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Interest under Section 234A, 234B and 234C cannot be charged if the specific section is not mentioned in the assessment order
Interest under Section 234A, 234B and 234C cannot be charged if the specific section is not mentioned in the assessment order
Interest under Section 234A, 234B and 234C cannot be charged if the specific section is not mentioned in the assessment order
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Interest under Section 234A, 234B and 234C cannot be charged if the specific section is not mentioned in the assessment order

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Recently, the Allahabad High Court in the case of Oswal Exports held that for charging interest under Sections 234A, 234B or 234C of the Income-tax Act, 1961 (the Act), the Assessing Officer is …

Recently, the Allahabad High Court in the case of Oswal Exports held that for charging interest under Sections 234A, 234B or 234C of the Income-tax Act, 1961 (the Act), the Assessing Officer is required to mention the specific section of charging interest under the Act, failing which, no interest can be levied under those sections.

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  • 1. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG FLASH NEWS KPMG in INDIA Interest under Section 234A, 234B and 234C cannot be charged if the specific section is not mentioned in the assessment order 8 July 2014 22 21 February 2013 Background Recently, the Allahabad High Court (High Court) in the case of Oswal Exports 1 (the taxpayer) held that for charging interest under Sections 234A, 234B or 234C of the Income-tax Act, 1961 (the Act), the Assessing Officer (AO) is required to mention the specific section of charging interest under the Act, failing which, no interest can be levied under those sections. Facts of the case  The taxpayer is engaged in the business of marble goods and is exporting it to countries directly, as well as selling the same at the counter of the emporium of the taxpayer to foreign tourists in convertible foreign exchange. __________________ 1 CIT v. Oswal Exports (ITA No. 386 of 2007) – Taxsutra.com  During the year under consideration, the taxpayer claimed deduction in respect of the goods sold at the counter in convertible foreign exchange under Section 80HHC of the Act.  The AO disallowed the claim of the taxpayer on the grounds that the taxpayer failed to produce evidence to establish that the goods sold at the counter of the emporium were custom cleared. The AO also directed that interest would be charged as per the Rules. The Commissioner of Income-tax (Appeals) [CIT(A)] upheld the order of the AO.  The Income-tax Appellate Tribunal (the Tribunal) granted the deduction under Section 80HHC of the Act. Further the Tribunal also held that unless there is a specific order under a particular section to levy interest, no interest could be charged. It was held that since the particular section under which levy of interest was not mentioned, the levy of interest could not be charged.
  • 2. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. High Court’s ruling  In the case of Ranchi Club Ltd. 2 , the Patna High Court had held that an order of the AO to charge interest has to be specific and clear. The taxpayer must know that the AO after applying his mind had ordered charging of interest under a particular section. A general order directing that interest would be charged as per the rules or directing that charge interest as per law was not a specific order for levying interest. The High Court held that where such general order was passed directing interest to be charged as per the rules, the same would have no effect and no interest should be levied. The said decision of the Patna High Court was affirmed by the Supreme Court. 3  In the case of Anjum M.H.Ghaswala and others 4 , the Supreme Court, after analysing various provisions 5 of settlement commission had held that the settlement commission does not have the power to reduce or waive interest statutorily payable under Sections 234A, 234B and 234C of the Act, except to the extent of granting relief under the Circulars issued by the Central Board of Direct Taxes (CBDT) and Section 119 6 of the Act.  Having considered the decision of the Supreme Court in the case of Karanvir Singh Gossal 7 , the High Court observed that the position of law as propounded in Ranchi Club Ltd. does not change. The decision of the Patna High Court in the case of Ranchi Club Ltd. still holds good as the said decision was affirmed by a three judge bench of the Supreme Court.  If interest is leviable under Sections 234A, 234B or 234C of the Act, then such levy of interest is mandatory and compensatory in nature, but, in order to levy interest under these sections, the AO is specifically required to mention the specific section of charging interest, failing which, no interest can be levied under those sections.  Penal proceedings were totally different and distinct from charging interest. If penal proceedings were required to be undertaken, it was neither necessary nor obligatory for the AO to direct initiation of penal proceedings, and penal proceedings would be initiated without a specific direction from the AO.  Accordingly, the High Court dismissed the appeal of the tax department. _______________ 2 Ranchi Club Ltd. v. CIT [1996] 222 ITR 44 (Patna) 3 CIT v. Ranchi Club Ltd. [2001] 247 ITR 209 (SC) 4 CIT v. Anjum M. H. Ghaswala and others [2001] 252 ITR 1 (SC) 5 Section 245D(4) and (6) of the Act 6 Instructions to subordinate authorities 7 Karanvir Singh Gossal v. CIT [2012] 349 ITR 692 (SC) Our comments Whether the levy of interest under Section 234A, 234B and 234C of the Act is mandatory and whether the Assessing Officer (AO) should give a specific direction in his order to levy such interest, has been debated in the courts for a long time. The three-judge bench of the Supreme Court in the case of Ranchi Club Ltd. had held that in the absence of any specific direction in the assessment order to charge interest under Section 234A and 234B of the Act, interest could not be recovered from the taxpayer. Subsequently, the five-judge bench of the Supreme Court in the case of Anjum M.H. Ghaswala held that the Settlement Commission does not have the power to reduce or waive the interest statutorily payable under Sections 234A, 234B and 234C of the Act, except to the extent of granting relief under the circulars issued by the Central Board of Direct Taxes (CBDT) under Section 119 of the Act. The Supreme Court in the case Karanvir Singh Gossal relied on the five-judge bench decision in the case of Anjum Ghaswala and held that the levy of interest under Section 234A, 234B and 234C is mandatory. In this case, the Allahabad High Court having considered the above-referred decisions of the Supreme Court held that the position of law as propounded in Ranchi Club Ltd. does not change. If interest is leviable under Sections 234A, 234B or 234C of the Act, then such levy of interest is mandatory and compensatory in nature, but, in order to levy interest under these sections, the AO is specifically required to mention the specific section of charging interest, failing which, no interest can be levied under those sections.
  • 3. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. www.kpmg.com/in Ahmedabad Commerce House V, 9th Floor, 902 & 903, Near Vodafone House, Corporate Road, Prahlad Nagar, Ahmedabad – 380 051 Tel: +91 79 4040 2200 Fax: +91 79 4040 2244 Bengaluru Maruthi Info-Tech Centre 11-12/1, Inner Ring Road Koramangala, Bangalore 560 071 Tel: +91 80 3980 6000 Fax: +91 80 3980 6999 Chandigarh SCO 22-23 (Ist Floor) Sector 8C, Madhya Marg Chandigarh 160 009 Tel: +91 172 393 5777/781 Fax: +91 172 393 5780 Chennai No.10, Mahatma Gandhi Road Nungambakkam Chennai 600 034 Tel: +91 44 3914 5000 Fax: +91 44 3914 5999 Delhi Building No.10, 8th Floor DLF Cyber City, Phase II Gurgaon, Haryana 122 002 Tel: +91 124 307 4000 Fax: +91 124 254 9101 The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2014 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity“are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. Hyderabad 8-2-618/2 Reliance Humsafar, 4th Floor Road No.11, Banjara Hills Hyderabad 500 034 Tel: +91 40 3046 5000 Fax: +91 40 3046 5299 Kochi Syama Business Center 3rd Floor, NH By Pass Road, Vytilla, Kochi – 682019 Tel: +91 484 302 7000 Fax: +91 484 302 7001 Kolkata Unit No. 603 – 604, 6th Floor, Tower – 1, Godrej Waterside, Sector – V, Salt Lake, Kolkata 700 091 Tel: +91 33 44034000 Fax: +91 33 44034199 Mumbai Lodha Excelus, Apollo Mills N. M. Joshi Marg Mahalaxmi, Mumbai 400 011 Tel: +91 22 3989 6000 Fax: +91 22 3983 6000 Pune 703, Godrej Castlemaine Bund Garden Pune 411 001 Tel: +91 20 3050 4000 Fax: +91 20 3050 4010

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