Interest on excess refund – Law applicable – Effect of amendment of section 234D by F.A. 2012 – Section 234D applies to regular assessment – Meaning of regular assessment – Regular assessment refers to first order of assessment u/s 143, u/s 147 or u/s 153A – Order of assessment u/s 143(3) on 31st March, 2006 and order of reassessment passed on 26th December, 2008 – Section 234D not applicable – Interest could not be levied u/s 234D

Interest on excess refund – Law applicable – Effect of amendment of section 234D by F.A. 2012 – Section 234D applies to regular assessment – Meaning of regular assessment – Regular assessment refers to first order of assessment u/s 143, u/s 147 or u/s 153A – Order of assessment u/s 143(3) on 31st March, 2006 and order of reassessment passed on 26th December, 2008 – Section 234D not applicable – Interest could not be levied u/s 234D

The appellant Revenue had raised the following three substantial questions of law for consideration:

‘1. Whether on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was right in deleting the interest levied u/s 234D?

2. Whether on the facts and in the circumstances of the case, no interest can be charged even for the period subsequent to the introduction of section 234D merely on the ground that the said section was introduced by the Finance Act, 2003 with effect from 1st June, 2003?

3. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that interest levied u/s 234D cannot be charged for the A.Y. 2001-02, especially when the assessment order was made after introduction of the said section?’

The Madras High Court held as under:

‘i) Section 234D deals with “interest on excess refund”. Explanation 1 to section 234D states that where, in relation to an assessment year, an assessment is made for the first time u/s 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of section 234D of the Act. Explanation (2) was inserted for the removal of doubts and declared that the provisions of section 234D shall also apply to an assessment year commencing before 1st June, 2003 if the proceedings in respect of such assessment year are completed after that date. Explanations (1) and (2) were inserted by the Finance Act, 2012 with retrospective effect from 1st June, 2003.

ii) “Regular assessment” has been defined u/s 2(40) to mean the assessment made under sub-section (3) of section 143 or section 144. Explanation (1) would stand attracted if an assessment is made for the first time u/s 147 or section 153A and the assessment, if it is done for the first time, shall be regarded as a “regular assessment” u/s 2(40).

iii) Admittedly, the assessment order dated 26th December, 2008 u/s 143(3) read with section 147 was not the first assessment, as an assessment was made u/s 143(3) dated 31st March, 2004 which fact was not disputed. Since the assessment framed u/s 143(3) read with section 147 dated 26th December, 2008, was not the assessment made for the first time, it could not be regarded as a “regular assessment” for the purposes of section 234D and, therefore, no interest could be levied on the assessee.’