Advance tax — Shortfall in payment due to enhancement on reassessment — Interest cannot be charged u/s.234B — Held, Yes

Datamatics Ltd. v. ACIT

For the A.Y. 1993-94, the total tax payable by the assessee
in accordance with intimation u/s.143(1)(a) of the Income-tax Act, 1961, dated
March 21, 1995, was Rs.8,39,528. The assessee paid TDS at Rs.4,48,873 and
advance tax of Rs.59,00,000. An amount of Rs.68,06,075, including interest of
Rs.13,17,288 u/s. 244A was refunded. There was no interest u/s.234B payable by
the assessee in terms of intimation u/s.143(1)(a). The assessee received a huge
refund as a result of processing of the return u/s.143(1)(a). Subsequently, the
tax component was enhanced as a result of the reassessment done u/s.143(3) read
with S. 147. Interest was levied on the assessee u/s.243B.

The Commissioner (Appeals) held that from the date of the
order u/s.143(1)(a), i.e., December 15, 1996, to the date of the order
under appeal interest chargeable was to be worked out in terms of Ss.(3) of S.
234B, based on the shortfall due to enhancement.

On appeal to the Tribunal, it was held that the charging of
interest u/s.234B is mandatory when the conditions are fulfilled. The condition
is that the assessee should have defaulted. A reading of S. 234B(3) makes it
clear that where, as a result of an order of reassessment or recomputation
u/s.147 or S. 153A, the amount on which interest was payable U/ss.(1) is
increased, the assessee shall be liable to pay simple interest at the rate of
one percent. The Section further makes it clear that first of all there should
be a default on the part of the assessee in the regular assessment and the
assessee should have been held liable to pay interest u/s.234B. In that case, if
there was reassement or recomputation u/s.147 or u/s.153A, the liability of the
assessee is increased and not otherwise.

In the instant case, there was no default on the part of the
assessee in paying the advance tax. For the first time the dispute arose
consequent to the reassessment done u/s.143(3) read with S. 147. Interest could
not be charged u/s.234B.