Is interest u/s 234 B/C applicable?

Hi Ramji,

Advance tax Funda is simple. The governing section of advance tax—Section 208—says in EVERY case where the tax liability is upwards ofRs 4999, you've got to fill out ITNS 280. Of course you can takecredit to the extent the others have filled out ITNS 281 to depositthe TDS made on income credited into your account.No matter how many firms the assessee was partner in and how manybusinesses he was drawing income from closed down during the year,if the tax payable by him on the income earned during the yearexceeds Rs 5000, he's got to have paid that tax during the course ofthe financial year itself. Advance tax provisions are based on thepay-as-you-earn scheme—the government needs money; you can't keepthem waiting till you've finalized your accounts and ascertainedyour exact income. Section 234B and 234C seek to penalize assesseeswho've shied away from paying as they earned.We are unnecessarily obfuscating the issue by introducing theconcept of "old" and "new" businesses here. The assessee hasremained the same throughout the year, hasn't he?! He was always inthe know of what was going on—the firm dissolving, the turnoverpeaking towards the fag-end of the year. Only the partnership firmcan take credit for the advance tax paid in Sept and Dec 2007. Hissituation is understandable--he wouldn't have deposited the advancetax in Sept and Dec 2007 if he had had a prognosis that the firmwould breathe its last post 15 Dec 2007. But then doesn't thatdissolved firm stand to claim a refund along with interest u/s 244Aon account of the excess advance tax paid during the year? Iunderstand your client may not have had anything to do with thatfirm any more and it'd be little comfort for him to know about this.What about the ITR of the firm? Was a refund claim lodged? Wouldyour client be entitled to a share in it when it is finallyreceived?The other argument of your client about the turnover having soaredtowards the end of the year isn't sustainable for a nanosecond. Icopy-paste below the proviso to Section 211(1):[Provided that any amount paid by way of advance tax on or beforethe 31st day of March shall also be treated as advance tax paidduring the financial year ending on that day for all the purposes ofthis Act.]So even if the turnover shot thorough the roof in the last fortnightof the year, he had till the evening of 31st March 2008 to haveknown about it. The previous instalments can't be a day later than15 Sept/Dec. Since the year is drawing to a close when the due datefor depositing the last instalment of advance tax approaches, thegovernment has very wisely granted a grace period of 15 days indepositing the last instalment of advance tax. Tax deposited till31st March will be deemed to have been deposited on or before 15thMarch itself. This is aimed at giving the assessees a chance to havea more accurate measure of their income so that the advance tax isthe closest approximation of the final assessed tax, and theassessees are spared the hardships of Section 234B and C. Theproviso to Section 234C too recognizing the windfall nature of thecapital gains and lottery winnings allows the assessee time till31st March of the year to deposit advance tax.So the sudden rise in turnover argument to save 234B/C interest goesout the window.The CBDT does have the powers u/s 119(2)(a) to waive interest u/s234A/B/C. To be sure the CBDT has come out withcirculars/notifications (Notif. F. No. 400/234/95-IT(B), dated 23-5-1996 and Circular No 783, dated November 18, 1999) laying down thecircumstances that warrant the waiver of penal interest underadvance tax provisions. But the CBDT empowers the ChiefCommissioners to waive interest in cases like where the books havebeen seized in a search operation and the assessee isn't in aposition to prepare his accounts; receipts hitherto thought to beexempt have become taxable consequent to a SC judgement or anamendment in the law, etc.Based on the facts narrated by you, your client doesn't have asnowball's chance in hell to get the interest u/s 234B and C waived.Thanks,CA Sanjeev Bedi--- In

ICAI_CIRC_MEERUT_CA@yahoogroups.com, "Ramji" wrote:>> I have an unusual issue.>> An individual client of mine, has started a new business from Dec> 2007. He was earlier a partner in a firm and the firm dissolved ason> Dec 2007. He continues to do the same business in his individualname> and has got all the required registrations.>> Now when we were computing his income for filing, he fell short ofthe> tax payment and had to make a large self assessment payment ofincome tax.>> The question is>> Will interest u/s 234 be applicable?>> My arguement to him is that it is his business to estimate hisincome> and pay the advance taxes accordingly. So he is liable for interest> u/s 234.>> His arguement is he was not aware that the firm would split andhence> had paid advance taxes for Sep and Dec on the old basis. However,the> turnover has also peaked in the end of March 2008 and so he wasalso> not aware that this turnover would come, when he paid his advancetax> in March 2008. He says that due to this, he is not liable tointerest> and is willing to now fight it out with the IT department?>> What are the views of my friends in this forum? Is 234 interest> applicable? If so, why? If not, also give reasons, to buttress my> client's case.>> Ramji>