2020 (10) TMI 428 - HC - Income Tax

Interest u/s 234 A, B C - Whether such an order is a regular assessment which alone attracts such levy of interest? - AO held that the assessee is not carrying on any business activity and treated it as an Association of Persons and completed the assessment - Whether assessee is not carrying on any business activities, whether the authorities were justified in holding that the respondent assessee is a firm and not an Association of Persons? - HELD THAT - The interest under Section 34A(1) of the Act is levied under the circumstances mentioned therein namely where the return of income has not been furnished under sub- Sections (1) and (4) of Section 139 or in response to the notice under sub-Section (1) of Section 142 and / or is not furnished after due date. Assessee is liable to pay simple interest at the prescribed rate for every month. It is also not in dispute that if an order of assessment get effaced, it ceases to exist and a fresh order of assessment has to be passed - in the case of MODI INDUSTRIES 1995 (9) TMI 324 - SUPREME COURT has held that the expression regular assessment has to be deemed to have been completed on the date when first order of assessment has been passed and not when modified order of assessment has been passed, as the assessee cannot be penalized for lapse of time between the first assessment order and modified assessment order without there being any fault on his part. Therefore, the interest under Section 234A can be levied upto the date of first assessment order only. Assessment as defined under Section 2(28) of the Act has a comprehensive meaning and includes all steps and proceedings taken for determination of tax payable and for imposing liability on the assessee. It includes reassessment as well. Therefore, even after the matter is remitted, an order of assessment is passed, the same is referable to Section 143 or Section 144. Explanation- 3 only protects the assessee from levy of interest and confines the same when the original order of assessment is passed and not when the modified order of assessment is passed - Decided against assessee.

Summary

Issues:
1. Interpretation of provisions regarding levy of interest under Section 234A, B & C in the Income Tax Act.
2. Determination of the status of the assessee as a firm or Association of Persons.
3. Validity of interest levy based on original assessment order after remand.

Analysis:

1. The appeal under Section 260A of the Income Tax Act, 1961 involved the interpretation of the provisions related to the levy of interest under Section 234A, B & C. The primary issue was whether interest could be levied as if the order of assessment was a regular assessment, attracting such interest. The Tribunal held that the original assessment order, which was set aside, is restored with all its characteristics of a regular assessment for the purpose of interest levy under Section 234A, B, and C. The assessee contended that the interest provisions apply only to regular assessments and cited relevant legal provisions and case laws to support their argument.

2. Another issue in the case was the determination of the assessee's status as a firm or Association of Persons. The Assessing Officer initially treated the assessee as an Association of Persons due to the absence of business activity. However, the Commissioner of Income Tax (Appeals) determined the status of the assessee as a firm based on the rental income from buildings let out. The Tribunal upheld the status as a firm but maintained the levy of interest, leading to the appeal.

3. The judgment analyzed the legal provisions, including Sections 2(8), 2(40), and explanation-3 to Section 234A(1) of the Act, to determine the scope of assessment and the applicability of interest provisions. The court held that the expression 'assessment' includes reassessment and that interest under Section 234A can be levied only up to the date of the first assessment order. The court emphasized that even after a remand, the order of assessment is referable to Section 143 or Section 144, and explanation-3 protects the assessee from interest levy only concerning the original assessment order.

In conclusion, the court answered the substantial question of law against the assessee and in favor of the revenue. The appeal was dismissed as the interest levy based on the original assessment order after remand was deemed valid under the provisions of the Income Tax Act.