1996 (3) TMI 152 - AT - Income Tax

Assessment Year Collection And Recovery Levy Of Penalty Provisional Assessment Regular Assessment Service Of Notice Tax In Default

Summary

Issues Involved:
1. Levy of interest under section 220(2) of the Income-tax Act, 1961.
2. Levy of penalty under section 221 of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

1. Levy of Interest under Section 220(2):

- Background: The appeal ITA No. 713/A/91 was directed against the order passed by the CIT(A) concerning an order under section 154 by the Assessing Officer (AO) related to interest charged under section 220(2) for the assessment year 1983-84.

- Assessing Officer's Decision: The AO, in his order dated 16-08-1989, observed that while giving effect to the CIT(A)'s order dated 28-01-1988, interest under section 220(2) was mentioned but not charged in the tax computation. The AO issued a notice under section 154 and, after considering the assessee's replies, held that the assessee was liable for interest under section 220 from 30-11-1984 to the date of the assessment order, aggregating to Rs. 4,12,480.

- CIT(A)'s Decision: The CIT(A) held that the assessee was not liable to pay interest beyond 30-01-1988 due to refunds arising from the ITAT's order. He directed the AO not to charge interest for the period from 01-05-1986 to 31-12-1987 on Rs. 3,41,521, representing adjustments and refunds due when the original demand notice was served on 24-03-1986. However, he did not accept the contention that the assessee was not liable for interest from 01-12-1984 to 30-04-1986.

- Assessee's Argument: The assessee contended that no interest could be charged under section 220(2) until the demand notice was issued and served. The demand notice was served on 24-03-1986, and the assessee was not liable to pay the demand before 30-04-1986. The provisions of section 220(2) indicate that interest can only be charged after the expiry of 35 days from the service of the demand notice.

- Department's Argument: The departmental representative argued that section 141A(4)(b) deems any excess refund on provisional assessment as tax payable, thus, the assessee should be liable for interest from the date of the provisional assessment.

- Tribunal's Decision: The Tribunal considered the provisions of sections 220(1) and 220(2) and concluded that interest under section 220(2) could only be charged from 30-04-1986 (35 days after the demand notice was served). There was no provision in section 141A for charging interest from the date of the provisional assessment. The Tribunal directed the AO to cancel the interest charged from 01-12-1984 to 30-04-1986.

2. Levy of Penalty under Section 221:

- Background: The appeals ITA Nos. 714 & 735/A/91 were cross-appeals concerning the levy of penalty under section 221 for the assessment year 1983-84.

- Assessing Officer's Decision: The AO levied a penalty of Rs. 4,62,235 under section 221.

- CIT(A)'s Decision: The CIT(A) reduced the penalty to Rs. 58,313, considering the reasons provided in his order.

- Revenue's Argument: The revenue was aggrieved by the reduction of the penalty, arguing that the assessee should be deemed in default from the date of the provisional assessment refund.

- Assessee's Argument: The assessee argued that the entire demand was disputed in the first appeal before the CIT(A). The assessee had requested adjustments for refunds and interest due, which were not promptly processed by the AO. The assessee also submitted applications for stay of demand, which were not judiciously considered.

- Tribunal's Decision: The Tribunal noted that the CIT(A) considered the refunds due to the assessee and the elaborate replies submitted by the assessee in response to recovery notices. The Tribunal concluded that the assessee was not in default as the overall position indicated that the assessee was a creditor to the department. The Tribunal directed the AO to cancel the entire penalty levied under section 221.

Conclusion:
- The Tribunal allowed the appeals by the assessee, directing the AO to cancel the interest charged under section 220 for the period from 01-12-1984 to 30-04-1986 and to cancel the entire penalty levied under section 221.
- The revenue's appeal was dismissed.