2019 (5) TMI 115 - HC - Income Tax

Levy of interest u/s 220(2) - no complete setting aside of the Assessment Order in the present case - CBDT Circular No.334 dated 03/04/1982 - HELD THAT - The levy of interest u/s 220, is consequential and the interest is payable if the Assessee fails to pay the tax payable as determined in the Assessment Order and a Notice of Demand is issued to the Assessee u/s 156. The levy of interest naturally therefore, depends upon the levy of tax itself. If the above Assessment Order is set aside or set at naught and the Assessing Authority is required to pass fresh Assessment Order, then naturally unless the tax liability is re-determined by the Assessing Authority, the question of interest as determined in the earlier Assessment Order, which has been set aside by the Tribunal, cannot arise. The present case is not a case of total cancellation or setting aside of the Assessment Order fully. It was for a limited purpose that the Tribunal in its order dated 24.08.2004 had asked the Assessing Authority to reconcile the accounts with regard to the amounts of ₹ 1,50,064/- and ₹ 3,58,877/- which two figures did not tally with the total of ₹ 4,54,566/-. Such re-computation at the hands of the Assessing Authority, pursuant to the remand of the learned Tribunal, will not amount to setting aside the Assessment Order altogether. No fresh determination of the tax liability was to take place upon such remand by the learned Tribunal. Question of suspension of the levy of interest for the interim period, upon the order passed by the Tribunal dated 24.08.2004 upto 22.03.2006, when a fresh Assessment Order was passed by the Assessing Authority, could not arise. Circular No.334 dated 03.04.1982 had no application to the facts of the present case and therefore, the contention of the learned counsel for the Assessee raised before us, is devoid of merit. Order under Section 220(2) as such, namely, adding of interest of ₹ 10,05,030/- in the Appeal Effect Order dated 22.03.2006 was per se appealable. Such provision is not included in the category of 'Orders Appealable' u/s 246A. If the levy itself is challenged, the levy of interest consequentially could only be challenged and if the tax liability is reduced or enhanced, the quantum of interest could go up or down, but without making a challenge to the tax liability itself, the levy of interest independently cannot be challenged before the CIT (Appeals). That is why it seems that the Assessee, conscious of this restriction, did not raise this issue as such in the Grounds of Appeal initially, but during the course of hearing of Appeal wrongly relying on the aforesaid CBDT Circular No.334 dated 03.04.1982, had raised the ground, against levy of interest under Section 220(2) and the same came to be not only entertained by the CIT (Appeals) but even the relief was granted by him, which in our opinion, was rightly reversed by the learned Tribunal. Decided against the Assessee and in favour of the Revenue

Summary

Issues Involved:
1. Whether the Income Tax Appellate Tribunal was right in law in upholding the levy of interest under Section 220(2) of the Income Tax Act, 1961.
2. Applicability of CBDT Circular No.334 dated 03.04.1982.
3. Appealability of the order imposing interest under Section 220(2) of the Act.

Detailed Analysis:

1. Whether the Income Tax Appellate Tribunal was right in law in upholding the levy of interest under Section 220(2) of the Income Tax Act, 1961:

The Assessee contended that the levy of interest under Section 220(2) should be suspended until a fresh Assessment Order is passed upon remand by the Tribunal. The Tribunal, however, upheld the levy of interest, reasoning that the remand was for a limited issue and not a complete setting aside of the assessment. The High Court concurred with the Tribunal, stating that the interest levy is consequential to the tax payable under the Assessment Order. Since the original assessment was not entirely set aside, the interest under Section 220(2) continued to be applicable.

2. Applicability of CBDT Circular No.334 dated 03.04.1982:

The Assessee relied on CBDT Circular No.334, which states that no interest under Section 220(2) can be charged if the original assessment order is set aside or cancelled by an appellate or revisional authority. The High Court, however, clarified that this circular applies only when the entire assessment is set aside or cancelled. In this case, since the Tribunal only remanded the matter for limited re-computation, the circular was deemed inapplicable. The High Court emphasized that the re-computation did not amount to setting aside the entire Assessment Order, and thus, the interest levy for the interim period was valid.

3. Appealability of the order imposing interest under Section 220(2) of the Act:

The Revenue argued that the order imposing interest under Section 220(2) is not appealable before the Commissioner of Income Tax (Appeals) as per Section 246A of the Act. The High Court agreed, noting that Section 246A does not list orders imposing interest under Section 220(2) as appealable. The Assessee’s challenge to the interest levy during the appeal hearing, relying on the CBDT Circular, was not maintainable. The Tribunal correctly reversed the Commissioner of Income Tax (Appeals) decision, which had erroneously granted relief from the interest levy.

Conclusion:

The High Court dismissed the Assessee’s appeal, affirming the Tribunal’s decision to uphold the levy of interest under Section 220(2). The Court ruled that the interest levy was consequential and valid since the original assessment was not entirely set aside. The CBDT Circular No.334 was deemed inapplicable, and the order imposing interest under Section 220(2) was not appealable under Section 246A of the Act. The question of law was answered against the Assessee and in favor of the Revenue.