SC rules interest under sections 234A and 234B can be waived or reduced per Board's circular, remands case for review

The SC held that interest levies under sections 234A and 234B are not mandatory and may be waived or reduced as per the Board's circular empowering the Chief Commissioner or Director-General of Income-tax. The HC's order was set aside for failing to consider the applicability of this circular. The case was remanded to the Tribunal to determine if the assessee qualifies for interest waiver under the circular's terms, particularly when the assessee has approached the Settlement Commission under section 245C.

---

---

Issues Involved:
Levy of interest under Section 234A/234B of the Income Tax Act, 1961 - Mandatory nature of interest - Authority to waive interest under circulars issued by CBDT.

Analysis:
1. The main issue in this case is whether the levy of interest under Section 234A/234B of the Income Tax Act, 1961 is mandatory. The Supreme Court clarified that the nature of interest payable by the assessee under these sections is indeed mandatory, as settled by a previous Five-Judge Bench decision. The court emphasized that the Assessing Officer is not required to specifically mention penalty proceedings in the assessment order, as the interest levy is compulsory.

2. Prior to the aforementioned decision, there was a conflict of opinion among various High Courts regarding the mandatory nature of interest under Section 234A/234B. The judgment in Anjum Ghaswala's case conclusively established that if interest is leviable under these sections, it is mandatory and compensatory. The court highlighted that penal proceedings could be initiated without a specific direction from the Assessing Officer, as per the binding precedent set by the Five-Judge Bench decision.

3. The Supreme Court also discussed the authority to waive or reduce interest under circulars issued by the CBDT. Referring to the circular empowering the Chief Commissioner of Income-tax and Director-General of Income-tax to waive or reduce interest, the court emphasized that such circulars are legally binding on the Revenue. The court clarified that the Settlement Commission can exercise the power to waive interest under the circulars, providing relief to the assessee.

4. In this case, the assessee relied on a Circular issued by the CBDT, which was not considered by the High Court or the Tribunal. Therefore, the Supreme Court set aside the orders of the Tribunal and the High Court, directing the Tribunal to assess whether the assessee is entitled to a waiver of interest under the Circular dated 23rd May, 1996. The civil appeal was allowed to this limited extent, and the matter was remitted to the Tribunal for further consideration.

5. Ultimately, the Supreme Court made no order as to costs, concluding the judgment on the issues related to the mandatory levy of interest under Section 234A/234B and the authority to waive interest under circulars issued by the CBDT.

---