In a recent ruling, the Nagpur bench of the Income Tax Appellate Tribunal ( ITAT ), held that interest under Section 234C of the Income Tax Act, 1961 must be calculated based on the tax due as per the returned income of the assessee.
In this case, the assessee, Shilpa Steel and Power Ltd., is engaged in the manufacturing of steel products. It had filed its Income Tax Returns ( ITR ), declaring income of Rs. 38.22 crore for the assessment year 2018-19.
The department issued an intimation under Section 143(1) of the Income Tax Act, proposing adjustments and disallowing Rs. 26.49 lakh on late payment of employees’ contributions towards Provident Fund (PF) and Employees’ State Insurance Corporation (ESIC).
The appellant contended that this adjustment could not be sustained as the payments were made before the due date for filing the return under Section 139 of the Act. But, due to typographical errors in the original Tax Audit Report, the CPC treated these as delayed payments.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
In order to correct the above-mentioned error, the assessee filed a revised tax audit report and requested rectification under Section 154 of the Income Tax Act. The rectification order reduced the disallowed amount to Rs. 9.88 lakh.
One of the main issues raised by the assessee was regarding the imposition of interest under Section 234C.
On the matter of disallowance, the ITAT referred to the Supreme Court’s judgment in Checkmate Services Pvt. Ltd. v. CIT (2022), which upheld that employees’ contributions to PF and ESIC must be paid within the statutory due dates. The tribunal dismissed the company’s challenge, confirming the disallowance of Rs. 9.88 lakh.
The appellant argued that the interest should have been levied based on the tax due on the returned income, not on the adjusted or assessed income.
The ITAT, after analysing Section 243 C of the, observed that the assessee who fails to pay advance tax under Section 208 is liable to simple interest at 1% per month as per the tax due on returned income.
The ITAT directed the assessing officer ( AO ) to determine the interest under Section 234C on the basis of tax due on returned income.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The Nagpur ITAT, comprising of V. Durga Rao ( Judicial Member ) and K. M. Roy ( Accountant Member ) partly allowed the appeal filed by the assesee.
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