Karnal Coop. Sugar Mills Ltd. Vs CIT (Punjab and Haryana High Court)
The petitioner, Karnal Cooperative Sugar Mills Ltd., filed a writ petition under Articles 226/227 of the Constitution of India seeking quashing of the order dated 07.12.1998 issued by the Joint Commissioner of Income Tax, Karnal, which demanded interest of ₹74,68,389 under Section 220(2) of the Income Tax Act, 1961.
The petitioner, a cooperative society registered under the Haryana Cooperative Societies Act, 1984, was initially assessed under Section 143(3) of the Income Tax Act on 08.12.1994, resulting in a demand of ₹1,24,40,631. Pursuant to the demand notice dated 14.12.1994 issued under Section 156, the petitioner paid ₹82,93,600 by 28.02.1995. Subsequently, the Commissioner of Income Tax (Appeals) allowed the petitioner’s appeal on 25.07.1995, leading the department to refund the amount deposited along with statutory interest of ₹6,63,488. Meanwhile, the Revenue filed an appeal before the Income Tax Appellate Tribunal (ITAT), which was allowed on 23.02.1998. The Assessing Authority thereafter issued a fresh notice dated 07.09.1998, demanding ₹1,31,04,719, including the previously paid interest. After the petitioner discharged this demand, the impugned order dated 07.12.1998 levied additional interest of ₹74,68,389 under Section 220(2).
The petitioner contended that the impugned interest demand was invalid. It argued that under Section 220(2), interest accrues only when tax is not paid within 30 days of a notice issued under Section 156. Since the original notice of 14.12.1994 had ceased to exist after the Commissioner (Appeals) set aside the assessment and the refund was granted, a new notice issued on 07.09.1998 became operative after the ITAT’s order. Hence, liability for interest could only arise after the expiry of 30 days from the fresh notice.
