1999 (11) TMI 894 - HC - Income Tax

Summary

Issues Involved:
1. Whether interest under section 139(8)/215 of the Income-tax Act, 1961, levied in the original assessment survives when a reassessment is done under section 148 of the Act.

Issue-wise Detailed Analysis:

1. Levy of Interest under Sections 139(8) and 215 in Reassessment Proceedings:

The primary question was whether the interest levied under sections 139(8) and 215 in the original assessment continues to apply when a reassessment is conducted under section 148. The Tribunal upheld the deletion of interest by the Commissioner of Income-tax (Appeals), citing that the original assessment gets effaced upon reassessment, as per the decisions in Charles D'Souza v. CIT [1984] 147 ITR 694 and ITO v. K. L. Srihari (HUF) [1992] 197 ITR 694 (Kar).

2. Applicability of CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 (SC):

The Department argued that the decision in Sun Engineering Works was relevant, but the court noted that the issue in Sun Engineering Works was different. The court reiterated that the original assessment order gets effaced upon reassessment, and thus, interest levied under the original assessment cannot survive, referencing ITO v. K.L. Narayana [1992] 197 ITR 694.

3. Interpretation of Taxation Laws (Amendment) Act, 1984:

The assessee pointed to the amendment which inserted clause (b) in Explanation 2 of section 139(8), indicating that interest should be adjusted based on the reassessment outcome. The court agreed that no interest is chargeable in reassessment proceedings under section 147, as supported by various judgments, including CIT v. Mannalal Nirmal Kumar [1992] 198 ITR 556 and CIT v. United Machinery and Appliances [1993] 200 ITR 569.

4. Finality of Directions in Original Assessment:

The court examined whether the liability incurred in the original assessment ends upon reassessment. It was noted that the directions to charge interest given in the original assessment order dated September 24, 1984, became final and should have been separately implemented. The reassessment only included the interest income of Rs. 14,589, which should not attract interest under sections 139(8) and 215.

5. Relevance of Modi Industries Ltd. v. CIT [1995] 216 ITR 759 (SC):

The court referred to Modi Industries Ltd., where it was held that interest under section 214 is payable only up to the date of the original assessment, and subsequent appellate reductions do not affect this liability. This principle was applied to determine that interest under sections 139(8) and 215 is applicable only up to the original assessment date.

6. Effect of Reassessment on Original Assessment:

The court clarified that reassessment under section 147 does not affect the original assessment's finality unless the entire income is reassessed. In this case, only additional interest income was reassessed, so the original assessment's directions to charge interest remained valid.

Conclusion:

The court concluded that the liability for interest under sections 139(8) and 215, as determined in the original assessment, remains valid and enforceable despite the reassessment under section 147. The reassessment only affects the additional income and does not nullify the original assessment's interest liability. The ITRC was disposed of with these observations.