ITAT deleted interest levied u/s 234B and 234C on income declared during survey. Interest charged u/s 234B and 234C - returned income or assessed income - additional income was surrendered during survey to buy peace and avoid further adverse consequences - Held that:- There is no iota of evidence brought by the Revenue that this income has actually arisen in assessment year 2006-07. Even the provisions of section 209(1) of the Act talks of the payment of advance tax in the financial year.

Case Law: Emem Freight Forwarders Versus DCIT-22 (3) , Mumbai, Dated: - 15 February 2017

FACTS OF THE CASE:

This appeal filed by the assessee is against the order of the CIT, Mumbai dated 30.11.2010 pertaining to assessment year 2006-07. The assessee was engaged in the business of freight forwarding. There had been a survey at the premises of the assessee on 5th March 2008. During survey, few discrepancies were observe and the assessee to avoid litigation offered a sum of Rs. 90 lakhs on account of non deduction of TDS and cash payments.

The Assessing Officer completed the assessment and levied interest under Section 234B and 234C of the Income Tax Act from 1st April 2006 to the date of assessment. The assessee appealed before First Appellate Authority. However, the CIT(A) dismissed the appeal of the assessee.

OBSERVATION:

The assessee offered a sum of 10 lakhs to buy peace with the Department to avoid further scrutiny. The Assessing Officer simply accepted the offer of the assessee of 10 lakhs as additional income and levied interest under section 234A and 234B of the Act.

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The levy of interest is mandatory in view of the decision of the Hon'ble Supreme Court in the case of CIT vs. Anjum M.H. Ghaswala & Ors. in Appeal (civil) No. 2421 of 2000, but the question  is whether the assessee is liable to pay interest from 1.4.2006 or not. Whether the provisions of section 234B and 234C of the Act are applicable or not

The provisions of section 234B(1) of the Act lays down as under:-

“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 208 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 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.”

ITAT observed that the relevant assessment year was 2006-07. Survey operation uner Section 133A was conducted at the business premises on 5th March which was after close of the financial year in question. It was observed that in the financial year neither the assessee could foresee accrual of the income which has arisen as on 5th March nor the Assessing Officer could have required the assessee to pay advance tax in pursuance of an order under Section 210.

JUDGEMENT:

It was held that Interest cannot be levied u/s 234B and 234C. The order of CIT(A) was set aside and the interest clause was deleted. Since the assessee was not liable to pay advancetax which was arisen on 5th March 2008, there was no question of deferment of advance tax under Section 234C arises.

Order pronounced in accordance with Rule 34(4) by putting on notice board on this day, the 15th February 2017.