TMI Blog2008 (6) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax (Appeals) vide his appellate order dated May 20, 2000, and there remained no outstanding demand prior to passing of consequential order under section 254 in a unilateral manner, to give effect to the Tribunal's order in the appeal preferred by the Revenue. 2. That the learned Commissioner of Income-tax (Appeals) erred in law and on facts in holding that the order passed under section 154 is a speaking order and gives out reasons, which, even if debatable and there is certainly not any mistake apparent from the record. 3. That the appellant reserves its right to add, amend, modify any ground before final adjudication of the appeal." The return of income in the present case was filed at a sum of Rs. 37,32,858 plus agricultural income of Rs. 1,85,806 on June 27, 1997. The tax including interest was calculated by the assessee to be a sum of Rs. 14,82,890 against which the pre-paid taxes were Rs. 14,99,821 (this fact is mentioned in the statement of facts filed before the Commissioner of Income-tax (Appeals)). Thus, leaving an excess payment of a sum of Rs. 16,931 which was claimed as refund by the assessee. Assessment under section 143(3) was made on March 29, 2000, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding with the Assessing Officer; (ii) the stay was granted by the Commissioner of Income-tax (Appeals) and (iii) the deletion of entire addition by Commissioner of Income-tax (Appeals), it was contended that after the order of the Commissioner of Income-tax (Appeals) in quantum appeal, nothing was found due against the assessee and the demand against the assessee was revived only after the order passed by the Tribunal, therefore, the assessee cannot be charged with the interest levied under section 220(2). To contest the levy of interest, the assessee had filed an appeal before the Commissioner of Income-tax (Appeals) and simultaneously an application was also filed before the Assessing Officer under section 154. The application filed by the assessee against levy of the interest is rejected by the Assessing Officer as according to him, as per the Board's Circular No. 334 dated April 3, 1982 ([1982] 135 ITR (St.) 10), in case the assessment order passed by the Assessing Officer is set aside by one appellate authority, but on further appeal the order setting aside is reversed by the second appellate authority, the demands get finally determined and interest under section 220(2) is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of India [1999] 239 ITR 69 (MP). In this manner the Commissioner of Income-tax (Appeals) has upheld the levy of interest under section 220(2). The learned authorised representative after narrating the sequence of events pleaded that no demand existed against the assessee for the period from May 16, 2000 to January 4, 2005. Therefore, levy of interest under section 220(2) is contrary to law. He pleaded that the circular referred to by the Assessing Officer gives the view of the Department and the taxing provisions have to be construed regardless of the views expressed in the circular. It was pointed out that the assessee had presented an appeal under section 246A and had applied for grant of stay of demand. The Assessing Officer was legally bound to dispose of the application of the assessee and inaction on the part of the Assessing Officer is equivalent to deemed stay of demand without any condition. It was contended that even the Commissioner of Income-tax (Appeals) did not impose any condition while granting the stay. Thus, it was pleaded that the assessee cannot be treated to be in default, at least for the period from April 1, 2000, (after expiry of 30 days from the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or would cause genuine hardship to the assessee and also that the default in payment of outstanding demand on which the interest is paid or payable was due to circumstances beyond the control of the assessee and the assessee had co-operated in the inquiry relating to the assessment or in proceedings for the recovery of any amount due from him. The learned Departmental representative pleaded that though the power is vested with the Assessing Officer to extend the due date of payment under sub-section (3) of section 220, but it is in the sole discretion of the Assessing Officer to extend the time of payment or to allow payment by instalments subject to conditions as he may think fit in the circumstances of the case. He contended that even sub-section (3) does not give power to the Assessing Officer to reduce or to waive or not to charge interest as levied under sub-section (2) of section 220 as according to the decision of the hon'ble Supreme Court in the case of Anjum M.H. Ghaswala [2001] 252 ITR 1, the levy of interest is mandatory as the word used in the statute is "shall". He contended that according to sub-section (4) of section 220, if the assessee fails to pay the amount sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under section 220(2) of the Income-tax Act, 1961. (ii) Bharat Commerce and Industries Ltd. v. Union of India [1991] 188 ITR 277 (Delhi) wherein it was held that when the Tribunal restored the original assessment order of the Assessing Officer by setting aside the order of the Commissioner of Income-tax (Appeals), interest was chargeable under section 220(2) in respect of non-payment of 'tax as per the Income-tax Officer's order and interest under section 220(2) is not penal in nature. Thus learned Departmental representative pleaded that the Commissioner of Income-tax (Appeals) was right in upholding the levy of interest which is in accordance with the scheme of the provisions of section 220 as well as the decisions relied upon by him. We have carefully considered the rival submissions in the light of the material placed before us. One of the reasons given by the Assessing Officer for justifying the levy of interest under section 220(2) and rejecting the application filed by the assessee under section 154 is that levy of interest under section 220(2) is in accordance with Circular No. 334 dated April 3, 1982 ([1982] 135 ITR (St.) 10). The text of such Circular is as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the notice of demand shall be paid within such period being a period less than the period of thirty days aforesaid, as may be specified by him in the notice of demand. (2) If the amount specified in any notice of demand under section 156 is not paid within the period limited under sub-section (1) the assessee shall be liable to pay simple interest at one per cent. with effect from September 8, 2003, for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid: Provided that, where as a result of an order under section 154, or section 155, or section 250 or section 254, or section 260, or section 262, or section 264 or an order of the Settlement Commission under sub-section (4) of section 245(D), the amount on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded." The provisions of section 220(2) had come up for consideration before the hon'ble Supreme Court in the case of Vikrant Tyres Ltd. [2001] 247 ITR 821 and it was o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed representative that at least for the period from the date of the order of the Commissioner of Income-tax (Appeals) till the date of the order of the Tribunal, interest should not be levied as during that period no demand whatsoever was outstanding against the assessee. It is a fact that the assessee did not make payment of taxes as required to be paid as per demand notice issued by the Department under section 156 in pursuance of the assessment framed on March 29, 2000, and which was served on March 31, 2000. Filing of stay application with the Assessing Officer or the Commissioner of Income-tax (Appeals) does not mitigate the default of the assessee of non-payment of tax according to demand notice issued and served under section 156. The consequence of stay was that for the purpose of levy of penalty under section 221 the assessee may not be considered to be the assessee in default which is a condition precedent for holding the assessee liable for penalty under section 221. So as it relates to levy of interest under section 220(2), grant of stay has no role to play. The nature of interest to be levied under section 220(2) is compensatory in nature and is also mandatory as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liament has enacted the Validation Act, and the statement of objects and reasons reads thus: Recently in the case of ITO v. Seghu Buchiah Setty [1964] 52 ITR 538, the Supreme Court had occasion to consider the scope of sections 29 and 45 of the Indian Income-tax Act, 1922, and it has been held in that case that when a demand levied by the Income-tax Officer as a result of an assessment is varied by an appellate or revising authority, the original order of the Income-tax Officer merges into the order of such authority and, consequently, in all cases of an order varying the assessment, the original order goes and all steps already taken for the recovery of the demand become null and void and that in such cases it is the duty of the Income-tax Officer to issue a fresh notice of demand in the prescribed form and serve it upon the assessee. Though the judgment is with reference to the Indian Income-tax Act, 1922, which has been repealed but kept alive only for some limited purposes, the same interpretation may hold good with respect to the corresponding provisions in the Income-tax Act, 1961 and in the other Acts relating to the imposition of direct taxes. 2. The above decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any Government dues under that Act; (e) 'Tax Recovery Officer', in relation to any scheduled Act, means a Tax Recovery Officer as defined in that Act and where there is no such definition, means an officer (by whatever name called) to whom a certificate for the recovery of arrears of Government dues may be issued under that Act." Section 3 of the Validation Act reads thus: "3. Continuation and validation of certain proceedings.-(1) Where any notice of demand in respect of any Government dues is served upon an assessee by a Taxing Authority under any scheduled Act, and any appeal or other proceeding is filed or taken in respect of such Government dues, then,- (a) where such Government dues are enhanced in such appeal or proceeding, the Taxing Authority shall serve upon the assessee another notice of demand only in respect of the amount by which such Government dues are enhanced and any proceedings in relation to such Government dues as are covered by the notice or notices of demand served upon him before the disposal of such appeal or proceeding may, without the service of any fresh notice of demand, be continued from the stage at which such proceedings stood immediately bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y order passed in any appeal or other proceeding under any scheduled Act. (3) The provisions of this section shall have effect notwithstanding any judgment, decree or order of any court, the Tribunal or other authority." The above provisions of the Validation Act have been interpreted and explained by their Lordships of the hon'ble Supreme Court in the case of Vikrant Tyres Ltd. [2001] 247 ITR 821 and for the sake of convenience the relevant observations from the said decision are reproduced below: "9. The High Court also fell in error in relying on section 3 of the Validation Act to construe section 220(2) in the manner in which it has done in the impugned judgment. Section 3 of the Validation Act, in our opinion, cannot be relied upon to construe the authority of the Revenue to demand interest under section 220 of the Act. The said section was enacted to cope up with a different fact-situation. That section only revives, the old demand notice which had never been satisfied by the assessee and which notice got quashed during some stage of the challenge and finally the said quashed notice gets restored by an order of a higher forum. In such a situation, section 3 of the Valid ..... X X X X Extracts X X X X X X X X Extracts X X X X
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