Jharkhand HC Clarifies Section 234B Interest Applicable to Assessed Income Not Returned

The Jharkhand High Court has determined that, according to Section 234B of the Income Tax Act, interest should be applied to the assessed income rather than the returned income.

In a ruling by Justices Rongon Mukhopadhyay and Justice Deepak Roshan, it was clarified that Section 234B mandates charging interest based on the assessed tax amount or, when applicable, the shortfall between advance tax paid and assessed tax. The term “assessed tax” is defined in Explanation 1 of Section 234B (1), which specifies that it refers to the tax calculated on the total income as determined under Sub-Section (1) of Section 143 of the IT Act. In cases of regular assessment, the tax on the total income determined in such assessments is adjusted according to Explanation I in Section 234B. Therefore, interest under Section 234B should be levied on the assessed income rather than the income reported by the taxpayer.

The respondent/assessee is an individual engaged in the trade of spare parts for motorcars and mobile phones and submitted an electronic income tax return, disclosing a total income of Rs. 6,61,080.

The assessee’s case was subjected to scrutiny, and in response to notices, the taxpayer provided all relevant books of accounts, documents, and papers. During the assessment process, the assessee voluntarily declared the long-term capital gain (LTCG) for taxation.

The Assessing Officer (AO) included the entire proceeds from the sale of shares, encompassing both the cost price and the investments made by the taxpayer, as an unexplained investment.

The taxpayer appealed this decision to the Commissioner of Income Tax (Appeals) or CIT (A). In the appellate proceedings, the CIT (A) upheld the AO’s action and rejected the taxpayer’s appeal.

Subsequently, the taxpayer took the matter to the Income Tax Appellate Tribunal (ITAT). The ITAT allowed the appeal and directed the AO to remove the additional charge and impose interest under Section 234B on the returned income rather than the assessed income.

The tax department argued that, by the prevailing practice nationwide, interest is levied based on the assessed income, not the income reported in the return.

Conversely, the taxpayer asserted that the department should only apply interest to the total income declared in the return, not the income assessed by the AO.

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The court ruled that interest must be imposed on the assessed income and not on the income stated in the return.