THE issue is - Whether if refund of advance tax is made but re-assessment leads to determination of escapement of income, such a situation warrants levy of interest u/s 234. NO is the verdict.
Facts of the case
The Assessee-company, engaged in the business of exporting frozen sea food. The Assessee had filed its return for the relevant AY. In the course of the assessment proceeding, the AO noted that the Assessee had paid advance tax and had credit of TDS came to Rs.3,82,952/- and therefore, the advance tax was totaled. Further, a refund due was adjusted towards the demand and thereby, the assessment order was passed. On appeal, the CIT(A) deleted the additions and remanded the matter. A re-assessment was proposed u/s 147 and recomputed the Assessee's total income. On further appeal, the Tribunal, after extracting section 234B, found that Section 234B(3) was a consequential levy from subsection (1). The Tribunal found that when the regular assessment was made, there was an addition of income, but, however, by the order of the CIT(A), the final income under regular assessment was determined, there was advance tax payment made by the Assessee far in excess. Hence, there was no liability to interest u/s 234B(1). Later, the Tribunal stated that there was no justification in levying the interest on the Assessee u/s 234(3) from the date of regular assessment to the date of determination on re-assessment.
On appeal, the High Court held that,
++ this Court is unable to agree with the Tribunal that when there is no liability to interest under sub-section (1), there could be no liability further mulcted under sub-section (3). Section 234B(1) speaks of the liability of an Assesee to pay interest @ 1% per month on the amount of the advance tax liability, failed to be paid; computed from the 1st of April of the next financial year to the date of determination of income u/s 143(1) and where a regular assessment is made u/s 143 (3), to the date of such assessment. Section 234B(3) speaks of a reassessment or re-computation u/s 147 (as the provision stood for the relevant AY), and the amount on which interest is payable under sub-section (1) if increased, the liability to pay such interest from 1st April to the date of reassessment or recomputation;
++ the Assessee's contention accepted by the Tribunal was that if there is no interest payable under sub-section (1) there would be no liability under sub-section (3). A determination of total income or a regular assessment may not give rise to a liability u/s 234B(1) if there is no tax liability or if the advance tax has been paid under Ss 208 and 210. On a re-assessment if the computation of total income is enhanced to the extent of there being created on the Assessee an enhanced liability under Ss 208 and 210, then there being no such payment, the liability to interest arises u/s 234B(3);
++ the income determined is for the AY and the liability to pay advance tax arises on the 31st March of the previous year. The liability to interest u/s 234B is on the amount, which is deficient from that payable under Ss 208 and 210. Further, u/s 234B(3), the words “amount on which interest was payable in respect of shortfall in payment of advance tax for any financial year under sub-section (1) is increased” is not employed to make the levy consequential to the levy under sub-section (1). It is only to specify the amount, as that falling deficient from that stipulated in Ss 208 and 210, which is explicitly stated in sub-section (1) of Section 234B. Otherwise if there is no tax liability on a regular assessment; and if a reassessment is made within the limitation provided u/s 147 and eventually escapement of income is proved, there could be no levy u/s 234B;
++ in a situation where a regular assessment is completed determining the total income, which acquired finality and then a re-assessment is made, computing total income at a higher amount; the Assessee would not have paid advance tax at 90% of the tax dues, as determined for the excess amounts computed on re-assessment. Then definitely the Assessee would be liable to pay interest as provided u/s 234B(3) from the 1st April of the next financial year to the date of determination of total income on re-assessment;
++ in the present case, admittedly, Rs.5,12,984/- was paid as advance tax and TDS on 31-03-1992, the last day of the previous year. Regular assessment was made determining the total income far in excess of that returned. The regular assessment was challenged in appeal, where considerable reduction of income was made. Later, re-assessments were carried out and there were adjustments made from refunds as also payment made against demand raised on reassessment. Refunds were ordered and disbursed. The refunds were made pursuant to proceedings dated 04-03-1996 and 10-03-1999 of the CIT(A) totaling Rs.10,49,131/-. Hence, the advance tax paid stood entirely refunded to the Assessee on the basis of the appellate orders in regular assessment and re-assessment;
++ the re-assessments made eventually led to a total computation of income at Rs.23,32,002/-, which has acquired finality. The tax dues with surcharge on such computation would come to Rs.4,59,043/-, 90% of which the Assessee was bound to pay as advance tax. The Assessee had advance tax and TDS credit of Rs.5,12,984/-, in excess of, even, the tax liability created. Hence, there was no cause for imposition of a liability under Ss 234B(1) or 234B(3);
++ the Legislature has not contemplated the peculiar situation of a refund having been made of the advance tax and a re-assessment determining escaped income after the refund. The Legislature having not contemplated such a situation and not thought it fit to levy interest, it would not be proper for this Court to re-write the provision by levying an interest, which liability is not available in the statute.