2011 (11) TMI 118 - HC - Income Tax

Interest liability under 220 (2) - where demand notice is issued pursuant to fresh assessment order - interest liability arises when demand is not paid within 30 days from fresh assessment order. - the decision of the ITAT in holding that the assessee is liable to pay interest under Section 220(2) of the Act from the end of the period mentioned in Section 220(1) of the Act i.e. thirty days after the service of notice of demand dated 24/12/2006 till the date on which the amount demanded was paid cannot be faulted.

Summary

Issues:
Whether the ITAT was justified in holding the assessee liable to pay interest u/s.220(2) of the Income Tax Act, 1961 after thirty days from the service of the fresh demand notice dated 24/12/2006 pursuant to the fresh assessment order passed under Section 143(3) of the Act.

Analysis:
The case involved the assessment year AY 1994-95. Initially, an assessment order passed in 1997 assessed the income at Rs. 2.05 crores with a demand of Rs. 1.76 crores. Upon appeal, the income was reduced to Rs. 18.30 lakhs. The ITAT set aside the original assessment order and directed a fresh assessment. The fresh assessment in 2006 assessed the income at Rs. 44.88 lakhs with a demand of Rs. 22.02 lakhs. The assessee paid the amount beyond thirty days from the service of the demand notice dated 24/12/2006. The assessing officer held the assessee liable to pay interest under Section 220(2) after thirty days from the service of the original demand notice dated 28/2/1997. The CIT(A) and ITAT held the interest payable after thirty days from the service of the 2006 demand notice, leading to the revenue's appeal.

The revenue contended that demands from the fresh assessment relate back to the original demand notice date. However, the Court disagreed, stating that under Section 156, service of the demand notice is mandatory. Section 220(2) provides for interest if the amount specified in the notice is not paid within the prescribed period. The Court emphasized that the liability to pay interest arises if the amount demanded is not paid within thirty days of the service of the demand notice. Therefore, the demand crystallized under the 2006 assessment order, and interest was payable from thirty days after the 2006 demand notice, not from the date of the original demand notice in 1997.

The Court upheld the ITAT's decision that interest under Section 220(2) was payable from thirty days after the service of the 2006 demand notice until the payment date. Consequently, the appeal was dismissed, finding no merit, and no order as to costs was issued.