Levy of interest under section 220(2) when the original assessment is set aside-Instructions regarding - Income Tax - 334/1982

Levy of interest under section 220(2) when the original assessment is set aside-Instructions regarding Circular No. 334 Dated 3/4/1982 To All Commissioners of Income-tax, Sir, Subject: Levy of interest under section 220(2) when the original assessment is set aside-Instructions regarding. Doubts have been raised as to the quantum of interest chargeable u/s. 220(2) of the Income-tax Act, when the original assessment order passed by the Income-tax Officer is-- (i) cancelled by him u/s. 146 of the Income-tax Act; (ii) set aside/cancelled by an appellate/revisional authority and such appellate/revisional order has become final; or (iii) set aside by one appellate authority but, on further appeal, the order setting aside the assessment is varied by the second appellate authority and the demand gets finally determined. 2. These issues were comprehensively examined in consultation with the Ministry of Law and the Board has been advised: (i) where an assessment order is cancelled u/s. 146 or cancelled/set aside by an appellate/revisional authority and the cancellation/setting aside becomes final (i.e., it is not varied as a result of further appeals/revisions), no interest under section 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 35 days from the date of service of demand notice pursuant to such fresh assessment order. (ii) where the assessment made originally by the ITO is either varied or even set aside by one appellate authority but, on further appeal, the original order of the ITO is restored either in part or wholly, the interest payable under section 220(2) will be computed with reference to the due dated reckoned from the original demand notice and with reference to the tax finally determined. The fact that during an intervening period, there was no tax payable by the assessee under any operative order would make no difference to this position. 3. The foregoing legal position will apply mutatis mutandis to the proceedings under other direct taxes also. These instructions may be brought to the notice of all the officers working in your charge. Yours faithfully, (Sd.) H. Venkataraman, Director, Central Board of Direct Taxes.