2008 (10) TMI 284 - AT - Income Tax

Summary

Issues Involved:
1. Interest charged u/s 220(2) of the Income-tax Act, 1961.
2. Applicability of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964.
3. Interpretation of appellate orders and their impact on original assessment orders.

Summary:

Issue 1: Interest charged u/s 220(2) of the Income-tax Act, 1961
The appeal concerns the cancellation of interest charged by the Assessing Officer (AO) u/s 220(2) of the Income-tax Act, 1961. The Commissioner of Income-tax (Appeals) [CIT(A)] had set aside the interest charged by the AO, prompting the Revenue to appeal. The AO had charged interest from the due date of the original demand, which the CIT(A) deemed incorrect.

Issue 2: Applicability of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964
The Revenue argued that the original demand gets restored upon passing a consequential order by the AO, as per the Validation Act, and thus interest u/s 220(2) was correctly charged from the original due date. The CIT(A)'s order was seen as a modification rather than a fresh order, implying that the original demand notice remained effective.

Issue 3: Interpretation of appellate orders and their impact on original assessment orders
The CIT(A) had set aside the assessment on specific issues, leading to a recomputation of income. The assessee contended that the entire order was set aside, and interest should be charged only from the date of the consequential order. The Tribunal noted that the CIT(A) had not set aside the entire assessment but only directed modifications on certain issues. Therefore, the original demand notice remained valid, and interest was chargeable from the original due date.

Conclusion:
The Tribunal concluded that the provisions of the Validation Act apply, and interest u/s 220(2) is chargeable from the original demand notice's due date. The CIT(A)'s order was reversed, and the appeal filed by the Revenue was allowed. The Tribunal emphasized that the original assessment order was not entirely set aside, and the modifications directed by the CIT(A) did not nullify the original demand notice. Consequently, interest was correctly charged from the original due date.