2008 (4) TMI 370 - AT - Income Tax

Tribunal rules interest charges mandatory post-default, AO must amend orders

The appeal was partially allowed by the Tribunal, emphasizing the mandatory nature of interest charging under sections 234A, 234B, and 234C, even if not ... Maintainability Issues involved:1. Admission of appeal on the question of charging interest under ss. 234A, 234B, and 234C.2. Cancellation of interest under ss. 234A, 234B, and 234C charged through the notice of demand.Analysis:Issue 1: Admission of appeal on interest chargingThe first issue revolves around whether the CIT(A) was justified in admitting the appeal challenging the charging of interest under sections 234A, 234B, and 234C of the Act. The decision of the Hon'ble Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. CIT established that the levy of interest is part of the assessment process and can be disputed by the assessee in appeal if they claim they are not liable for the interest. Various High Courts and Tribunals have upheld the maintainability of appeals against the levy of interest. The right of appeal is construed liberally, allowing an assessee to challenge the interest levy if not specifically mentioned in the assessment order.Issue 2: Cancellation of interest chargedThe second issue concerns the cancellation of interest under sections 234A, 234B, and 234C charged through the notice of demand. The AO initially charged interest based on the returned income, later rectifying the amounts. The CIT(A) accepted the assessee's contention that interest cannot be charged without specific mention in the assessment order, citing the decision in CIT vs. Ranchi Club Ltd. The Revenue argued that interest charging is mandatory as per Supreme Court judgments, modifying the Ranchi Club Ltd. decision. The Tribunal held that once the default specified in sections 234A, 234B, and 234C occurs, the levy of interest becomes automatic, and the AO is duty-bound to charge it, even if not explicitly mentioned in the assessment order. The matter was restored to the AO to modify the assessment order for the mandatory levy of interest.In conclusion, the Tribunal partly allowed the appeal, emphasizing the mandatory nature of interest charging under sections 234A, 234B, and 234C, even if not expressly stated in the assessment order.