Section 234D of the IT Act does not apply to assessments prior to June 2003

CLR Editorial Note: This case law refers to a Petition(s) for Special Leave to Appeal which is in respect of retrospectivity of Section 234D of the Income Tax Act, 1961.

For the Assessment Year 1998-99, the Assessing Officer passed an assessment order prior to 01st June 2003, in which interest under section 234D was not levied. The assessee filed an appeal against the said order on certain other issues and in giving effect to the order of the appellate authority, the Assessing Officer levied interest under section 234D on the ground that excess refund had been allowed under section 143(1) than what the assessee was entitled to u/s 143(3).

The Tribunal allowed the assessee™s appeal by relying on Exta Promoters 305 ITR (AT) 1 where it was held that as s. 234D was inserted with effect from 1.6.2003, it did not apply to earlier assessment years. The department™s appeal was dismissed by the High Court (order included) by relying on its own judgement in the case of Delta Airlines 245 CTR 16 (Bom) (order included).

In the present case, admittedly refund was not granted to the assessee under Section 143(1) of the Act. In fact, the refund was not granted even under the assessment order passed under Section 143(3) read with Section 147 of the Act, but the same was granted pursuant to the orders passed by the CIT (A). Therefore, the decision of the ITAT in holding that in the facts of the present case, Section 234D is not applicable cannot be faulted.

In the reference case of Delta Airlines, the argument of the Revenue that as per the Explanation to Section 234D, assessments made under Section 147 shall be regarded as regular assessment does not carry the matter any further, because, the provisions of Section 234D would apply only in those cases where refunds were granted under Section 143(1) of the Act and on regular assessment whether made under Section 143(3) or under Section 143(3) read with Section 147, no refund becomes due or the amount refunded under Section 143(1) exceeds the amount refundable on regular assessment. In the present case, since refunds were not granted under Section 143(1) of the Act, the Tribunal was justified in holding that Section 234D is not attracted in the facts of the present case.

On appeal by the department to the Supreme Court, the Hon’ble Court dismissed the appeal an held in a simple explanation:

“Explanation 2 to s. 234D makes it clear that the provisions of the section shall not apply to an assessment year commencing before the 1st day of June, 2003 if the proceedings in respect of such assessment year is completed before the said date. As the assessment order in the present case was passed before 1.6.2003, the question of retrospectivity of s. 234D does not arise.”

Tags: AppealCITCommonwealth Law ReportsHigh CourtHonIncome Tax Act 1961Supreme CourtThe Honourable

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