An individual (not liable for Tax Audit) paid total tax as Self assessment tax before the due date of filing his return for AY 06-07 that is before 31 July 06.He filed his return for AY 06-07 in the month of December 2006.The AO levied Interest U/s 234A for late filing by applying rate of interest on the tax paid before 31 July for the delay in filing the return.The Assessee contends that the interest should be Zero as tax payable was 0 and 0 multiplied by any rate of interest will be Zero.Who is correct?Why?
The Section 234A does not give credit of SA Tax in such a situation.What about natural Justice? Is natural justice demand by assessees tenable in tax laws?if yes ,why? If not,Why?
In a decision given by Nagpur Bench of ITAT the Hon.Tribunal have given relief to an assessee in a case the facts of which are exactly the same as the above case & have ruled that credit should be given to SA Tax in a situation like this.Any body having a decision of a superior Authority than the ITAT in a similar case is welcome to quote it here.
Interest u/s 234 A is to penalize for non filing of the return in time.One cannot voilate the provisions of law by depositing the tax in time otherwise everyone will deposit the tax and escape his income because department will know about the assessee's detail only if he will file the return. The provisions of filing of returns(and consecutevely scrutiney of the same) are made so that department can analyse the factual acuracy of the returns filed by the assessee.
Interest for defaults in furnishing return of income.
234A. (1) Where the return of income for any assessment year under sub-section (1) or sub-section (4) of section 139, or in response to a notice under sub-section (1) of section 142, is furnished after the due date, or is not furnished, the assessee shall27 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 date immediately following the due date, and,
(a) where the return is furnished after the due date, ending on the date of furnishing of the return; or
(b) where no return has been furnished, ending on the date of completion of the assessment under section 144,
[on the amount of the tax on the total income as determined under sub-section (1) of section 143, and where a regular assessment is made, on the amount of the tax on the total income determined under regular assessment, as reduced by the amount of,
(i) advance tax, if any, paid;
(ii) any tax deducted or collected at source;
(iii) any relief of tax allowed under section 90 on account of tax paid in a country outside India;
(iv) any relief of tax allowed under section 90A on account of tax paid in a specified territory outside India referred to in that section;
(v) any deduction, from the Indian income-tax payable, allowed under section 91, on account of tax paid in a country outside India; and
(vi) any tax credit allowed to be set off in accordance with the provisions of section 115JAA.]
As per the wordings of section 234A it is quite evident that the assessee is legally bound to file its return within due date to avoid interest leviable thereon.
Further there has been amendment in the Act wherein there was cushion for assessee who filed their ITR late but ther same has been removed since 1998. All judgements before shall not apply in the instant case. You may note that all judgements are made on the basis of law in vogue. With change in law the decisions become obsolete.
The Hindu Business Line- has published one article on one case refered by me 17/02/2002, which is as below:- Latest on late returns R. Anand
Where an assessee has paid the tax before the due date for filing of return of income but files the return itself belatedly, what would be the interest implication? R. Anand looks at a Delhi High Court ruling on this issue
THE levy of interest under the Income-Tax Act, 1961 has always been a bone of contention between the assessee and the Department. At present, the interest provisions are contained in Sections 234A, 234B and 234C, dealing with belated filing of returns, shortfall of advance tax and underestimation of instalments of advance tax. Interest levy under these provisions are mandatory and today the rates are 1 ¼ per cent for every month of default. This translates to 15 per cent per annum and, to compound the misery of the assessee, it is neither tax deductible in computing business income nor appealable.
There are specific situations and conditions where such interest can be waived by the delegated powers given to the Chief Commissioner of Income-tax (CCIT). Recently, the Delhi High Court had an occasion to examine the implications of interest on belated filing of return in the Dr Prannoy Roy and Another vs CIT and Another (2002 254 ITR 755 Delhi) case.
Dr Prannoy Roy, a familiar TV personality, earned substantial capital gains for the assessment year (AY) 1995-96 and for which the return was due to be filed on October 31, 1995. However, the taxes due were paid on September 25, 1995 — that is, before the due date of filing of return — but the return was filed on September 29, 1996, that is, after a delay of about 11 months.
Though the returned income was accepted on January 29, 1998, yet interest was charged under the provisions of Section 234A on the ground that tax paid on September 25, 1995, cannot be reduced from the tax due on assessment.
Dr Roy filed a revision petition under Section 264 on November 9, 1998, before the Administrative Commissioner requesting to delete interest charged under Section 234A. The Commissioner, in his order dated March 9, 1999, upheld the action of the assessing officer (AO), stating that deduction of tax paid on September 25, 1995, is not provided in Section 234A, as it compensates for delay/default in filing of return of income and not the tax.
Thus, against the said order of the Commissioner passed on March 9, 1999, he filed a writ petition under Article 226/227 of the Constitution, seeking certiorari/mandamus in respect of the said order passed under Section 264 upholding the levy of interest under Section 234A.
As Section 234A stands, the tax on total income has to be determined under Section 143 (1) and this figure has to be reduced only by the advance tax paid and tax deducted or collected at source.
The wordings of the section does not take care of a situation where an assessee has paid the tax before the due date for filing of return of income, but has filed return of income belatedly. And, hence, the controversy.
The Delhi High Court allowed the writ petition of Dr Prannoy Roy and held that since he had paid the tax in question before the due date for filing of return of income, the question of levy of interest under Section 234A will not arise.
The court also held that if the return was not filed within the time prescribed, the AO would not only be entitled to issue an appropriate notice directing the assessee to file a return but also, in a case of this nature, take recourse to the provisions of Section 147 and 148 of the Act.
Therefore, interest under Section 234A would be payable only where tax had not been deposited prior to the date of filing of return.
It is now settled through several court decisions that interest is essentially compensatory, not penal, in character, unless specifically mentioned in the statute.
Even where a statute is clearly mandatory or prohibitory, yet, in many instances, the courts will regard certain conduct beyond the prohibition of the statute through the use of various devices or principles. Most, if not all, of these devices find their jurisdiction in considerations of justice. It is common knowledge that enforcing the law to its letter often results in injustice; and equitable, humane and such other considerations would seem to be a sufficient calibre to excuse or justify a technical violation of law.
If a penal provision is to be read in Section 234A, the same may border on unconstitutionality, as therefore the principles of natural justice are not required to be complied with. It is also well settled that when two constructions are possible, the one which would uphold the constitutionality of a provision should be applied. Had the legislature made the amendment only to impose penalty, there was no need to enact Section 271F later on.
Courts waste precious time rendering justice on such matters which should have been meted out to assessee at the threshold itself. At a time when increasing the tax base and ensuring tax compliance are being given greater emphasis, safeguards need to be built to prevent defaults and delays in tax payment.
However, that does not justify arbitrary levy of interest without taking into account the overall factual position while deciding the interest burden on assessees. There is a need to provide for an appeal mechanism against levy of interest.