2008 (6) TMI 230 - AT - Income Tax

Issues Involved:
1. Justification of interest charged under section 220(2) of the Income-tax Act, 1961.
2. Validity of the order passed under section 154.
3. Applicability of the Board's Circular No. 334 dated April 3, 1982.
4. Interpretation of the provisions of section 220(2) and the Validation Act, 1964.

Issue-wise Detailed Analysis:

1. Justification of Interest Charged Under Section 220(2):
The assessee contested the levy of interest under section 220(2) on the grounds that no demand existed during the period from May 16, 2000, to January 4, 2005. The Commissioner of Income-tax (Appeals) had deleted the major additions, resulting in nil demand, and the demand was revived only after the Tribunal's order on November 30, 2004. However, the Tribunal held that the filing of a stay application or appeal does not mitigate the default of non-payment of tax as per the demand notice. The interest under section 220(2) is compensatory and mandatory, and the grant of stay does not affect its levy. The Tribunal cited the Supreme Court's decision in Anjum M.H. Ghaswala [2001] 252 ITR 1, confirming that the levy of interest is mandatory.

2. Validity of the Order Passed Under Section 154:
The assessee argued that the order under section 154 was not tenable as it was passed unilaterally without issuing a notice under section 154(3). The Commissioner of Income-tax (Appeals) upheld the order, stating it was a speaking order that provided reasons, even if debatable. The Tribunal found no infirmity in the order passed under section 154, affirming that the levy of interest under section 220(2) was justified.

3. Applicability of the Board's Circular No. 334:
The Assessing Officer relied on Circular No. 334, which states that if an assessment order is set aside by one appellate authority but restored by a higher authority, interest under section 220(2) is computed with reference to the original demand notice. The Tribunal noted that while circulars are administrative instructions, they are not binding on the Tribunal or courts. The Tribunal decided the issue based on the statutory provisions, confirming that the circular does not override the Act's provisions.

4. Interpretation of Section 220(2) and the Validation Act, 1964:
The Tribunal examined the provisions of section 220(2) and the Validation Act, 1964. The Supreme Court in Vikrant Tyres Ltd. [2001] 247 ITR 821 clarified that the original demand notice is revived if the assessee has not satisfied it, even if varied by appellate authorities. The Tribunal concluded that the assessee is liable for interest under section 220(2) from the due date in the original demand notice until the actual payment date. The Validation Act ensures that the original demand notice remains effective, and no fresh notice is required.

Conclusion:
The Tribunal upheld the levy of interest under section 220(2), dismissing the appeal filed by the assessee. The interest is mandatory and compensatory, and the assessee's failure to pay the demand within the stipulated time justified the interest levy. The Tribunal found no merit in the assessee's arguments against the order under section 154 and the applicability of the Board's Circular. The provisions of section 220(2) and the Validation Act were interpreted to confirm the interest levy from the original demand notice date until payment. The appeal was dismissed, and the order was pronounced in the open court on June 20, 2008.

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