy interest and allowed the writ applications filed by Ranchi Club Limited.

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