Section 234B(3) deals with the recalculation of interest under Section 234B when the assessed tax is modified due to:
- Appeal orders(CIT(A), ITAT, High Court, Supreme Court)
- Revision orders(Section 263/264 by Principal CIT/CIT)
- Rectification orders(Section 154)
- Reassessment orders(Section 147/153A)
1. When Does It Apply?
If the final tax liability changes after:
- An appeal/revision/rectificationreduces or increases the tax demand.
- The assessing officer modifiesthe tax payable.
2. Effect on Interest Calculation
- If tax increases→ Additional interest is charged on the extra amount.
- If tax decreases→ Excess interest paid is refunded (with interest under Section 244A).
3. Example Scenario
Case 1: Tax Liability Increases
- Original tax liability:₹1,00,000
- Advance tax paid:₹70,000 (shortfall: ₹30,000)
- Interest (1% for 4 months):₹1,200
- After appeal, tax revised to ₹1,20,000(new shortfall: ₹50,000)
- Additional interest:₹50,000 × 1% × 4 = ₹2,000 (total interest now ₹3,200)
Case 2: Tax Liability Decreases
- Original tax liability:₹1,00,000
- Advance tax paid:₹70,000 (shortfall: ₹30,000)
- Interest (1% for 4 months):₹1,200
- After appeal, tax reduced to ₹80,000(new shortfall: ₹10,000)
- Recalculated interest:₹10,000 × 1% × 4 = ₹400
- Excess interest refunded:₹800 (₹1,200 – ₹400)
Key Points
- Interest under Section 234B is not finaland can be recalculated if tax liability changes.
- Appeals/revisions can reduce interest burdenif tax liability decreases.
- Refund of excess interestcomes with 5% monthly interest (Section 244A).
- Applies only if the original interest was charged under Section 234B(1).
