Late return interest, continuing default and amended rates under section 139: enhanced interest can apply prospectively during the default period.

Late filing of a return attracts the interest machinery under section 139, even if the assessee did not apply for extension of time, because section 139(4)(a) brings the proviso to section 139(1) into play and interest runs from the date of default until the return is filed. Where the default continues after an amendment increasing the rate to 9 per cent, the enhanced rate applies from the amendment's commencement to the continuing period of default. An increased interest demand made after an appellate order may be sustained as a consequential correction, provided it is not arbitrary or unauthorised.

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Issues: (i) whether interest under section 139 of the Income-tax Act, 1961 was leviable where the assessee had not applied for extension of time for filing the return; (ii) whether, after amendment of the provision, interest could be charged at the enhanced rate of 9 per cent for a continuing default that had begun earlier; and (iii) whether the Income-tax Officer could enhance the interest demand after the appellate order.

Issue (i): whether interest under section 139 of the Income-tax Act, 1961 was leviable where the assessee had not applied for extension of time for filing the return.

Analysis: The return was filed beyond the time allowed under section 139(1). In such a case, section 139(4)(a) applies and makes the proviso to section 139(1) applicable. Under that scheme, interest runs from the date of default until the date of furnishing the return. The absence of an application for extension did not prevent the levy once the return was filed late.

Conclusion: The levy of interest was valid and the contention of the assessee failed.

Issue (ii): whether, after amendment of the provision, interest could be charged at the enhanced rate of 9 per cent for a continuing default that had begun earlier.

Analysis: The default was continuing when the amendment enhancing the rate came into force. The Court held that although the amending Act did not operate retrospectively, the enhanced rate governed the period of default after the amendment because the liability continued beyond that date.

Conclusion: The enhanced rate of interest was applicable for the continuing default and the assessee's challenge failed.

Issue (iii): whether the Income-tax Officer could enhance the interest demand after the appellate order.

Analysis: The increased demand was treated as a correction of an earlier mistake after the appellate order, and the interest was worked out consequentially. The demand was not shown to be arbitrary or unauthorised.

Conclusion: The enhancement of the interest demand was upheld.

Final Conclusion: The writ petitions failed on all substantial grounds, and the levy and computation of interest under section 139 were sustained.

Ratio Decidendi: For late filing of returns, section 139(4)(a) attracts the interest machinery of the proviso to section 139(1), and where the default is continuing, an amendment enhancing the rate of interest applies from its commencement to the continuing period of default.

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