2014 (7) TMI 1131 - AT - Income Tax

Interest charged under section 220(2) - CIT(A) deleted interest levy - Held that - In the present case the assessment under section 143(3) of the Act was completed on March 31 1999 and the demand notice was issued. The said demand reached finality consequent to the order passed by the Tribunal on January 29 2009 though the Commissioner of Income-tax (Appeals) had granted greater relief in his order under section 250 of the Act. Considering the facts of the present case in view of the provisions of section 220(2) of the Act the notice of demand must relate back to the original notice of demand. At no stage when the appeals were pending before the different forums had the same lost its force. The moment there is finality of proceedings the original notice of demand comes to the surface and for any default on the part of the assessee the claim of interest can be levied. The contention raised by the assessee before the Commissioner of Income-tax (Appeals) in the instant case does not have merit on the basis of the original notice of demand. On finality of proceedings the Assessing Officer can claim interest. We find that the stand taken by the Commissioner of Income-tax (Appeals) is contrary to the provisions of section 220(2) and being so we are inclined to reverse the order of the Commissioner of Income-tax (Appeals) on this issue and restore that of the Assessing Officer. - Decided in favour of revenue.

Summary

Issues:
Deletion of interest charged under section 220(2) of the Income-tax Act.

Analysis:
The appeal pertains to the deletion of interest charged under section 220(2) of the Income-tax Act amounting to Rs. 8,53,671 for the period from May 1, 1999, to March 24, 2009. The Commissioner of Income-tax (Appeals) allowed the claim of the assessee based on the judgment of the Supreme Court in Vikrant Tyres Ltd. v. First ITO [2001] 247 ITR 821 (SC). The case involved the assessment year 1996-97, where the assessee initially declared a total income of Rs. 10,940, which was later scrutinized, resulting in a total income of Rs. 50,01,050. The demand notice was served on April 1, 1999, and the demand became due on May 1, 1999. The assessee paid the demanded amount in instalments from September 20, 2000, to March 22, 2007. The Tribunal partly restored the order of the Assessing Officer under section 143(3) of the Act, leading to the charging of interest under section 220(2) on the demand arising from the Tribunal's order.

The key contention revolved around the interpretation of section 220(2) of the Income-tax Act and the liability of the assessee to pay interest on the unpaid amount. The Revenue argued that interest should be levied as a compensation for the Department, emphasizing that the liability to pay interest arises when the amount specified in the notice of demand is not paid within the specified period. The Departmental representative cited various judgments, including Girnar Investment Ltd. v. CIT [2012] 340 ITR 529 (Delhi), to support the position that interest is payable if the original demand is restored, irrespective of any variations in the demand amount due to appellate orders.

The Tribunal, after considering the arguments and legal precedents, held that the assessee's case was distinguishable from those cited by the Revenue. The Tribunal referred to judgments from different High Courts, such as A. V. Thomas and Co. Ltd. v. ITO [1982] 138 ITR 275 (Ker) and K. P. Abdul Kareem Hajee v. ITO [1983] 141 ITR 120 (Ker), to highlight instances where interest liability was contingent upon specific conditions being met. In the instant case, the Tribunal found that the assessee did not pay the full tax demanded by the Assessing Officer, leading to the conclusion that interest under section 220(2) was applicable.

Ultimately, the Tribunal ruled in favor of the Revenue, allowing the appeal and overturning the order of the Commissioner of Income-tax (Appeals) that favored the assessee. The Tribunal emphasized that the original notice of demand remains valid even after appellate proceedings, and interest can be levied upon finality of proceedings if there is any default on the part of the assessee. The decision was based on a strict interpretation of the provisions of section 220(2) of the Act, leading to the restoration of the Assessing Officer's order regarding the interest charged under the said section.

In conclusion, the Tribunal's decision upheld the Revenue's appeal, emphasizing the legal provisions and precedents governing the levy of interest under section 220(2) of the Income-tax Act. The judgment highlighted the importance of adhering to statutory provisions and ensuring that tax liabilities are met in accordance with the law to avoid interest charges on unpaid amounts.