Interest u/s 234 for Default in Payment of Advance Tax to be Levied till date of Passing Revisional order: Kerala HC [Read Judgment]

While hearing the case of Commissioner of Income Tax vs M/s Baby Marine Exports, the High Court of Kerala held that if refund of advance tax is made but re-assessment leads to determination of escapement of income, such a situation justifies the levy of interest under Section 234 of the Income Tax Act 1961.

Assessee in the instant case engaged in the business of exporting filed its return of income for the relevant assessment year and declared its total income of Rs. .55,35,390 and the assessee paid advance tax of Rs.1,32,032 and had credit of TDS coming to Rs.3,82,952. The Advance Tax paid totaled Rs.5,12,984 and a refund due of Rs.1,10,615 was adjusted towards the demand in the regular assessment.

Thereafter the Assessing Officer (AO) has conduct a re-assessment and made an addition towards interest under section 234(B)3 of the act by holding that the same was escaped from the income of the assessee.

On appeal both CIT(A) and Income Tax Appellate Tribunal (ITAT) deleted the addition made by the AO.

Aggrieved by the order passed by the lower authorities the revenue approached the Court on further appeal.

After analyzing the facts deeply, the High Court Justice K.Vinod Chandran and Justice Ashok Menon observed that the entire tax assessed on regular assessment; for which there was advance tax payment in compliance with Sections 208 and 210, was set aside and the advance tax paid was refunded to the assessee.

The Court further observed that it is not possible to make an addition since the same was determined in the re-assessment after the refund. However the Court hold that the Legislature has not contemplated the peculiar situation of a refund having been made of the advance tax and a reassessment determining escaped income after the refund.

“We now look at the compensatory aspect of interest, which is the mandate under Section 234B of the Act. We find that the assessee had obtained a refund of the entire tax paid with interest. Subsequently, a re-assessment was made and the liability to pay advance tax arose again on 31-03-1992; which had been paid but later refunded. We, hence, direct the Department to compute the interest paid to the assessee, in ordering refund, for the amount of Rs.4,59,043/-, on which a demand would be raised, which would be paid by the assesee.”