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2013 (5) TMI 585 - AT - Income TaxLevy of interest u/s. 220(2) - demand was raised for the first time pursuant to the rectification under section 154/251/143(3) - Held that - The issue is squarely covered in favour of the assessee by the decision of Seshasayee Paper & Boards Ltd. Vs. CIT 2002 (9) TMI 59 - MADRAS High Court considering the decision of Vikrant Tyres Ltd. Versus Income Tax Officer 2001 (2) TMI 129 - SUPREME Court wherein held that the very foundation for a claim for interest under section 220(2) is the notice of demand. Without it there can be no sustainable claim for interest. Since the issue is squarely covered that no interest can be charged u/s. 220(2) of the Act for the period when there is no demand outstanding. In the present case also the demand arises from the order passed u/s. 154/251/143(3) dated 07.11.2008 whereby addition of Rs.25 lakh was made disallowing the liability of PF and Gratuity. That means the AO has to recompute interest u/s. 220(2) in term of the above. AO is directed accordingly. Appeal of assessee is allowed.
Issues involved:
Levy of interest u/s. 220(2) of the Income Tax Act. Detailed Analysis: Issue 1: Levy of interest u/s. 220(2) of the Act The appeal was against the order of CIT(A) confirming the levy of interest u/s. 220(2) of the Act. The original assessment was completed under section 143(3) of the Act, and a notice u/s. 154 was issued to rectify a mistake regarding Provident Fund and Gratuity payments. The AO disallowed a sum and charged interest u/s. 220(2) among others. The CIT(A) partly allowed the claim and restricted the interest amount. The assessee contended that the interest could only be charged after a demand notice is served post the rectification order. The issue was whether interest u/s. 220(2) could be charged when there was no outstanding demand before the rectification order. Issue 2: Legal Precedent and Interpretation The decision referred to the case of Seshasayee Paper & Boards Ltd. Vs. CIT, where the High Court held that a demand notice is a condition precedent for claiming interest under section 220 of the Act. The court emphasized that without a notice of demand, there can be no sustainable claim for interest. The judgment highlighted that the condition precedent for invoking section 220(2) is a default in payment of the demanded amount within the stipulated time in the notice. The court's interpretation emphasized the importance of a clear intention in the statute to impose a burden on the taxpayer, ensuring a fair and reasonable construction of the law. Issue 3: Decision and Ruling The Tribunal ruled in favor of the assessee, stating that no interest could be charged u/s. 220(2) when there was no outstanding demand. The demand in this case arose from the rectification order, and interest had to be recomputed accordingly. The Tribunal directed the AO to adjust the interest calculation based on the legal precedent and the absence of a prior outstanding demand. Consequently, the appeal of the assessee was allowed based on the interpretation of the law and the specific circumstances of the case. In conclusion, the judgment clarified the conditions for charging interest u/s. 220(2) of the Income Tax Act, emphasizing the necessity of a demand notice and a default in payment within the stipulated time. The ruling was based on legal precedents and a strict interpretation of the statute, ensuring a fair application of the law in determining the liability for interest charges.
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