1993 (6) TMI 6 - HC - Income Tax

Assessment Order Income Tax Act Original Assessment Rectification Of Mistakes Rectification Proceedings

Issues Involved:
1. Legality and validity of the notice under section 154 of the Income-tax Act, 1961.
2. Liability to pay interest under section 220(2) of the Income-tax Act, 1961.
3. Applicability of Circular No. 334 dated April 3, 1982, issued by the Central Board of Direct Taxes.
4. Interpretation of section 220(2) of the Income-tax Act, 1961.
5. Jurisdiction under section 154 of the Income-tax Act, 1961.

Detailed Analysis:

1. Legality and Validity of the Notice under Section 154:
The petitioner challenged the notice dated March 6, 1987, issued by the Income-tax Officer under section 154 of the Income-tax Act, 1961, for the assessment year 1973-74. The notice aimed to rectify an alleged mistake in the calculation of interest under section 220(2). However, the notice did not clarify the nature of the mistake. The petitioner argued that the notice was invalid as it did not specify the mistake sought to be rectified.

2. Liability to Pay Interest under Section 220(2):
The petitioner contended that the Income-tax Officer's attempt to charge interest from the date of the revised assessment order dated September 24, 1979, to May 3, 1986, was incorrect. The assessment order dated September 24, 1979, had been set aside by the Appellate Assistant Commissioner and was no longer subsisting. Consequently, the tax demand from that order was not enforceable. The revised assessments and subsequent appellate orders resulted in fresh computations of total income and tax payable, thus nullifying the original demand.

3. Applicability of Circular No. 334:
The Department relied on Circular No. 334, which stated that if an original assessment order was restored by an appellate authority, interest under section 220(2) would be computed from the original demand notice. The petitioner argued that this circular was not applicable because the original assessment order was not fully restored by the appellate orders. The Kerala High Court decisions cited by the Department were distinguished, as they involved cases where the original orders were wholly restored, unlike the petitioner's case.

4. Interpretation of Section 220(2):
Section 220(2) imposes interest if the amount specified in a notice of demand is not paid within the specified period. The petitioner argued that since the original assessment order was set aside and fresh computations were made, the original demand was no longer enforceable. The Kerala High Court's observation in ITO v. A. V. Thomas and Co. was cited, stating that a consequential order is necessary for interest liability to arise. The recomputed tax demands were fresh assessment orders, and interest could not be charged from the date of the original order.

5. Jurisdiction under Section 154:
The Supreme Court's observation in T. S. Balaram, ITO v. Volkart Brothers was cited, stating that a mistake apparent from the record must be obvious and not subject to a long-drawn process of reasoning. The petitioner argued that the alleged mistake in not charging interest was not apparent from the records and required interpretation of section 220(2). Therefore, the Income-tax Officer exceeded his jurisdiction under section 154.

Conclusion:
The court held that the impugned notice under section 154 was without jurisdiction and authority of law. There was no mistake apparent from the records that could be rectified under section 154. The application succeeded, and the impugned notice and any order made pursuant to it were set aside and quashed. There was no order as to costs.

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