IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN WEDNESDAY, THE 2ND DECEMBER 2009 / 11TH AGRAHAYANA 1931 ITA.No. 1611 of 2009() ---------------------- ITA.539/COCH/2008 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT --------------------------------------- THE SOUTH INDIAN BANK LTD., TRICHUR. BY ADV. SRI.P.BALAKRISHNAN (E) RESPONDENT(S): RESPONDENT ------------------------- THE COMMISSIONER OF INCOME TAX, TRICHUR. ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 02/12/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C .N. RAMACHANDRAN NAIR & V.K. MOHANAN, JJ. -------------------------------------------- I. T. A. No. 1611 OF 2009 -------------------------------------------- Dated this the 2nd day of December, 2009 JUDGMENT Ramachandran Nair, J. The question raised in the appeal filed by the assessee is whether the Tribunal was justified in sustaining the demand of interest under Section 234B(3) of the I.T. Act, pursuant to income escaping assessment completed under Section 147 a second time for the assessment year 1999-2000. The assessee a banking company filed loss return for the assessment year 1999-2000 and the assessing officer while issuing intimation under Section 143(1)(a) granted refund of above Rs. 8 crores. However, later, the assessment was reopened and income escaping assessment was made under Section 147 of the Act on 28.1.2004 assessing the net income of over Rs. 16 crores. Even though interest for non-payment of advance tax could be demanded under Section 234B(3), pursuant to revised assessment under Section 147, no such interest was levied. However, the assessment was again 2 revised under Section 147 on 31.8.2006 revising the income to around Rs. 44 crores. In the course of making second revision of assessment under Section 147, the assessing officer levied interest under Section234B (3) for non-payment of advance tax. Even though the assessee filed appeal before the first appellate authority, the same was unsuccessful. On second appeal, the Tribunal though without considering in detail the grounds raised confirmed the levy. It is against this order of the Tribunal that the assessee has filed this appeal. We have heard Sri. P. Balakrishnan, counsel appearing for the assessee and standing counsel appearing for the respondent. 2. The first contention raised by counsel for the assessee is that when the first assessment which is Section 143(1)(a) proceeding did not lead to any levy of interest under Section 234B(1) there is no scope for demanding interest under Section 234B(3) of the Act which applies only when the income assessed is increased which leads to increase in short fall in advance tax. The next contention raised is that when no interest is levied under Section 234B(3) in the first round of revision of assessment made under Section 147 of the Act, it cannot be levied in the second revision of assessment made under Section 147 of the Act. 3 In other words, according to counsel for the appellant, Section 234B(3) only provides for enhanced demand of interest originally charged under Section 234B(1) and in order to sustain the levy in the second round of revision of assessment effected under Section 147 interest should have been levied under the very same provision in the earlier assessment also completed under Section 147. Standing counsel appearing for the respondent on the other hand contended that since interest under Section 234B is mandatory it could be levied under any proceeding whether it be in original assessment or in revised assessment. He has also brought to our attention the decision of the Supreme Court in CIT V. ANJUM M.H. GHASWALA, 252 ITR 1 wherein Constitution Bench of the Supreme Court has held that interest under Sections 234B and 234C is mandatory in nature. 3. Section 234B is as follows: 234B. Interest for defaults in payment of advance tax. (1) Subject to the other provisions of this section, where, in any financial year, an assessee who is liable to pay advance tax under Section 209 has failed to pay such tax or, where the advance tax paid by such assessee under the ;provisions of Section 210 is less than ninety per cent of the assessed tax, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month 4 comprised in the period from the 1st day of April next following such financial year to the date of determination of total income under sub-section (1) of section 143 and where a ;regular assessment is made, to the date of such regular assessment, on an amount equal to the assessed tax or, as the case may be, on the amount by which the advance tax paid as aforesaid falls short of the assessed tax. Explanation 1:- In this section, "assessed tax" means the tax on the total income determined under sub-section (1) of section 143 and where a regular assessment is made, the tax on the total income determined under such regular assessment as reduced by the amount of,-- ..................... Explanation 2:-Where in relation to an assessment year, an assessment is made for the first time under section 147 or section 153A, the assessment so made shall be regarded as a regular assessment for the purposes of this section. ..................... (3) Where, as a result of an order of re-assessment or re- computation under section 147 or section 153A the amount on which interest was payable under sub-section (1) is increased, the assessee shall be liable to pay simple interest at the rate of one per cent for every month or part of a month comprised in the period commencing on the day following the date of determination of total income under sub-section (1) of section 143 and where a regular assessment is made as is referred to in sub-section (1) following the date of such regular assessment and ending on the date of the re-assessment or re-computation under section 147 or section 153A, on the amount by which the tax on the total income determined on the basis of the re- assessment or re-computation exceeds the tax on the total 5 income determined under sub-section (1) of section 143 or on the basis of the regular assessment aforesaid. (4) Where, as a result of an order under section 154 or section 155 or section 250 or section 254, or section 260 or section 262 or section 263 or section 264 or an order of the Settlement Commission under sub-section (4) of section 245D, the amount on which interest was payable under sub- section (1) or sub-section (3) has been increased or reduced, as the case maybe, the interest shall be increased or reduced accordingly, and-- (i) in a case where the interest is increased, the Assessing Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be a notice under section 156 and the provisions of this Act shall apply accordingly; (ii) in a case where the interest is reduced, the excess interest paid, if any, shall be refunded. (5) The provisions of this section shall apply in respect of assessments for the assessment year commencing on the 1st day of April, 1989 and subsequent assessment years. 4. It is clear beyond doubt from the above provisions that interest payable under Section 234B (1) could be levied even in a reassessment completed under Section 147 on excess short fall of advance tax, consequent to increase in demand of tax pursuant to revision of assessment under Section 147. In this case, the first assessment which 6 is in the form of intimation under Section 143(1)(a) led to a refund of above Rs. 8 crores to the assessee, and therefore no interest could be demanded under Section234B(1). Therefore obviously interest could be levied under Section 234B(3) when assessment was revised under Section 147 on 28.1.2004 which led to a demand of tax on a positive income of above Rs. 16 crores as against loss of around Rs. 7 crores initially accepted by the Officer based on revised return filed. Admittedly interest that should have been levied under Section 234B (3) was not levied in the course of first revision of assessment completed under Section 147 on 28.1.2004. The contention of the assessee that interest under Section 234B(3) cannot be levied without levying interest under Section 234B(1) is not tenable because there may be cases, as in this case, in the original assessment there may not be any short fall in payment of advance tax which does not give rise to liability for interest under Section 234B(1) of the Act. Further under Explanation 2 to Section 234B(1) when the the assessment itself is made for the first time under Section 147 interest under Section 234B (1) could be levied. This makes it clear that the purpose of providing interest for the short-fall in payment of advance tax based on income 7 escaping assessment under Section 147 is that interest is mandatory and it could be levied on the actual short fall in payment of advance tax with reference to the tax ultimately determined in reassessment under Section 147. Therefore we are of the view that in order to levy interest in reassessment proceedings under Section 147, under Section 234B(3) there is no need for a pre-existing levy of interest under Section 234B (1) in the regular assessment. In other words, for the first time, interest could be levied under Section 234B(3) in reassessment completed under Section 147. 5. The next question to be considered is whether the omission of the Officer to levy interest under Section 234B(3) in the first revision of assessment completed under Section 147 will deprive him of his authority to levy interest under the very same provision when assessment for the very same assessment year is revised a second time under Section 147. We do not find any significance about the number of reassessments carried out under Section 147 for the purpose of levy of interest under Section 234B(3). In fact, interest payable under this provision is for the increase in short-fall of advance tax with reference to the original assessment and it is levied for the period commencing 8 from the date of completion of original assessment till date of completion of revised assessment under Section 147. When the section contemplates levy of interest in stages, interest under Section 234B(3) could be levied in all the reassessments completed under Section 147. Therefore interest could be levied under section 234B(3) in the second revision of assessment under section 147 even if in the first reassessment proceeding completed under the very same provision, interest under Section 234B(3) was not levied. We therefore hold that the omission of the Officer to levy interest under Section 234B(3) in the first reassessment completed under Section 147 which could have been rectified under Section 154 does not bar the Officer from levying interest under the very same provision, when the assessment was again revised a second time under Section 147. In fact interest under Section 234B(3) is on the differential amount of short-fall of advance tax with reference to the advance tax found to have been paid in the original assessment. In this case, when the revised loss return was accepted, in original assessment there was no liability for any advance tax and so much so no interest was found payable under section 234B(1). Therefore the differential amount on which interest could be demanded 9 under Section 234B(3) is actually on the total short fall in advance tax payable with reference to the revised assessment completed under Section 147 of the Act. Therefore the contention of the assessee that in order to levy interest under Section 234B(3) there should have been a levy of interest in regular assessment under Section 234B(1) is not tenable. We therefore dismiss the appeal by upholding the order of the Tribunal confirming the levy. (C.N.RAMACHANDRAN NAIR) Judge. (V.K. MOHANAN) Judge. kk 10