Jharkhand High Court: Section 234B Interest Must Be Charged on Assessed Income, Not Returned Income

Jharkhand High Court: Section 234B Interest Must Be Charged on Assessed Income, Not Returned Income

The Jharkhand High Court has ruled that interest under Section 234B of the Income Tax Act must be charged on the assessed income, not the returned income.

The Bench of Justices Rongon Mukhopadhyay and Deepak Roshan observed that Section 234B requires interest to be charged on the assessed tax or the shortfall in advance tax paid. The assessed tax is defined in Explanation 1 of Section 234B(1) as the tax on the total income determined under Section 143(1), reduced by the amount specified in Explanation-I to Section 234B in cases where a regular assessment is made. Therefore, interest under Section 234B must be charged on the assessed income, not the returned income.

The individual assessee trades spare parts for motorcars and mobile phones and filed their income tax return electronically, declaring a total income of ₹6,61,080.

The assessee's case was selected for scrutiny. The assessee responded to the notices, appeared, and produced all books of accounts, papers, and documents. During the assessment proceedings, the assessee voluntarily surrendered their long-term capital gain (LTCG) for taxation.

The Assessing Officer (AO) added the entire sale proceeds of the shares, including the cost price and investment made by the assessee, as an unexplained investment.

The assessee appealed the AO's decision to the CIT(A), who upheld the AO's action and dismissed the appeal.

The assessee appealed to the ITAT, which allowed the appeal and directed the AO to delete the addition and charge interest under Section 234B on the returned income instead of the assessed income.

The department argued that the practice nationwide is to charge interest on the assessed income, not the returned income.

The assessee argued that the department can only levy interest on the total income declared in the return, not on the income assessed by the AO.

The Court, thus, ruled that interest must be charged on the assessed income, not the returned income.