Case Law Details
RELEVANT PARAGRAPH
10. It is also relevant to notice that there are certain minor issues with regard to depreciation etc., on which the learned CIT(A) affirmed the action of the Assessing Officer. It is thus clear that the entire assessment order was not set aside to enable the Assessing Officer to re frame the assessment; the order passed by the first appellate authority was only to enable to the Assessing Officer to vary the assessment originally made and not to take a re look at all the issues which were considered in the original assessment order. Paragraph-2 of Circular No.334 is relevant in this context and hence reproduced for immediate reference:
“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 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 re framed, 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 s. 220(2) will be computed with reference to the due date 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.”
As could be noticed from paragraph 2(ii) of the Circular, whenever an assessment is partly set aside, interest payable under Section 220(2) of the Act has to be computed with reference to the due date reckoned from the original demand notice and with reference to the tax finally determined. The Board also clarified that the fact that during the intervening period there was no tax payable by the assessee under any operative order would make no difference to this position. 11. In the rase of Vikrant Tyres (supra), the Apex Court was concerned with the situation where a demand raised under Section 156 of the Act was fully complied with and thereafter, on an appeal filed by the assessee certain relief was granted by the appellate authority and consequent thereto, the assessee became entitled to refund and accordingly a portion of the amount collected was refunded by the Assessing Officer. However, subsequent to the date of refund, on a further appeal filed at the instance of the Revenue, the original assessment order was revived and the old demand got revived by which the assessee became liable to pay tax and thus a question arose as to whether the old demand notice gets revived by virtue of Section 3(2) of the Taxation Laws (Continuation & Validation of Recovery-Proceeding s) Act, 1964. Under the peculiar circumstances of the case, on a proper analysis of the provisions of the afore-mentioned Act, the Apex Court observed that if there is no default on the part of the assessee to comply with the notice of the demand, then the provisions of the Validation Act shall not apply. In other words, if there is default on the part of the assessee to comply with the original demand notice, the provisions of the Validation Act shall apply. Since in the aforementioned case the assessee complied with the demand notice the Apex Court opined that the liability arising on account of a consequential order passed by the Assessing Officer would not revive the original demand notice and interest, if any, has to be charged with reference to the fresh demand notice only. Under similar facts and circumstances, the Honourable Andhra Pradesh High Court in the case of SMS Schloeniann Siemag A.G. v. D.C.I T. (250 ITR 97) interpreted the provisions of the Validation Act in favour of the assessee.
12. In the case of Smt. B. Indira Ram(supra) the Honourable Kerala High Court has not taken notice of the decision of the Apex Court in the case of Vikrant Tyres (supra) and decided the issue on different lines confining itself to the narrow issue as to whether the demand notice issued upon passing the consequential order can be equated to intimation of giving effect, to the appellate order or a fresh demand notice. It may be noticed that the first appellate authority has not decided the issue on those lines and, in fact, there was no reference to the decision of the Apex Court in the case of Vikrant Tyres (supra) and thus the decision of Kerala High Court is distinguishable on facts.
13. The I.T.A.T., Visakhapatnam Bench, in the case of The KCP Ltd. (I.T.A. No. 210 /V/ 2005, date 20.6.2008) had an occasion to consider an identical issue wherein, upon an analysis of the provisions of the Validation Act and the decision of the Apex Curt in the case of Vikrant Tyres (supra), the Bench concluded that wherever there is a default on the part of the assessee to comply with the original demand notice, the provisions of Validation Act shall apply and interest is chargeable on the basis of the original notice of demand though such interest has to be calculated with reference to the tax finally determined. The Circular issued by the C.B.D.T., as applied by the Apex Court, is dear on this issue.
14. As already noticed in the afore-mentioned paragraphs, the order date 23.1.1992 passed by the CTT(A) does not amount to cancellation/ setting aside of the assessment order so as to fall in the category of cases mentioned in paragraph 2(i) of the Circular in view of the fact that certain issues raised by the assessee were not accepted by the learned CIT(A). The direction by the CIT(A) would only enable the Assessing Officer to vary the assessment order on certain issues and thus the case of the assessee falls within the parameters specified in paragraph 2(ii) of the Circular. Such being the case, consistent with the view taken by the Apex Court in the case of Vikrant Tyres (supra) and also in the light of the analysis made by us in the case of The KCP Ltd. (supra), we hold that interest is chargeable under Section 220(2) of the Act with reference to the due date reckoned from the original demand notice and with reference to the tax finally determined. It may be clarified here that in the order date 25.3.1991 the total tax demand works out to Rs. 39,65,816/- and in the order date 28.3.1994 the demand was enhanced to Rs. 46,25,976/- whereas, as could be noticed from the order date 30.4.2001 passed by the Joint Commissioner of Income Tax (Assessments) the assessee has not paid the tax demanded as per the original assessment order till 11.10.1996 and thus it can be said that there was default on the part of the assessee to comply with the original notice of demand and hence the provisions of Validation Act applies to the instant case; consequently, interest is chargeable under Section 220(2) of the Act with reference to the due date reckoned from the original demand notice.
