2020 (5) TMI 480 - AT - Income Tax

Levy of interest u/s 220(2) and section 234B - Interest on refund u/s 234D - HELD THAT - We agree with the contention of the ld AR that where there is no basis for levy of interest u/s 234D and such levy is ultimately held to be not valid in the present case, the amount paid by the assessee will go to offset the outstanding tax and interest demand except interest u/s 234D and only on the remaining outstanding demand, the interest u/s 220(2) shall be levied. Coming to levy of interest u/s 234D, we agree with the contention of the ld AR that where no refund has been granted u/s 143(1) to the assessee, the question of charging of interest u/s 234D doesn t arise for consideration. We also agree with the contention of the ld AR that such interest can be charged for the period from the date of grant of refund to the date of such regular assessment i.e, 27.12.2006 in the present case. Matter is accordingly set-aside to the file of the AO for purposes of verifying whether any refund has been granted pursuant to intimation u/s 143(1) and only in a scenario where such refund has been granted, the interest u/s 234D shall be levied from the date of grant of refund to the date of regular assessment order passed u/s 143(3) - Where it is found that no refund has been granted pursuant to intimation u/s 143(1), the assessee shall be granted relief from such levy of interest u/s 234D and consequentially, levy of interest u/s 220(2) will also undergo a change and the Assessing officer is directed to recompute the interest u/s 220(2) after granting credit for amount paid towards the outstanding taxes instead of interest u/s 234D as done correctly.

Summary

Issues Involved:
1. Levy of interest under Section 220(2) of the Income Tax Act.
2. Levy of interest under Section 234D of the Income Tax Act.

Detailed Analysis:

1. Levy of Interest under Section 220(2):
The primary issue is whether the provisions of Section 220(2), as amended by the Finance Act, 2014, are applicable in this case. The assessee argued that the proviso to Section 220(2) does not reference orders passed under Section 260A, which was the basis for the High Court's decision. The Tribunal noted that sub-section (1A) of Section 260 specifies that when the High Court delivers a judgment under Section 260A, the Assessing Officer must give effect to it. Consequently, the Tribunal rejected the assessee's contention that the proviso to Section 220(2) does not apply.

The Tribunal also referred to the Hon'ble Rajasthan High Court's order, which revived the original demand notice issued under Section 143(3). The Tribunal clarified that the decision of the Hon'ble Supreme Court in Vikrant Tyres vs. ITO (2001) does not apply, as the Finance Act, 2014, introduced amendments that were not considered in that case. The Tribunal upheld the levy of interest under Section 220(2) from the expiry of the period mentioned in the original notice of demand until the date of payment.

2. Levy of Interest under Section 234D:
The assessee contended that interest under Section 234D could only be levied if a refund was granted under Section 143(1) and that no such refund was granted in this case. The Tribunal agreed, stating that interest under Section 234D applies only if a refund is granted under Section 143(1) and there is either no refund due on regular assessment or the amount refunded exceeds the amount refundable on regular assessment.

The Tribunal noted that the first refund was issued on 6.02.2008 and the second on 9.04.2014, both after the assessment was completed on 27.12.2006. Therefore, these refunds were not granted under Section 143(1) but pursuant to relief granted by the CIT(A). The Tribunal directed the Assessing Officer to verify whether any refund was granted under Section 143(1) and, if so, to levy interest under Section 234D from the date of the refund to the date of the regular assessment. If no refund was granted under Section 143(1), the assessee should be granted relief from the levy of interest under Section 234D.

Conclusion:
The Tribunal set aside the matter to the file of the Assessing Officer to verify the facts and recompute the interest under Sections 220(2) and 234D accordingly. The appeal for A.Y 2006-07 was disposed of with similar directions, as the facts and circumstances were identical to those in A.Y 2004-05. The appeals were disposed of with the Tribunal's directions to recompute the interest based on the findings.

Order Pronouncement:
The order was pronounced in the open Court on 15/04/2020.