Extension of due date under CBDT circular is Dependent upon Quantification of Interest u/s 234 of Income Tax Act: ITAT [Read Order]

The Hyderabad bench of the Income Tax Appellate Tribunal ( ITAT ) observed that extension of due date under Central Board of Direct Taxes ( CBDT ) circular is Dependent upon Quantification of Interest under Section 234 of the Income Tax Act , 1961

The assessee filed their income tax return for the assessment year 2021-22 on December 29, 2021. In the return, the individual declared an income of Rs. 1,45,89,089/- from capital gains, other sources, and agricultural income of Rs. 3,49,984/-. Following this filing, the Assessing Officer-Centralized Processing Center ( AO-CPC ) in Bengaluru processed the return and issued an intimation under section 143(1) of the Income Tax Act, 1961 ( ‘the Act’ ) on June 2, 2022. This intimation included a demand of Rs. 76,410/-, attributed to a variance in the computation of interest under section 234A of the Income Tax Act, 1961.

The assessee lodged a petition before the AO-CPC, Bengaluru, and seeking rectification of the issue. However, the AO-CPC did not entertain the petition and proceeded to levy the interest under section 234A of the Income Tax Act, 1961. Consequently, the AO-CPC reprocessed the initial intimation, issuing the same demand of Rs. 76,410/-, reflecting the imposition of the aforementioned interest amount.

The Commissioner of Income Tax ( Appeals ) (CIT(A)) did not accept the assessee’s  argument and maintained that in order to benefit from the decision of the Supreme Court in CIT vs. Prannoy Roy , the assessee must have settled the tax dues before the due date, even if the return was filed after the deadline. The CIT(A) scrutinized whether the assessee’s  tax payment on September 27, 2021, preceded the due date for filing the income tax return, considering the assessee’s claim under CBDT Circular No. 17/2021, dated September 9, 2021, which extended the filing deadline to December 31, 2021, from July 31, 2021.

However, the CIT (A) concluded that this circular's applicability is limited to cases where the total tax liability, reduced by specified amounts, does not exceed Rs. 1 lakh. In this instance, as the interest computed amounted to approximately Rs. 1, 27,350/-, the assessee’s case fell outside the scope of the circular. Based on this rationale, the CIT (A) dismissed the taxpayer's appeal.

The Counsel for the assessee K.C. Devdas submitted that within the time stipulated by the circular, the assessee paid the taxes due as on the date, mere filing of the return lately for the reasons beyond his control, assessee cannot be penalized.

The counsel for the revenue Shakeer Ahamed asserted that if the assessee failed to submit the income tax return before the designated deadline, the imposition of interest under section 234A of the Income Tax Act, 1961, becomes obligatory. This interest is calculated at a rate of 1% per month or part thereof, starting from the day following the due date until the actual filing of the return.

The counsel contended that Section 234 of the Income Tax Act, 1961, does not absolve the assessee of their obligation to pay interest until the return is filed, and this interest accrues irrespective of whether the taxpayer settles the tax liability after the due date.

 The two member bench of the tribunal comprising Rama Kanta ( Vice President ) and K.Narasimha Chary ( Judicial member )  observed that  the first clarification provided in the circular lacks clarity regarding the specific date for assessing the interest liability under section 234A of the Income Tax Act , 1961.

 However, upon examining the circular in its entirety and considering the judgment of the esteemed Supreme Court in the case of Prannoy Roy a reasonable inference can be drawn. It suggests that if an assessee pays their taxes by a date where the interest liability under section 234A of the Income Tax Act, 1961, does not exceed Rs. 1 lakh, such an assessee was entitled to the extended deadline.

Consequently, any subsequent filing of the income tax return will not incur additional interest liability.

The Assessing Officer to examine whether the taxes paid by the assessee as of September 27, 2021, covered the interest liability until that date. If it was confirmed that the taxes paid indeed accounted for the interest liability up to that point, the addition made should be revoked. Accordingly, the grounds of appeal are allowed

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