INCOME TAX ACT, 1961

Section 234 Section 234B Section 234C

Interest under sections 234A, 234B and 234C - Leviability - Period of - Assessment order passed subsequent to original assessment being effaced

The AO, held that the assessee was not carrying on any business activity and treated it as an Association of Persons and completed the assessment. The AO quantified the interest under section 234A, B and C. The CIT(A), held that the status of the assessee was that of a firm and allowed the appeal preferred by the assessee. High Court directed to set aside all the orders and remanded the matter to the AO for fresh consideration. Thereafter, the AO maintained its earlier order which was set aside by High Court. The assessee preferred an appeal. The CIT(A), determined the status of the assessee from Association of Persons to a firm, but upheld the levy of interest. The Tribunal held that original order of assessment which has been effaced, is restored with all its characteristics of a regular assessment for the purpose of levy of interest under section 234A, B and C of the Act. Assessee, submitted that the Explanation 3 to section 234A applies only to regular assessment. It was also submitted that from perusal of Explanation 3, it is evident that where an assessment is made for the first time under section 147 or under section 153A, the assessment so made shall be regarded as regular assessment for the purposes of this section. It was also submitted that in view of sub-section (4) of section 234A of the Act, where income is varied in appeal/revision, the interest has to be varied accordingly. Held: It is axiomatic that the expression 'assessment' has a wide connotation and includes reassessment as well. The interest under section 234A(1) of the Act is levied under the circumstances mentioned therein namely where the return of income has not been furnished under sub-sections (1) and (4) of section 139 or in response to the notice under sub-section (1) of section 142 and / or is not furnished after due date. In the aforesaid circumstances, the assessee is liable to pay simple interest at the prescribed rate for every month. It is also not in dispute that if an order of assessment get effaced, it ceases to exist and a fresh order of assessment has to be passed. The Supreme Court in the case of Modi Industries, supra, has held that the expression 'regular assessment' has to be deemed to have been completed on the date when first order of assessment has been passed and not when modified order of assessment has been passed, as the assessee cannot be penalized for lapse of time between the first assessment order and modified assessment order without there being any fault on his part. Therefore, the interest under section 234A can be levied upto the date of first assessment order only. It is also pertinent to mention here that 'assessment' as defined under section 2(8) of the Act has a comprehensive meaning and includes all steps and proceedings taken for determination of tax payable and for imposing liability on the assessee. It includes reassessment as well. Therefore, even after the matter is remitted, an order of assessment is passed, the same is referable to section 143 or section 144. Explanation 3 only protects the assessee from levy of interest and confines the same when the original order of assessment is passed and not when the modified order of assessment is passed.

REFERRED :

FAVOUR : Against the assessee.

A.Y. : 1992-93

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