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Issues involved:
The petition challenges the charging of interest under section 220(2) of the Income-tax Act, 1961, through a demand notice issued pursuant to a rectification order for the assessment year 1989-90. Facts: The petitioner filed a return for the assessment year 1989-90 declaring a loss. The assessment was framed, and a demand notice was served. Subsequently, a rectification order was issued, resulting in a demand for tax, surcharge, and interest under sections 234B and 220(2). Legal Analysis - Interest under section 220(2): The petitioner contested the interest charged under section 220(2) based on the timing of the demand notice. The court examined the provisions of section 220(2) which specify the liability for interest if the amount in a demand notice is not paid within the stipulated period. Interpretation of Section 220(2): The court agreed with the petitioner's argument that interest under section 220(2) can only be levied if the amount specified in a demand notice has not been paid as per section 220(1). The court emphasized that the rectification order does not automatically trigger interest under section 220(2) unless a separate demand is issued for the revised amount. Relevant Provisions - Section 154: The court referred to section 154 which mandates that when an amendment enhances the assessment, a separate notice of demand must be served on the assessee. This notice is deemed to be issued under section 156, and the Act's provisions apply accordingly. Judgment: The court allowed the petition, setting aside the interest amount specified in the rectification order. It clarified that interest under section 220(2) can only be demanded if the fresh amounts determined in the rectification order are not paid. The respondents were given the option to demand interest under section 220(2) for the revised tax and surcharge amounts if not paid by the petitioner. This judgment highlights the importance of issuing a separate demand notice for any additional amounts determined through a rectification order to levy interest under section 220(2) of the Income-tax Act.
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