2008 (8) TMI 394 - AT - Income Tax

Tribunal Upholds Interest Levy on Assessee, Deemed Compensatory & Mandatory

Ashwani Dhingra. Versus Additional Commissioner Of Income-tax, Nodia Range, Noida.

The Tribunal upheld the levy of interest under sections 234A, 234B, and 234C, dismissing the appeals filed by the assessee. The interest was deemed ... Interest, Chargeable As Issues Involved:1. Charging of interest under sections 234A, 234B, and 234C of the Income-tax Act, 1961.2. Applicability of the provisions of sections 234A, 234B, and 234C in the peculiar facts and circumstances of the case.Detailed Analysis:1. Charging of Interest under Sections 234A, 234B, and 234C:The assessee contested the charging of interest under sections 234A, 234B, and 234C, arguing that these provisions were not attracted in their case due to the peculiar facts and circumstances. The authorities below upheld the charging of interest, citing that it was mandatory as per the provisions of the Income-tax Act. The CIT(A) relied on Supreme Court decisions, including CIT v. Anjum M.H. Ghaswala, CIT v. Sant Ram Mangat Ram Jewellers, and CIT v. Hindustan Bulk Carriers, which held that interest under these sections is mandatory and cannot be waived or reduced even by the Settlement Commission.2. Applicability of Provisions of Sections 234A, 234B, and 234C:The assessee argued that they did not commit any default to attract the provisions of sections 234A, 234B, and 234C. They claimed that the interest income was not foreseeable before the judicial pronouncement by the Punjab & Haryana High Court in the case of Birbal on 17-8-2000. The assessee contended that they were primarily agriculturists and had no taxable income before the receipt of interest on additional compensation and solatium on 20-8-2001. The assessee filed returns for the relevant years only after the issuance of notice under section 148, arguing that the returns were filed within the permissible time and hence, sections 234A, 234B, and 234C were not applicable.Interest under Section 234A:The Tribunal noted that the returns were filed in response to notice under section 148, making section 234A(1) inapplicable. However, section 234A(3) was applicable, which deals with interest for defaults in furnishing return of income in response to notice under section 148. The Tribunal held that the mandatory nature of interest under section 234A was not contested by the assessee, and the levy of interest under section 234A(3) was upheld.Interest under Sections 234B and 234C:The Tribunal observed that the assessee admitted to having taxable income for the relevant years, which led to the obligation to file returns and pay advance tax. The Tribunal rejected the argument that the assessee could not foresee the interest income before the judicial pronouncement, stating that the accrual of income does not depend on the visualization of the assessee but is a statutory liability. The Tribunal cited the decision in Asstt. CIT v. Adani Exports Ltd., which held that the liability of the assessee is from the inception as per the provisions of the Act, not from the date of the judicial pronouncement.Compensatory and Mandatory Nature of Interest:The Tribunal reiterated that the interest under sections 234A, 234B, and 234C is compensatory and mandatory, not penal. The interest is levied to compensate for the loss of revenue due to the non-payment of tax on time. The Tribunal referred to various judicial pronouncements, including the Karnataka High Court's decision in Union Home Products Ltd. v. Union of India, which held that the levy of interest under these sections is compensatory in nature.Conclusion:The Tribunal upheld the levy of interest under sections 234A, 234B, and 234C, dismissing the appeals filed by the assessee. The interest was deemed compensatory, mandatory, and automatic, arising as a consequence of the assessability of income for the relevant years.