This is a legal case where the appellant, an individual, had failed to file his income tax return for the assessment year 2011-12, even though he derived income from salary and interest. He subsequently filed his income tax return in response to a notice issued under section 148 of the Income Tax Act, 1961, and the Assessing Officer accepted the returns and framed an assessment under section 147 after levying interest under sections 234A, 234B, and 234C till the date of completion of the assessment.
The appellant challenged the levy of interest on the grounds that he had paid self-assessment tax along with interest on 19 March 2015 and that, therefore, no interest should have been charged under sections 234A and 234B. The appellant further moved an application under section 154 for rectification, but the Commissioner of Income Tax (Appeals) held that the levy of interest under section 234A was mandatory and that the Assessing Officer had correctly charged interest as per the provisions of the Income Tax Act.
The appellant argued that the interest under sections 234A and 234B was compensatory in nature and, therefore, should be levied only up to the date of self-assessment tax paid by the appellant along with interest and not for a period beyond that date. The Court agreed with the appellant and held that the impugned order of the Commissioner of Income Tax (Appeals) was to be set aside with direction to the Assessing Officer to delete the interest charged by him.
The Court further noted that the purpose of the Income Tax Act was to realize direct taxes, and interest was levied as compensation for the delayed payment of tax and not as a penalty. The amount on which interest was levied could legitimately be said to be public revenue, though payable by the appellant but not paid by him.
The Court considered the grounds of appeal raised by the appellant and held that the Commissioner of Income Tax (Appeals) had erred in upholding the action of the Assessing Officer in charging interest under sections 234A and 234B beyond the date on which self-assessment tax including interest under sections 234A, 234B, and 234C was paid by the appellant. The Court also held that the interest under sections 234A and 234B was compensatory in nature and not penal in nature and was levied to compensate revenue in order to avoid it from being deprived of payment of tax.
In conclusion, the Court set aside the impugned order of the Commissioner of Income Tax (Appeals) and directed the Assessing Officer to delete the interest charged under Sections 234A and 234B of the Income Tax Act, 1961.
Dhirendra Narbheram Sheth Vs Income-tax Officer Ward-2(3)(5), Rajkot 147 taxmann.com 150 (Rajkot – Trib.)[03-02-2023]