2009 (5) TMI 4 - HC - Income Tax

Interest under Section 220(2A) - whether interest can be levied without the service of a specific order raising the demand -whether the impugned Order is liable to be set aside since the Assessee was not afforded any opportunity of personal hearing- argument of revenue that a hearing was found unnecessary by the Authority since the provision sought to be invoked by the Petitioner, namely Section 220(2A), was not in force at the relevant time, is acceptable personal hearing would have been an imperative wherever and whenever discretion has to be exercised. Since this was not the case, no violation of natural justice has, therefore, occurred - Writ Petition is dismissed

Issues Involved:
1. Entitlement to waiver of interest under Section 220(2A) of the Income Tax Act.
2. Requirement of a specific order and demand notice under Section 156 for levying interest.
3. Legality of charging interest during the period of interim orders by the Supreme Court.
4. Necessity of a personal hearing before passing the impugned order.

Detailed Analysis:

1. Entitlement to Waiver of Interest under Section 220(2A):
The petitioner sought a waiver of interest levied under Section 220(2) of the Income Tax Act for the assessment years 1980-81, 1981-82, and 1982-83. The petitioner argued that the demands were paid promptly after the Supreme Court upheld the retrospective amendment of Section 80-J of the IT Act on 25.01.1985. However, the court held that the petitioner's liability to pay tax was not neutralized by the interim orders and that interest could be charged from the original due dates. The court referenced Kanoria Chemicals & Industries Ltd. vs. UP State Electricity Board to support this view, emphasizing that interim orders do not eliminate the underlying liability.

2. Requirement of a Specific Order and Demand Notice under Section 156:
The petitioner contended that interest could not be levied without a specific order and a demand notice under Section 156 of the IT Act. The court rejected this argument, noting that demand notices for the original amounts were served on 30.03.1983 and 27.04.1983. The court found that the factual foundations contradicted the petitioner's claim and that the requirement for a demand notice had been met.

3. Legality of Charging Interest During Interim Orders:
The petitioner argued that interest should not be charged for the period during which the Supreme Court's interim orders were effective. The court dismissed this contention, stating that the liability to pay tax was not postponed or neutralized by the interim orders. The court cited the principle that interim orders do not affect the accrual of interest, as established in previous rulings, including Kanoria Chemicals & Industries Ltd. vs. UP State Electricity Board.

4. Necessity of a Personal Hearing Before Passing the Impugned Order:
The petitioner argued that the impugned order declining to waive interest was passed without affording a personal hearing, violating principles of natural justice. The court noted that Section 220(2A) was introduced with effect from 1.10.1984 and was not applicable to the assessment years in question. Therefore, the Chief Commissioner did not possess the power to reduce or waive interest for those years. The court referenced Kishan Lal vs. Union of India to underscore that a speaking order with reasons is required when deciding applications under Section 220(2A). However, since the provision was not applicable, the court held that no personal hearing was necessary, and no violation of natural justice occurred.

Conclusion:
The court dismissed the writ petition, upholding the levying of interest under Section 220(2) and rejecting the claims of procedural and substantive impropriety raised by the petitioner.

← Previous Next →