Section 234A(4) of the Income Tax Act, 1961, deals with the adjustment of interest when there is a subsequent revision, appeal, or rectification that changes the tax liability after interest under Section 234A has already been charged.
1. When Does It Apply?
Interest under Section 234A(1) or (3) may be recalculated if:
- The tax liability is modifieddue to:
- An appeal(e.g., CIT(A), ITAT, High Court, Supreme Court).
- A revision order(e.g., under Section 263 or 264 by the Principal CIT/CIT).
- A rectification(under Section 154).
2. Effect on Interest Calculation
- If tax liability increases→ Additional interest is charged on the extra amount.
- If tax liability decreases→ Excess interest paid is refunded (with applicable interest under Section 244A).
3. Example Scenario
Case 1 (Increase in Tax):
- Original tax demand: ₹1,00,000(Interest under 234A: ₹5,000).
- After appeal, tax revised to ₹1,20,000(additional ₹20,000).
- Additional interestis calculated on ₹20,000 for the same delay period.
Case 2 (Decrease in Tax):
- Original tax demand: ₹1,00,000(Interest paid: ₹5,000).
- After appeal, tax reduced to ₹80,000.
- Excess interest paid (₹1,000, assuming recalculation)is refunded.
Key Points
- Dynamic Adjustment:Interest under Section 234A is not final and can be revised if tax liability changes.
- Appeals & Revisions Matter:If an assessee successfully reduces tax in an appeal, they can claim a refund of excess interest.
- Refund with Interest:If excess interest was paid, the refund will include interest under Section 244A (0.5% per month).
