2022 (11) TMI 640 - HC - Income Tax

Levy of interest invoking Section 220(2) - Interest on interest by the respondents u/s 220(2) - main contention of the appellants is that consequent upon the assessment the appellants have paid the tax including penalty and interest as demanded by the Department and therefore levy of interest invoking Section 220(2) was not only harsh but also amounts to interest on interest as interest computed under Sections 234(A) 234(B) and 234(C) - HELD THAT - The appellants are under an erroneous belief that they have been wrongly foisted with interest on interest by the respondents under Section 220(2) of the Income Tax Act 1961. A reading of the provision of the Income Tax Act 1961 makes it very clear that non submission of returns and non-payment of tax in time attracts penalty and interest. To be eligible for the benefit of waiver under Section 220(2A) of the Income Tax Act 1961 the appellants have to satisfy the requirement of the said provision. The authority has rightly come to the conclusion that the appellants have not satisfied the requirement of Section 220(2A) - Therefore the appellants are liable to pay the amount demanded by the Department. The appellants cannot blame the income tax department for the delay in refund of the amounts to the company of which the appellants are directors. The appellants and the company are two separate and distinct assessees. Further the amount was demanded based on search conducted. None of the limbs of Section 220(2A) of the Income Tax Act 1961 has been satisfied by the appellants to claim waiver. There is no error apparent on the face of record in the order passed by the learned single Judge while rejecting the request of the appellants. Appeal dismissed.

Summary

Issues:
1. Challenge to common order dated 30.06.2022 in Writ Appeals
2. Appellants' contention on interest levied by the Department
3. Appellants' argument on waiver under Section 220(2A) of the Income Tax Act, 1961
4. Respondents' submission on the appellants' case
5. Interpretation of Section 220(2A) of the Income Tax Act, 1961
6. Satisfaction of conditions for waiver under Section 220(2A)

Analysis:

1. The appellants challenged a common order dated 30.06.2022 in Writ Appeals, where the learned Single Judge dismissed the writ petition. The Judge observed that the tax demand arose from admitted income, and since the tax and interest were paid belatedly, the writ petitions were dismissed.

2. The appellants contended that the Department levied interest on interest and sought waiver under Section 220(2A) of the Income Tax Act, 1961. They argued that paying tax, penalty, and interest belatedly should not result in interest on interest, as they had already paid interest under other sections.

3. The main contention of the appellants was that they paid the tax and interest demanded by the Department after assessment. They claimed that if the Department had refunded the amount to the company in time, they could have settled their tax liability promptly, making the interest levy harsh and amounting to interest on interest.

4. The respondents argued that the appellants admitted to the tax after a search, paid the amount, and completed the assessment, which had finality. They contended that the appellants paid the entire amount late and that there was no interest on interest, as interest was consequential.

5. The Court examined Section 220(2A) of the Income Tax Act, 1961, which allows for reduction or waiver of interest if certain conditions are met. The appellants needed to demonstrate genuine hardship, default beyond their control, and cooperation in inquiries to qualify for waiver.

6. The Court found that the appellants did not satisfy the requirements of Section 220(2A) for waiver. It concluded that the appellants were distinct from the company to which the refund was due, and the demand was based on a search, not additions to income. As a result, the Court upheld the decision to reject the appellants' request for waiver.