Interest u/s 234A can’t be levied on self-assessment tax paid before due date of filing ITR

Interest under section 234A cannot be levied on self-assessment tax paid before the due date of filing of return of income.

In a recent judgment, Chennai ITAT has held that once the self assessment tax has been fully paid before the due date for filing return, no interest u/s 234A is leviable for the period during which no default exists.

ABCAUS Case Law Citation:
4928 (2025) (12) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming levy of interest under section 234A of the Income Tax Act, 1961 (the Act).

The appellant assessee had filed its return of income for AY 2021-22 on 09.03.2022, within the extended due date of 15.03.2022.

Prior to filing the return, the assessee paid the entire self assessment tax liability amounting on 26.02.2022. The return was processed by CPC under section 143(1). While the issue relating to short grant of TDS was subsequently rectified, CPC continued to levy interest under section 234A up to March 2022, which the assessee disputed.

The CIT(A) upheld the levy on the basis of Explanation to section 140A(1) and Rule 119A, holding that payments must first be appropriated towards interest and thereafter to tax, and since the return was filed on 09.03.2022, interest up to that date was correctly charged.

Before the Tribunal, the assessee contended that interest under section 234A being compensatory in nature cannot be levied for March 2022 when no tax remained unpaid as on 01.03.2022. He further submitted that CBDT Circular No. 2/2015 and the judgment of the Hon’ble Supreme Court which clearly held that interest under section 234A cannot be levied on self-assessment tax paid before the due date of filing of return.

It was contended that levy beyond the actual period of default is contrary to the statutory scheme and settled judicial principles. Therefore, it was pleaded that interest under section 234A is chargeable only on the amount of tax payable. Once the entire tax was discharged on 26.02.2022, there was no outstanding liability, and therefore, no basis for levy of interest for any day in March 2022.

The Tribunal observed that undisputed fact was that the assessee discharged its entire self-assessment tax liability on 26.02.2022. Therefore, on 01.03.2022, the period for which the impugned levy had been made, there was no outstanding tax. Section 234A imposes compensatory interest only where tax is unpaid.

The Tribunal further observed that it is well settled that once the tax has been fully paid before the due date or before the actual filing of the return, no interest is leviable for the period during which no default exists.

The Tribunal further observed that CBDT Circular No. 2/2015 also expressly provides that interest under section 234A cannot be levied on self-assessment tax paid before the due date of filing. The circular is binding on the Department, and the lower authorities erred in ignoring the same. The Hon’ble Supreme Court had categorically held that interest under section 234A cannot be levied where the assessee has already discharged the tax liability before the stipulated date.

The Tribunal also observed that the Department’s reliance on Explanation to section 140A(1) is misplaced. The said Explanation governs appropriation of payments where composite liabilities exist. In the present case, however, the assessee’s tax liability itself stood fully discharged before even the month for which interest has been levied. Once no tax remained outstanding after 26.02.2022, the statutory provision for appropriation is rendered inapplicable for the period thereafter.

The Tribunal opined that levy of interest under section 234A for the month of March 2022 was not sustainable either in law or on facts. The default, if any, ceased on 26.02.2022, and computation of interest up to 28 February 2022 alone was permissible.

As a result, the Tribunal held that the levy of interest under section 234A for the month of March 2022 was unsustainable. The impugned order of CIT(A) was set aside, and the Assessing Officer was directed to delete the interest levied under section 234A for March 2022.

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