2023 (10) TMI 335 - HC - Income Tax

Interest under Section 220(2) - effective date for collection of interest on unpaid tax whether it is from the date of demand notice following the first Assessment Order or from the date of demand notice pursuant to final Assessment Order? - divergent interpretations on the order dated 23.01.1992 passed by CIT(A) - tribunal observed that if there is a default on the part of the assessee to comply with the original demand notice, the provisions of Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 shall apply, meaning thereby, interest has to be payable from the original demand notice - HELD THAT - In the light of the aforesaid divergent views, we have carefully gone through the order dated 23.01.1992 of CIT(A). No doubt in para-5 of the order the said authority mentioned as if it was necessary to set aside the assessment order. However, the said observation cannot be read in isolation. On the other hand, when the entire order was read in conjunction, as rightly observed by the tribunal, the CIT(A) gave main thrust on the computation of capital gain and interest addition. In that view, it cannot be contended that the said authority wanted to expunge the entire assessment order dated 25.03.1991. In fact in the consequential order the Deputy Commissioner of IT arrived at an increased amount of Rs.62,94,117/- as against the original capital gains - Therefore it is not a case of setting aside of the entire assessment order. The original assessment order dated 25.03.1991 and consequent demand notice, therefore stood valid. Since the petitioner did not pay the tax amount till 11.10.1996, in terms of the judgment in Vikrant Tyres Ltd s case 2001 (2) TMI 129 - SUPREME COURT and Section 220(2) of the IT Act, the appellant /assessee is liable to pay interest from the date of original demand i.e., 25.03.1991. The order impugned does not suffer the vice of illegality or irregularity.

Summary

Issues involved:
The appeal challenges the order of the Income Tax Appellate Tribunal, Visakhapatnam bench, regarding the chargeability of interest on unpaid tax against the assessee from the original Assessment Order dated 25.03.1991.

Issue 1:
The Tribunal's correctness in holding that interest under Section 220(2) is chargeable from the date of the demand notice dated 25.03.1991, despite the order of the Commissioner of Income Tax (Appeals) stating no tax is payable.

The original assessment order for the AY 1988-89 was set aside by the CIT (A) in an appeal, directing the Assessing Officer to reassess capital gains and adhoc compensation. The subsequent assessment order dated 28.03.1994 determined additional compensation and interest, with the AO charging interest from the original demand date of 25.03.1991.

Issue 2:
The Tribunal's decision that interest under Section 220(2) arises from 25.03.1991, even though a fresh demand notice was issued after completion of assessment as directed by the Commissioner.

The CIT (A) observed that the original assessment order was set aside in an earlier order, and no enforceable notice existed until 28.03.1994. The Revenue challenged this in ITAT, which held that interest is payable from the original demand notice date if there is a default in compliance.

Issue 3:
The Tribunal's ruling that interest under Section 220(2) is chargeable from the date of the demand notice dated 25.03.1991, despite the appellant not being in default during that period.

The Tribunal interpreted the CIT (A)'s order as affirming the AO's action on minor issues without setting aside the entire assessment order. As the appellant did not pay the tax until a later date, interest was deemed payable from the original demand notice under the Taxation Laws Act.

Issue 4:
The Tribunal's refusal to rectify the order in ITA No.679/Vizag/2002 and rejecting the miscellaneous application without considering the facts of the case.

The Tribunal's decision was based on the interpretation of the CIT (A)'s order, emphasizing the need for interest payment from the original demand date due to non-compliance by the appellant.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision that interest was chargeable from the original demand notice date of 25.03.1991. The Court found no illegality or irregularity in the order and ruled that the appellant is liable to pay interest as per Section 220(2) of the IT Act.