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2018 (8) TMI 982 - AT - Income TaxCharging of interest u/s 220(2) - demand was raised first time - additions made in the rectification order passed u/s 154 - assessee contended that such an interest can be charged only if the assessee has defaulted in payment of demand as per notice of demand issued u/s 156 - Held that - A demand in respect of such amount could be raised only after passing the rectification order and it is the default if any in payment of such demand that would attract the interest under section 220 (2) of the Act. It is therefore simple and plain that the rectification order itself cannot include the interest under section 220 (2) of the Act and the tax determined in the rectification order does not relate back to the assessment order - Demand of interest is not valid - Decided against the revenue.
Issues Involved:
1. Validity of charging interest under section 220(2) of the Income Tax Act. 2. Applicability of precedents set by higher courts in similar cases. Issue-wise Detailed Analysis: 1. Validity of Charging Interest under Section 220(2) of the Income Tax Act: The Revenue challenged the order dated 14/11/2014 by the Learned Commissioner of Income Tax (Appeals)-VIII, New Delhi (Ld. CIT(A)), which disallowed the charging of interest under section 220(2) of the Act. The case revolves around the assessee, a public limited company engaged in manufacturing and selling polyester filament and nylon-6 yarns. For the assessment year 1987-88, the assessee's income was initially determined at ?11,40,79,686/- by the Assessing Officer but was subsequently reduced multiple times through various orders. The final reduction brought the income down to ?66,80,645/- by 29/04/1997. The Ld. CIT(A) had directed the Assessing Officer to consider the allowability of excise duty payment of ?88,80,914/- for the assessment year 1986-87, and if allowed, to withdraw the equivalent claim from the subsequent year, i.e., 1987-88. Consequently, the Assessing Officer revised the taxable income for 1987-88, adding ?88,80,914/- and charged interest under section 220(2) amounting to ?1,62,85,376/- for the period between 01/05/1990 to 15/09/2014. The assessee contested this interest charge, arguing that interest under section 220(2) could only be charged if there was a default in payment as per a notice of demand issued under section 156. Since the demand for ?88,80,914/- was raised for the first time on 15/09/2014, there was no default, and hence, no interest was chargeable. The Ld. CIT(A) relied on the decision of the Hon’ble Apex Court in Vikrant Tyres Ltd vs. ITO 247 ITR 821 (SC) and the jurisdictional High Court in Bharat Commerce vs. CIT 210 ITR 13 (Del), concluding that the Assessing Officer was incorrect in charging interest under section 220(2). 2. Applicability of Precedents Set by Higher Courts in Similar Cases: The Revenue argued that the Ld. CIT(A) erred in relying on Vikrant Tyres Ltd and Bharat Commerce cases, contending that the initial demand under section 143(3) was not paid by the assessee. The Revenue maintained that the demand did not die with the appeal being accepted by the first authority and that the assessee should have paid the tax as per the original assessment order and claimed a refund later. The Tribunal reviewed the record and found that the excise duty of ?88,80,914/- was not part of the initial addition of ?11,40,79,686/- determined on 29/03/1990. The income was successively reduced, and by 29/04/1997, it was determined at ?66,80,645/-, below the returned income. The Tribunal noted that no appeal was filed by the Revenue against the order dated 22/07/1996, making it final. The Tribunal found no evidence of any demand notice issued pursuant to the order dated 29/03/1990. The Tribunal referred to the Bharat Commerce case, where it was held that interest under section 220(2) could only be levied if there was non-payment of the amount specified in the demand notice issued after a rectification order. Similarly, in Vikrant Tyres Ltd, the Hon’ble Apex Court clarified that interest under section 220(2) could only be charged if there was a default in payment as per a notice of demand issued under section 156. The Tribunal concluded that the demand of ?44,40,457/- relating to the disallowance of excise duty emanated from the order dated 07/06/2002 and not from the order dated 29/03/1990. Hence, the interest could not be charged for any period prior to the order giving rise to such demand. The Tribunal found that the Ld. CIT(A) correctly followed the binding precedents and deleted the interest charged under section 220(2). Conclusion: The Tribunal upheld the decision of the Ld. CIT(A), finding no illegality or irregularity in the impugned order. The appeal by the Revenue was dismissed, affirming that interest under section 220(2) could not be charged on the amount determined in the rectification order unless there was a demand for the additionally assessed amount and a subsequent default in payment. The appeal was dismissed, and the order was pronounced in the Open Court on 13th August 2018.
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