ITAT Delhi on CIT(A)’s duty to decide interest disputes under Sections 234A and 234B on merits

Background of the dispute

The matter in Diamond Piston and Rings Limited Vs ACIT came up before the ITAT Delhi in relation to Assessment Year 2012-13. The controversy was narrow but significant: whether the assessee’s grievance regarding levy and computation of interest under Section 234A and Section 234B could be dismissed at the first appellate stage merely for non-prosecution, and whether such issues are appealable at all before the CIT(A).

The assessment in question was a reassessment framed under Section 147 read with Section 143(3) of the Income Tax Act 1961, pursuant to a notice issued under Section 148. The Assessing Officer (AO) accepted the returned income declared by the assessee in the reassessment proceedings but directed that interest be charged under Section 234A, Section 234B, Section 234C and Section 234D.

The assessee chose not to dispute the quantum of assessed income. Instead, it specifically challenged the levy of interest under Section 234A and Section 234B before the CIT(A).

Facts leading to the appeal before ITAT

Assessment and levy of interest

  1. The assessee is engaged in the business of manufacturing and selling piston rings and castings.
  2. The AO initiated reopening under Section 147/148.
  3. In response to the Section 148 notice, the assessee filed a return declaring total income of Rs. 2,37,88,400/-.
  4. The AO noted that the assessee had not originally filed a return under Section 139 for the relevant year.
  5. The AO accepted the income declared in response to the Section 148 notice and completed the reassessment at Rs. 2,37,88,400/-.
  6. While concluding the reassessment, the AO directed levy of interest under:
    • Section 234A
    • Section 234B
    • Section 234C
    • Section 234D

The assessee accepted the assessed income but objected to the levy of interest under Section 234A and Section 234B.

First appeal before CIT(A) and ex parte dismissal

The assessee filed an appeal before the CIT(A), NFAC, confined to the levy and computation of interest under Section 234A and Section 234B.

During the appellate proceedings:

  • The CIT(A) issued five separate notices to the assessee on different dates, as recorded in the appellate order:
    • For two notices (dated 24.12.2020 and 26.02.2025), no reply was filed by the assessee.
    • For three notices (dated 11.12.2020, 03.01.2024 and 18.07.2025), the assessee sought adjournments, stating that relevant details and documents were being compiled.

Despite these opportunities, no substantive written submissions on merits were filed before the CIT(A).

Relying on this non-compliance, the CIT(A) proceeded to decide the appeal ex parte and dismissed it on two primary grounds:

  1. Non-prosecution – The assessee had not filed any effective submissions or replies, hence the grievance could not be adjudicated.
  2. Remedy held to be under Section 154 – The CIT(A) took the view that since the assessee was only challenging interest under Section 234A and Section 234B (and not the assessed income), the proper course was to move a rectification application under Section 154 before the AO, and that such an issue was not fit for adjudication in an appeal.

Consequently, the appeal was dismissed at the first appellate stage without dealing with the merits or examining the computation of interest.

Appeal before ITAT and stand of the Revenue

Aggrieved by the dismissal, the assessee carried the matter in further appeal before the ITAT Delhi.

On the date of hearing before the Tribunal: