TMI Blog1997 (11) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... s were made for the assessment years 1985-86, 1986-87, 1987-88, 1988-89 and 1989-90. The assessment in the case of the firm was originally made for the assessment year 1985-86 on March 28, 1988, determining the total tax, inclusive of interest under sections 139(8) and 217 of the Income-tax Act, 1961 (hereinafter referred to as the "Act" in short), at Rs. 8,55,830. It is alleged that the said demand was reduced to Rs. 1,61,374. It is also alleged that prior to creation of demand by order dated January 30, 1996, petitioner No. 1 had paid tax amounting to Rs. 1,63,489. Interest was calculated at Rs. 83,213 counting the period from the original order dated March 28, 1988, to January 30, 1996. It is alleged that since the demand was created only on January 30, 1996, interest under section 220(2) of the Act could be charged from the date provided the demand is not paid. A detailed chart has been placed on record showing the order for the assessment year 1985-86, date of the notice of demand, date of its service, total income assessed and the amount payable according to the orders together with interest and the net amount payable. Similar details are also given in respect of petitioner N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 245D, 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 : Provided further that in respect of any period commencing on or before the 31st day of March, 1989, and ending after that date, such interest shall, in respect of so much of such period as falls after that date, be calculated at the rate of one and one-half per cent. for every month or part of a month." The Central Board of Direct Taxes has also issued a Circular No. 334, dated April 3, 1982 (annexure P-31), which reads as under : "Circular No. 334, dated 3rd April, 1982. To All Commissioners of Income-tax. Sir, Subject : Levy of interest under section 220(2) when the original assessment is set aside---Instructions regarding. Doubts have been raised as to the quantum of interest chargeable under section 220(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer has any reason to believe that it will be detrimental to the Revenue if the full period of thirty days aforesaid is allowed, he may, with the previous approval of the Deputy Commissioner, direct that the sum specified 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. Sub-section (2) says that 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 1 1/2 per cent. 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. The rate of interest, of course, was amended by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. Prior to this, the rate of interest was 15 per cent. per annum from the day commencing after the end of the period mentioned in sub-section (1). The proviso further lays down that where as a result of an order passed under section 154, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in case the Assessing Officer passed an order and demand notice is issued on the basis of assessment order, then the assessment order in appeal is set aside by the Commissioner of Income-tax (Appeals) and then automatically the demand raised by the Assessing Officer in pursuance of the assessment order will stand merged in the appellate order and that demand will cease to exist. In case the order of the Commissioner of Income-tax (Appeals) on appeal by the Revenue or the assessee is set aside then the order of the Assessing Officer is restored back and automatically the demand raised by the Revenue on the basis of the assessment will revive and the assessee will be liable to pay interest on that demand. This is so because of the principle of merger. But here, we would like to add that this would only apply with regard to the original assessment made by the Assessing Officer and the same being confirmed. It is possible that the assessment orders some times is affirmed by the appellate authority and sometimes it is reversed and some times, the Tribunal can take a different view in the matter and it can remand the case and direct to make fresh enquiry on certain items which was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount, the Department claimed interest under section 220(2) of the Income-tax Act, 1961, from the petitioner. The petitioner contended that since the Appellate Assistant Commissioner had set aside the assessment order in respect of the petitioner, no interest was payable by him on the tax demanded and his liability arose only upon the final order of the Tribunal. It was also held by the Kerala High Court that the finality of the assessment order of the Income-tax Officer, was qualified by and subject to appeal, which was taken before the Appellate Assistant Commissioner. The order of the Appellate Assistant Commissioner itself was likewise provisional during the period allowed for filing an appeal or during the pendency of the appeal. When the order of the Appellate Assistant Commissioner concerning the petitioner was finally set aside by the Tribunal, thereby affirming the order of the Income-tax Officer, the finality of the order of the Income-tax Officer was affirmed. Therefore, for the period commencing from the order of the Appellate Assistant Commissioner and ending with the order of the Tribunal, the assessment order of the Income-tax Officer must be deemed to have operated ..... X X X X Extracts X X X X X X X X Extracts X X X X
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