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2014 (5) TMI 474 - AT - Income TaxComputation of interest leviable u/s 220(2) of the Act Held that - Following Girnar Investment Ltd. Vs. CIT 2012 (1) TMI 10 - DELHI HIGH COURT the assessee was liable to pay interest u/s 220(2) of the Act on the amount of tax due from him on the basis of the assessment order - The interest was payable for the entire period on the amount of tax as computed in the assessment order till the date on which it was actually paid - In computing the interest, no notice shall be taken of the fact that by virtue of the order of the Commissioner (Appeals) there was a reduction of the tax liability from the date of the order till the date on which the Tribunal restored the assessment order thus, the assessee was required to pay interest u/s 220(2) as it had not initially satisfied the demand raised in 2003 - interest on refund is to be charged from the date of grant of refund - The assessee has given computation which may be considered by AO while computing the interest leviable u/s 220(2) thus, the order of the CIT(A) is set aside Decided in favour of Revenue.
Issues Involved:
1. Computation of interest leviable under section 220(2) of the Income Tax Act. 2. Validity of the demand notice and interest computation post-appeal and reassessment. Issue-wise Analysis: 1. Computation of Interest Leviable under Section 220(2) of the Income Tax Act: The core issue in this appeal is the computation of interest under section 220(2) of the Income Tax Act. The assessee filed its return declaring an income of Rs. 73,13,04,670/-, which was assessed at Rs. 82,45,76,787/- after disallowance under section 14A. The CIT (A) provided partial relief, and upon further appeal, the ITAT directed the AO to rework the disallowance as per the Special Bench decision in Daga Capital Management Pvt. Ltd. The AO subsequently determined the disallowance at Rs. 4,44,82,525/- and levied interest under section 220(2) amounting to Rs. 1,10,08,896/-. The assessee contested this interest computation, arguing that the AO could not levy interest under section 220(2) in the notice of demand itself, as the interest could only be imposed if the assessee defaulted in payment within the specified period. The assessee cited the Supreme Court decision in Vikrant Tyres Ltd. vs. ITO, which held that interest under section 220(2) cannot be charged if the assessment order is set aside and a fresh assessment is made. 2. Validity of the Demand Notice and Interest Computation Post-Appeal and Reassessment: The CIT (A) directed the AO to modify the interest computation in line with the Supreme Court's principles in Vikrant Tyres Ltd. The Department appealed, arguing that the facts in Vikrant Tyres were different and the CIT (A) erred in applying that decision. The Department maintained that the original tax demand was revised following the reassessment, thus justifying the interest levied under section 220(2). The Tribunal examined the case law and statutory provisions, noting that under section 220(2), interest is payable if the amount specified in the notice of demand is not paid within the prescribed period. The Tribunal highlighted that the Tribunal's directive was for re-computation of disallowance under section 14A, not a complete setting aside of the original assessment. Therefore, the original demand notice remained valid, and the assessee was in default for not paying the tax initially demanded. The Tribunal distinguished the present case from Vikrant Tyres Ltd., where the assessee had paid the tax initially demanded and was refunded upon the appellate authority's order. In the current case, the assessee did not pay the tax demanded in 2003 and continued to be in default. Thus, the Tribunal upheld the AO's interest computation under section 220(2), but agreed that interest should be computed from the date of the refund. Conclusion: The Tribunal set aside the CIT (A)'s order and allowed the Department's appeal, affirming that interest under section 220(2) was correctly levied due to the assessee's default in satisfying the original demand. The Tribunal directed the AO to consider the assessee's computation for interest from the date of refund while finalizing the interest amount. The appeal was allowed, and the order was pronounced in the open court on 28/04/2014.
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