Advance Tax – Levy of interest u/s. 234A/234B/234C is mandatory and the interest could be levied without specific direction in the assessment order.

The short point that was involved in the case before the Supreme Court was whether levy of interest u/s. 234A/234B of the Income-tax Act, 1961 ( “the Act”), is mandatory or not. The Supreme Court observed that at one point of time, there was a doubt on the nature of interest payable by the assessee u/s. 234A/234B of the Act and that the controversy was finally settled by its five judge bench decision in the case of CIT vs. Anjum M.H. Ghaswala [2001] 252 ITR 1.

According to the Supreme Court, the position that emerged after the judgment in Anjum Ghaswala’s case (supra) was that if interest is leviable in a given case u/s. 234B/234C, then in such a case that levy is mandatory and compensatory in nature. The recitation by the Assessing Officer directing institution of penal proceedings was not obligatory and penal proceedings could be initiated for such default without a specific direction from the Assessing Officer.

The Supreme Court noted that in the said judgment, it had been held that in appropriate cases, the Chief Commission had an authority to waive the interest.

 The Supreme Court observed that in the present case, the assessee had placed reliance on the Circular issued by the Central Board of Direct Taxes, which had been referred to and mentioned in Anjum Ghaswala’s case (supra) and that this aspect had not been considered by the High Court in its impugned order, and it was not considered even by the Tribunal.

 For the above reasons, the Supreme Court set aside the impugned orders of the Tribunal as also of the High Court. The Supreme Court directed the Tribunal to consider whether the assessee would be entitled to waiver of interest under the Circular bearing No.400/234/95-IT(B) dated 23rd May, 1996, which had been referred to in the case of Anjum Ghaswala (supra).

[Note: Since the decision of the Punjab and Haryana High Court is not available, it is not clear as to how the reference of initiation of penalty proceedings is made in paragraph 2 above. In the context and considering the cases referred to, the reference to penalty proceedings seems inadvertent. It should instead be read as “the recitation by the Assessing Officer directing levy of interest is not obligatory and interest could be levied for such default without a specific direction from the Assessing Officer.]