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TMI Blog2004 (5) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer issued a notice to the assessee to show cause why a penalty should not be imposed on it under section 271(1)(c) of the Act. The assessee submitted its objections. After considering the objections, the Assessing Officer passed an order dated March 14, 1988, marked as annexure 1 in the writ petition, imposing a penalty of Rs. 2,20,000 on the assessee under section 271(1)(c) of the Act. The assessee filed an appeal before the Commissioner of Income-tax (Appeals), Ranchi. The Commissioner of Income-tax (Appeals) accepted the belated explanation to be offered by the assessee and held by his order, annexure 2, dated November 17, 1988, that the assessee could not be held liable under section 271(1)(c) of the Act. The penalty imposed was deleted. The Department filed an appeal before the Income-tax Appellate Tribunal, Patna, challenging the decision of the Commissioner of Income-tax (Appeals) deleting the penalty. The Tribunal by order dated October 25, 1995, marked annexure 3, reversed the order of the Commissioner of Income-tax (Appeals) and restored the order of the Assessing Officer imposing a penalty on the assessee. The assessee got the question as to "whether, on the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the interest on penalty sought by the assessee, calls for interference in exercise of our jurisdiction under article 226 of the Constitution of India. This question was again heard in detail on February 27, 2004. In the order, annexure 16, refusing to waive interest on the penalty imposed, the Commissioner of Income-tax has held that the conditions which enabled waiver under section 220(2A) of the Act were not satisfied in this case. He has noticed that three cumulative conditions have to be satisfied before the waiver could be allowed. He has noticed that it was necessary to show that the payment of the amount would have caused genuine hardship to the assessee; that the default in payment of the amount on which interest was payable was due to circumstances beyond the control of the assessee and that the assessee has co-operated with the inquiry relating to the assessment, or in the proceedings for recovery of any amount due from the assessee. In annexure 16, after referring to the facts of the case, the Commissioner of Income-tax has found that none of the conditions referred to above has been satisfied by the assessee and in that view, there was no justification in waiving th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ically on behalf of the assessee was that the assessee would be entitled to the waiver of interest on the penalty imposed, for the period November 17, 1988, to October 24, 1995, the period during which, on the basis of the order of the Commissioner of Income-tax (Appeals), the order for penalty stood set aside and until its revival by order of the Tribunal dated October 25, 1995. In fact, the argument was whether the assessee was not entitled to reduction of the amount of interest on the penalty imposed for the period during which the penalty order was not operative, it having been set aside by the Commissioner of Income-tax (Appeals). Learned counsel submitted that as distinct from an assessment, it was the imposition of a penalty and while considering the question, the court has to strictly consider whether the conditions for imposition exist in a given case. He argued that when on November 17, 1988, the Commissioner of Income-tax (Appeals) set aside the order imposing penalty, it could not be said that the assessee had to pay the penalty or that he had the liability to pay the penalty inviting an obligation to pay interest on that amount. No doubt, the Assessing Officer had impo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso an admitted fact that in satisfaction of the said demand notices the appellant had paid the amount as demanded within the time stipulated therein. The question, therefore, is: whether the Revenue is entitled to demand interest in regard to the amount which was refunded to the assessee by virtue of the judgment of the appellate authority and which was repaid to the Revenue after decision in the reference by the High Court on fresh demand notices being issued to the assessee? Admittedly, on a literal meaning of the provisions of section 220(2) of the Act, such a demand for interest cannot be made. The High Court by a liberal interpretation of the said section and relying upon section 3 of the Validation Act has held that the Revenue is entitled to invoke section 220(2) of the Act for the purpose of demanding interest on such retention of money. We are not in agreement with the High Court on the interpretation placed by it on section 220(2) of the Act in regard to the right of the Revenue to demand interest in a situation where the assessee has promptly satisfied the demand made by the Revenue in regard to the tax originally assessed. It is settled principle in law that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars to us that it could not be said that during the period November 17, 1988, to October 25, 1995, there was any outstanding demand for penalty against the assessee and, therefore, it could not be said that there was a default in payment of penalty making it liable for the interest during that period. No doubt, it is possible to argue that an appeal is a continuation of the original proceeding and when the Commissioner of Income-tax (Appeals) set aside the order of the Assessing Officer imposing penalty and the Department took up the matter in appeal before the Income-tax Appellate Tribunal, the order imposing penalty, only went into eclipse and once the Income-tax Appellate Tribunal allowed the appeal of the Revenue and restored the order imposing penalty, the order imposing penalty came out of eclipse and revived the obligation of the assessee to pay it and the interest due on it and also the obligation of the assessee pursuant to the original notice issued under section 156 of the Act, by the Assessing Officer on the imposition of penalty. Though we find some force in this submission on behalf of the Revenue on this aspect, we feel that we are clearly bound by the decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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