No Section 234B interest chargeable between original assessment and reassessment when demand already paid and income unchanged

ITAT Mumbai held that interest under Section 234B cannot be levied for the period between original assessment order dated 31/01/2017 and reassessment order dated 18/12/2019. The assessee had already paid the original demand of Rs. 52.68 crores within the prescribed time limit in February 2017. Since the reassessment order accepted the same income as determined in the original assessment without any variation, and there was no outstanding liability during the intervening period, charging interest under Section 234B for this period was unjustified. The appeal was allowed and the interest computation was deleted.

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Issues:
1. Validity of reopening assessment u/s. 147
2. Levy of interest u/s. 234B

Analysis:

Issue 1: Validity of reopening assessment u/s. 147

The appeal was filed against the order passed by NFAC, Delhi for the quantum of assessment under section 143(3) read with section 147. The assessee raised grounds challenging the reopening of assessment, arguing that the notice issued under section 148 was not valid as the reasons recorded were not established prior to the issuance of the notice. The assessee also contended that the AO did not follow the procedure laid down by the Supreme Court in the case of GKN Driveshafts, as objections raised were not rejected. However, after reassessment proceedings and verification of accounts, the AO concluded that no income had escaped assessment, and the income determined in the original assessment order was accepted without variation. The CIT(A) upheld the AO's decision, citing the automatic nature of interest under section 234B when conditions are met, leading to the dismissal of the assessee's objections. The Tribunal found that since there was no demand pending after the original assessment order and the income remained unchanged, the levy of interest under section 234B was unwarranted. Consequently, the Tribunal allowed the appeal, holding the assessee not liable for interest under section 234B.

Issue 2: Levy of interest u/s. 234B

The AO had levied interest under section 234B from the date of the original assessment order to the date of the reassessment order, despite no variation in the assessed income. The CIT(A) upheld the AO's decision, stating that interest under section 234B is automatic when conditions are met. However, the Tribunal disagreed, noting that there was no liability to pay interest after the original demand was paid and no variation in income was found in the reassessment order. The Tribunal held that the CIT(A) misunderstood the issue and deleted the interest computed by the AO in the reassessment order. As a result, the Tribunal allowed the appeal, finding the assessee not liable for interest under section 234B for the period in question.

In conclusion, the Tribunal allowed the appeal, ruling in favor of the assessee on both issues of the validity of reopening assessment under section 147 and the levy of interest under section 234B.

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