2021 (12) TMI 399 - AT - Income Tax

Levy of interest u/s. 220(2) - As per AO the interest u/s. 220(2) is attracted from the expiry of the period of 30 days from the issuance of the income tax computation form - HELD THAT - As per provisions of section 220(2) and also to the circular No. 334 dated 03.04.1992 which says in unequivocal terms that where an assessment order is cancelled under section 146 or cancelled/set aside by an appellate/revisional authority and the cancellation/setting aside become final, no interest U/s. 220(2) can be charged pursuant to the original demand notice. The necessary corollary of this position will be that even when the assessment is reframed, interest can be charged only after the expiry of 30 days from the date of service of demand notice pursuant to such fresh assessment order. CIT(A) also followed the decision of Hindalco Industries Ltd. 2005 (8) TMI 533 - ITAT MUMBAI where it was held that on set aside of assessment, operation of original assessment order stands withdrawn and the demand notice issued pursuant to such assessment order becomes inoperative and stands extinguished; and therefore, in a case where the assessment was set aside, interest u/s. 220(2) has to be charged only after expiry of 30 days from the date of service of demand notice pursuant to fresh assessment order but it shall not relate back to the date of the assessment order which was set aside. On a perusal of the circular referred to by the ld. CIT(A) and also the order of the Tribunal in Hindalco Industries Ltd. (supra), we are of the considered opinion that the legal position does not admit of any doubt and the issue is no longer res integra. It is clear that the interest u/s. 220(2) of the Act shall be levied with reference to the order passed subsequent to remand u/s. 254, but not with reference to the assessment order that stood set aside - Decided against revenue. Addition of prior period expenses - HELD THAT - For expenditure on account of payment of bonus to the employees and on account of repairs and maintenance were incurred wholly and exclusively for the purpose of business. Absolutely, there cannot be any dispute on this aspect because it is born out of record. To this factual position, ld. CIT(A) obviously applied the law laid down by Hon ble Apex Court in the case of Kedarnath Jute Manufacturing Co. 1971 (8) TMI 10 - SUPREME COURT and reached a conclusion that such an expenditure is an allowable expenditure. We do not find anything illegality or irregularity in the conclusion reached by the ld. CIT(A) and accordingly, uphold the same. This ground of Revenue is dismissed.

Summary

Issues:
1. Levy of interest u/s. 220(2) of the Income-tax Act, 1961.
2. Disallowance of prior period expenses.

Levy of Interest u/s. 220(2):
The case involved an appeal by the Revenue against the order passed by the Commissioner of Income Tax (Appeals) for the assessment year 2004-05. The Tribunal remanded the matter to the Assessing Officer for fresh consideration, emphasizing the assessment of the real income of the taxpayer. The primary issue was the levy of interest u/s. 220(2) amounting to ?1,75,74,756. The Revenue contended that interest was due from the expiry of 30 days from the issuance of the income tax computation form. However, the Tribunal, citing circular No. 334 dated 03.04.1992 and a decision by the Mumbai Bench of Tribunal, held that interest could only be charged after the expiry of 30 days from the service of demand notice pursuant to the fresh assessment order, not from the original assessment order that was set aside. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) on this issue, dismissing the Revenue's appeal.

Disallowance of Prior Period Expenses:
The second issue pertained to the disallowance of prior period expenses totaling ?11,30,052. The assessee claimed that these expenses were incurred wholly and exclusively for the purpose of business. The Tribunal found that a specific direction was given by them regarding the allowance of these expenses. The expenses included bonus payments to employees for services rendered in the previous year and repairs and maintenance costs. Citing the decision of the Hon'ble Apex Court in Kedarnath Jute Manufacturing Co. Ltd. Vs. CIT, the Tribunal agreed with the Commissioner of Income Tax (Appeals) that these expenses were admissible deductions as they were incurred for business purposes. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) on this issue as well, dismissing the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal on both grounds, upholding the decisions of the Commissioner of Income Tax (Appeals) regarding the levy of interest u/s. 220(2) and the disallowance of prior period expenses. The judgment was pronounced on the 10th day of November, 2021.