Interest u/s 234A Accrues from Due Date until Full Tax Payment: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal ( ITAT ) held that interest under section 234A  of Income Tax Act,1961 accrues from the due date until the full payment of tax.

Trisigma Apex Services LLP, appellant-assessee,  was an LLP providing consultancy services in various sectors across the country. The assessee filed its income tax return for the assessment year (AY) 2021-22, declaring a total income of Rs. 14,95,45,260/- and a tax and interest liability of Rs. 430,84,414/-. This was paid through advance tax, Tax Deducted at Source (TDS), Tax Collected at Source (TCS), and self-assessment tax, leaving a refund claim of Rs. 1,4958/-.

The assessee had paid interest under section 234A for one month, from 31st October 2021 to 29th November 2021. However, the Assessing Officer (AO) at the Centralized Processing Centre (CPC) had calculated interest until 7th March 2022 and added Rs. 7,18,983/- as additional interest under section 234A, even though the self-assessment tax had already covered the interest for the earlier period.

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The assessee appealed to the Commissioner of Income Tax(Appeals)[CIT(A)], who dismissed the case on 9th May 2024, agreeing with the AO. The CIT(A) stated that the assessee had had the opportunity to pay self-assessment tax before 31st October 2021 but had failed to do so, and that the Central Board of Direct Taxes (CBDT) circulars did not allow any extension for interest under section 234A.

The assessee aggrieved by the order of CIT(A) appealed before the tribunal.

The assessee’s counsel argued that the CIT(A) erred in upholding the AO’s imposition of Rs. 7,18,983/- interest under section 234A after self-assessment tax, including interest, had already been paid. The counsel pointed out that interest should only have been calculated until the tax payment date, as per CBDT circulars. The counsel cited the Supreme Court’s ruling in CIT vs. Pranoy Roy, stating that interest under section 234A is compensatory, not penal, and should not apply if tax is paid before the due date. Based on this, the counsel requested the ITAT to allow the appeal.

The two member bench comprising Vimal Kumar (Judicial Member) and Shamim Yahya(Accountant Member)reviewed the submissions and the records. It noted that the assessee had paid interest under section 234A for one month, from 31st October 2021 to 29th November 2021, when the taxes were paid.

However, the CPC/ AO calculated interest until the return filing date, 7th March 2022, and the CIT(A) upheld this, stating the assessee had the chance to pay the tax before 31st October 2021 but didn't, and the CBDT Circulars did not allow an extension for interest under section 234A of the Act.

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The appellate tribunal found the Authorised Representative (AR)'s argument convincing, referencing the Supreme Court's decision in CIT vs. Prannoy Roy, which stated that interest under section 234A is compensatory, not penal, and is only due if tax is not paid before the return due date. It also agreed with the ITAT Pune's decision in Milind Madhav Padhye vs. DCIT, which ruled that interest under section 234A stops once the tax is fully paid.

Based on these points and previous rulings, the tribunal set aside the lower authorities' decisions and allowed the assessee's appeal.

To Read the full text of the Order CLICK HERE

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