ITAT Bengaluru on Correct Method to Compute Interest Under Section 234C

1. Background of the Dispute

The case of Shruti Shibulal Vs DCIT (ITAT Bangalore) concerns a narrow but practically important question: how to correctly determine interest for deferment of advance tax under Section 234C when the assessee has both domestic and foreign income and is eligible for relief under Section 90 and credit for TDS.

The assessee, an individual resident in India, derived income from:

  • House property
  • Capital gains
  • Income from other sources
  • Foreign income, including income from the United States of America

1.1 Return Filing and Assessment

  • Original return filed on 18 August 2018, declaring total income of ₹42,19,74,290.
  • Revised return filed under Section 139(5) on 30 March 2019, declaring income of approximately **₹43.70 crore/₹4,36,97,2820/₹4,36,98,2823` (as per the assessment discussion and final order).
  • Assessment completed on 10 February 2021 under Section 143(3) read with Sections 143(3A) and 143(3B).
  • The assessed income was essentially the same as the revised returned income (₹436,982,823 as recorded in the appellate order).

No addition was made to the returned income. The only controversy related to the computation of interest under Section 234C.

1.2 Core Controversy: Amount of Interest Under Section 234C

  • The assessee, in the revised return, had self-computed interest under Section 234C at ₹56,047 and paid it along with self-assessment tax.
  • The Assessing Officer (AO), however, while completing the assessment, charged interest under Section 234C at ₹7,00,499.
  • This resulted in an overall tax demand of ₹6,44,456, driven solely by the higher interest computation.
  • The assessment order did not disclose any working or logic explaining how the figure of ₹7,00,499 under Section 234C was arrived at.

The assessee’s sole grievance before all appellate authorities was this alleged incorrect levy of interest under Section 234C.

2. Proceedings Before CIT(A) and the Tribunal

2.1 Appeal Before CIT(A)

The assessee approached the National Faceless Appeal Centre, Delhi, challenging only the computation of Section 234C interest in the assessment order dated 10 February 2021.

The CIT(A) took the following positions:

  • The phrase “tax due on the returned income” appearing in Section 234C must be understood in harmony with the term “assessed tax” as defined in Explanation 1 to Section 234B.
  • As per this scheme, TDS, relief under Sections 90 and 91, and other statutory credits must be considered before working out shortfalls in advance tax.
  • Interest under Section 234C is mandatory, and interference is justified only if a concrete computational or arithmetical error is clearly demonstrated.
  • Relying on the decision in CIT v. Insilco Ltd., the CIT(A) held that since the assessee had not, in the view of the appellate authority, conclusively proved a specific error in the AO’s computation annexed to the assessment order, the levy of Section 234C interest at ₹7,00,499 should stand.

Accordingly, the appeal was dismissed.

2.2 Appeal Before ITAT Bangalore

Aggrieved, the assessee carried the matter to the ITAT Bangalore Bench. The grounds before the Tribunal again focused only on the quantum and correctness of Section 234C interest.

  • The assessee was represented by Ms. Suman Lunkar, CA.
  • The Revenue was represented by Shri Pradeep S, Senior Departmental Representative, Additional Commissioner of Income Tax.

The Tribunal recorded that the only live issue in the appeal was whether:

  • Interest under Section 234C should be ₹7,00,499 (as computed by the AO), or
  • Restricted to ₹56,047 (as computed and paid by the assessee in the revised return).

The question turned entirely on how to determine “tax due on the returned income” and how that amount should be mapped against the statutory advance-tax instalments.

3.1 Structure of Advance Tax Instalments

Under Section 234C, interest is levied where the assessee fails to pay the prescribed portion of advance tax by specific due dates.