Pr. Commissioner Of Income Tax-1 v. M/S At And T Communication Services(India) Pvt. Ltd

$~ * IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 428/2022 PR. COMMISSIONER OF INCOME TAX-1 ..... AppellantThrough:Mr.SanjayKumar,Sr.StandingCounsel for the Revenue with Ms.Easha Kadian, Advocate. versus M/S AT AND T COMMUNICATION SERVICES(INDIA) PVT. LTD. ..... RespondentThrough:Mr. Sachit Jolly with Ms. DishaJham, Advocates. %Reserved on: 01[st]November, 2022Date of Decision: 17[th]November, 2022 CORAM:HON'BLE MR. JUSTICE MANMOHANHON'BLE MS. JUSTICE MANMEET PRITAM SINGH ARORA J U D G M E N T MANMEET PRITAM SINGH ARORA, J: 1.Present appeal has been filed by the Revenue under Section 260A ofthe Income Tax Act (‘Act’) challenging the order dated 10[th]November,2021 passed by the Income Tax Appellate Tribunal (‘ITAT’) in ITA No.5781/Del/2017 for the Assessment Year (‘AY’) 2004-05. 2.Briefly stated, the pertinent facts are that, the Assessee is engaged inthe business of network design, management, communication, connectivityservices and related products. The Assessee filed its return of income for therelevantyearon30[th]October,2004declaringanincomeof Rs.29,30,15,180/-, however, the income of the Assessee was assessed at Rs.32,15,72,740/- by the Assessing Officer (‘AO’) vide original assessmentorder dated 28[th]December, 2006. 2.1.Aggrieved by the said order, the Assessee filed an appeal before theCommissioner of Income Tax (Appeals), [‘CIT(A)’], which upheld the orderof the AO and confirmed the additions. Thereafter, an appeal arose beforethe ITAT and the Tribunal vide its order dated 30[th]September, 2014, setaside the original assessment order dated 28[th]December, 2006, and restoredthe matter to the file of the AO for determining the issue of taxability of theamounts received as brand building fund, the allowability of brand buildingexpenses as well as a separate claim for other expenses. 2.2.On remand, the AO on the 29[th]March, 2016 reframed the assessmentand passed a fresh assessment order under Section 143(3) of the Act readwith Section 254 of the Act. The AO reconfirmed the disallowance of brandexpenses for a sum of Rs.2,66,42,537/- and the total income was determinedas Rs. 31,96,57,720/-. 2.3.In the Income Tax Computation Form (ITNS 50) issued pursuant tothe aforesaid assessment order, the AO levied interest under Section 220(2)of the Act and raised a demand of Rs. 1,75,74,756/- computed on the basisof the original assessment order dated 28[th]December 2006. 2.4.It is the levy of interest under Section 220(2) of the Act, which is thesubject matter of controversy in the present appeal. 2.5.Aggrieved by the aforesaid levy of interest and the assessment orderdated 29[th]March, 2016, the Assessee challenged the same before theCIT(A). The CIT(A) vide order dated 12[th]June, 2017 allowed the appeal of the Assessee and deleted the levy of interest under Section 220(2) of theAct. 2.6.Aggrieved by the order of the CIT(A), deleting the levy of interest,the Revenue filed an appeal before the ITAT. The ITAT vide the impugnedorder dated 10[th]November, 2021 dismissed the appeal and held that theinterest under Section 220(2) of the Act can be charged only after expiry ofthe period of 30 days from the date of service of demand notice issuedpursuant to the fresh assessment order dated 29[th]March, 2016. 2.5.Aggrieved by the aforesaid levy of interest and the assessment orderdated 29[th]March, 2016, the Assessee challenged the same before theCIT(A). The CIT(A) vide order dated 12[th]June, 2017 allowed the appeal of the Assessee and deleted the levy of interest under Section 220(2) of theAct. 2.6.Aggrieved by the order of the CIT(A), deleting the levy of interest,the Revenue filed an appeal before the ITAT. The ITAT vide the impugnedorder dated 10[th]November, 2021 dismissed the appeal and held that theinterest under Section 220(2) of the Act can be charged only after expiry ofthe period of 30 days from the date of service of demand notice issuedpursuant to the fresh assessment order dated 29[th]March, 2016. 3.Learned counsel for the Revenue states that the ITAT erred in holdingthat the interest under Section 220(2) is chargeable only from the datefalling 30 days after service of the notice of demand as a result of freshassessment order under 254/143(3) of the Act, ignoring the proviso toSection 220(2) that mandates that the interest is only required to be reducedas a result of reduction in the income under Section 254. Further, he statesthat the ITAT failed to note that the original assessment dated 28[th]December, 2006 in the present case, was neither cancelled nor fully setaside. He states that the interest under Section 220(2) of the Act is attractedfrom the expiry of the period of 30 days from the issuance of the income taxcomputation form, even after the matter was remanded by the tribunal to theAO for fresh consideration, inasmuch as the tax liability of the Assessee onremand remained the same and addition remained under the same head, theAssessee is liable to pay interest in relation to the demand issued pursuant tothe original assessment order dated 28[th]December, 2006. He relied on thejudgment of the Supreme Court in the matter of Vikrant Tyres Ltd. v. FirstIncome Tax Officer, Mysore, (2001) 3 SCC 76. 4.In reply, the learned counsel for the Respondent, Assessee, states thatthe AO erred in charging interest of Rs. 1,75,74,756/- under Section 220(2)of the Act without acknowledging the settled position of law that where anissue arising out of the original assessment is restored to the file of AO bythe higher appellate authorities, there is an extinguishment of the originaldemand i.e., the demand raised vide the first assessment order dated 28[th]December, 2006. He states that the fresh assessment was framed on 29[th]March 2016 under Section 143(3) read with Section 254 of the Act anddemand notice was issued pursuant thereto, therefore, interest cannot becharged for the period prior to the issue of the fresh demand notice. Thelearned counsel for the Respondent, Assessee, placed reliance on the CBDTCircular No. 334, dated 3[rd]April, 1982 and the judgment of the RajasthanHigh Court in the case of Commissioner of Income Tax v. Rajesh KumarDinesh Kumar, [2010] 325 ITR 346 and stated that since the assessmentorder was reframed, interest under Section 220(2) of the Act can only becharged after the expiry of 30 days from the date of service of demandnotice pursuant to the fresh assessment order. 5.We have heard the learned counsel for the parties. The issue arising inthe present appeal is, whether interest can be charged under Section 220(2)of the Act from the date of the original assessment order, if the originaladditions are reiterated by the AO on remand in the reframed assessmentorder? 5.1.The facts in the present case are not disputed. In the appeal filed bythe Assessee before the ITAT [in the first round], the ITAT by its orderdated 30[th]September, 2014 allowed the appeal and remanded the matter to the file of the AO to determine the taxability of the funds received by theAssessee and allowability of expenses claimed, in effect on allowing thesaid appeal, the ITAT set aside the original assessment order dated 28[th]December, 2006. 5.We have heard the learned counsel for the parties. The issue arising inthe present appeal is, whether interest can be charged under Section 220(2)of the Act from the date of the original assessment order, if the originaladditions are reiterated by the AO on remand in the reframed assessmentorder? 5.1.The facts in the present case are not disputed. In the appeal filed bythe Assessee before the ITAT [in the first round], the ITAT by its orderdated 30[th]September, 2014 allowed the appeal and remanded the matter to the file of the AO to determine the taxability of the funds received by theAssessee and allowability of expenses claimed, in effect on allowing thesaid appeal, the ITAT set aside the original assessment order dated 28[th]December, 2006. 5.2.Pursuant to the said remand, the AO on 29[th]March, 2016, reframedthe assessment order and re-confirmed the said two additions. The AO,therefore, passed a fresh assessment order dated 29[th]March, 2016, underSection 143(3) read with Section 254 of the Act. However, the AO whilepreparing the consequent Income Tax Computation Form i.e., I.T.N.S.-150included therein a demand for interest under Section 220(2) of the Act,which relates back to the original assessment order dated 28[th]December,2006. 5.3.The Revenue’s basis for raising the said demand for interest inI.T.N.S.-150 on the basis of the original assessment order is that, since thetax liability of the Assessee remained the same even after the matter wasremanded by the ITAT to AO for fresh consideration and the additionremained under the same head, the Assessee is liable to pay interest inrelation to the demand issued pursuant to the original assessment order. 5.4.On appeal, the CIT(A) deleted the demand of interest, placing reliancein the order of the ITAT Mumbai in the case of Addl. CIT v. HindalcoIndustries Ltd. 4 SOT 757 and the CBDT Circular No. 334, dated 3[rd]April,1982 and observed that, the original assessment order was set aside by theITAT Delhi Bench with the direction to reframe the same, thereafter, a freshassessment order was passed on 29[th]March, 2016, therefore, interest underSection 220(2) can be levied only after expiry of the time limit prescribed in the fresh demand notice issued by the AO on 29[th]March 2016. Aggrievedthe revenue filed an appeal before the ITAT and the ITAT upheld thedeletion by the CIT(A). 6.We are of the considered view that the aforesaid submission of theRevenue has no basis in law and the CIT(A) as well as the ITAT were rightin deleting the addition under Section 220(2). The Revenue has relied uponthe Section 220(2) of the Act for raising the demand for interest on the basisof the original assessment order dated 29[th]December, 2006. However, thesaid original assessment order was admittedly set aside by the ITAT videorder dated 30[th]September, 2014 and upon such setting aside, the saidassessment order ceased to exist. The ITAT had remanded back thetaxability of the said additions to the file of the AO; and the AO reframedhis assessment and passed a fresh order on 29[th]March, 2016. 7.The relevant date for charging interest under Section 220(2) of theAct, in the facts of this case, is to be determined as per the date of demandnotice raised pursuant to the fresh assessment order i.e. 29[th]March, 2016. 8.The liability of Assessee to pay interest under Section 220(2) of theAct can be levied only after expiry of the time limit prescribed in the freshdemand notice issued by the AO in pursuance to the fresh reframedassessment order dated 29[th]March, 2016. The reframed order is thesubsisting assessment order in the facts of this case. 9.The contention of the Revenue that the Assessee is liable to payinterest in relation to the demand issued pursuant to the original assessmentorder, if on a remand, the addition remained under the same head has nobasis in law. Section 220(2) of the Act does not contemplate a levy of Signature Not Verified 8.The liability of Assessee to pay interest under Section 220(2) of theAct can be levied only after expiry of the time limit prescribed in the freshdemand notice issued by the AO in pursuance to the fresh reframedassessment order dated 29[th]March, 2016. The reframed order is thesubsisting assessment order in the facts of this case. 9.The contention of the Revenue that the Assessee is liable to payinterest in relation to the demand issued pursuant to the original assessmentorder, if on a remand, the addition remained under the same head has nobasis in law. Section 220(2) of the Act does not contemplate a levy of Signature Not Verified interest which relates back to the date of the passing of original order (whichwas subsequently set aside by appellate authorities) or applies to pendencyof proceedings. Therefore, the AO was not justified in levying the interest ofRs. 1,75,74,756/- under Section 220(2) of the Act. 10.This also becomes clear from the Circular No. 334 dated 03[rd]April, 1982, which reads as under:- “1211. Levy of interest under sub-section (2) when original assessment isset aside/cancelled 1. Doubts have been raised as to the quantum of interest chargeable undersection 220(2) when the original assessment order passed by the Income-taxOfficer is- (a) Cancelled by him under section 146; (b) set aside/cancelled by an appellate/revisional authority and suchappellate/revisional order has become final; orappellate/revisional order has become final; or (c) set aside by one appellate authority but, on further appeal, the ordersetting aside the assessment is varied by the second appellate authorityand the demand gets finally determined.setting aside the assessment is varied by the second appellate authorityand the demand gets finally determined. 2. These issues were comprehensively examined in consultation with theMinistry of Law and the Board has been advised: 1.Where an assessment order iscancelled under section 146 orcancelled/set aside by an appellate/revisional authority and thecancellation/setting aside becomes final (i.e.. it is not varied as aresult of further appeals/revisions),no interest under section 220(2)can be charged pursuant to the original demand notice. Thenecessary corollary of this position will be that even when theassessment is reframed, interest can be charged only after theexpiry of 35 days from the date of service of demand noticepursuant to such fresh assessment order.cancelled/set aside by an appellate/revisional authority and thecancellation/setting aside becomes final (i.e.. it is not varied as aresult of further appeals/revisions),no interest under section 220(2)can be charged pursuant to the original demand notice. Thenecessary corollary of this position will be that even when theassessment is reframed, interest can be charged only after theexpiry of 35 days from the date of service of demand noticepursuant to such fresh assessment order. 2. Where the assessment made originally by the Income-tax Officer iseither varied or even set aside by one appellate authority but on furtherappeal, the original order of the Income-tax Officer is restored either inpart or wholly, the interest payable under section 220(2) will becomputed with reference to the due date reckoned from the originaldemand notice and with reference to the tax finally determined. Thefact that during an intervening period, there was no tax payable by theeither varied or even set aside by one appellate authority but on furtherappeal, the original order of the Income-tax Officer is restored either inpart or wholly, the interest payable under section 220(2) will becomputed with reference to the due date reckoned from the originaldemand notice and with reference to the tax finally determined. Thefact that during an intervening period, there was no tax payable by the assessee under any operative order would make no difference to thisposition.position. 3. The foregoing legal position will apply mutatis mutandis to theproceedings under other direct taxes also.proceedings under other direct taxes also. assessee under any operative order would make no difference to thisposition.position. 3. The foregoing legal position will apply mutatis mutandis to theproceedings under other direct taxes also.proceedings under other direct taxes also. Circular: No. 334 (F. No. 400/3/81-ITCC), dated 3-4-1982.” (Emphasis Supplied) Para 2.1 of the said Circular expressly states that if the assessment order is‘set aside’ by the appellate authority, no interest under Section 220(2) of theAct can be charged pursuant to the original demand notice. The judgment ofthe Rajasthan High Court in Commissioner of Income tax v. Rajesh KumarDinesh Kumar, [2009] 221 CTR 78 (Rajasthan) relied upon by the learnedcounsel for the Assessee also refers to the said Circular to hold that nointerest is payable on the demand raised by the original order when theoriginal order of the AO is set aside by the appellate authority and a freshassessment order is passed. Similarly, the Bombay High Court in the case ofCommissioner of Income-tax-1, Mumbai v. Chika Overseas (P.) Ltd.,[2012] 23 taxmann.com 315 (Bom.)held that an Assessee is liable to payinterest under Section 220(2) of the Act from the end of the periodmentioned under Section 220(1) of the Act i.e., thirty (30) days after serviceof the notice of the fresh assessment order. 11.Learned counsel for the Revenue has relied upon the judgment of theSupreme Court in Vikrant Tyres Ltd. (supra.) However, the issue arising forconsideration before the Supreme Court was distinct. The question framedfor the consideration before the apex Court in the said judgment was asfollows: Signature Not Verified “… 8. … The question, therefore, is: whether the Revenue is entitled to demandinterest in regard to the amount which was refunded to the assessee by virtueof the judgment of the Appellate Authority and which was repaid to theRevenue after decision in the reference by the High Court on fresh demandnotices being issued to the assessee… …” In the aforementioned case, the demand notices issued under Section156(1) of the Act had been satisfied by the Assessee and nothing was duepursuant to the said demand notice. However, after the judgment of theappellate authority, which went in favour of the Assessee, the Revenuerefunded the amount due as per the said order of the authority. Thereafter,when the matter was taken up in a reference by the Revenue to the HighCourt and the Assessee lost the case, the fresh demand notices were issuedand in pursuance to the fresh notices the Assessee paid the amountdemanded within the time stipulated therein. However, it was in these facts,that the Revenue demanded interest on the amount refunded to the Assesseeand the Supreme Court held that no such demand could be raised underSection 220(2) of the Act. The Supreme Court held that Section 220 of theAct cannot be invoked to demand any interest from the Assessee therein.The relevant extract is reproduced hereunder: “.... A Constitution Bench of this Court speaking through one of us (Hon. Bharucha, J.)in the case of V.V.S. Sugars v. Government of A.P. 1999 (4) SCC 192 reiterated theproposition laid down in the India Carbon Ltd.'s case (supra) in the followingwords : 'The Act in question isa taxing statute and, therefore, must be interpretedas it reads,with no additions and no subtractions, on the ground oflegislativeintendment or otherwise'. If we apply this principle ininterpreting section 220,we find that the condition precedent for invoking the said section is only if there is adefault in payment of amount demanded under a notice by the revenue within the time stipulated therein and if such a demand is not satisfied, then section 220(2)can be invoked. ....” (Emphasis Supplied) “.... A Constitution Bench of this Court speaking through one of us (Hon. Bharucha, J.)in the case of V.V.S. Sugars v. Government of A.P. 1999 (4) SCC 192 reiterated theproposition laid down in the India Carbon Ltd.'s case (supra) in the followingwords : 'The Act in question isa taxing statute and, therefore, must be interpretedas it reads,with no additions and no subtractions, on the ground oflegislativeintendment or otherwise'. If we apply this principle ininterpreting section 220,we find that the condition precedent for invoking the said section is only if there is adefault in payment of amount demanded under a notice by the revenue within the time stipulated therein and if such a demand is not satisfied, then section 220(2)can be invoked. ....” (Emphasis Supplied) We fail to see how the said judgment advances the case of the Revenueor is applicable in the facts of the present case. In the present case as well,there was no default by the Assessee as the assessment order dated 28[th]December, 2006, was set aside by the ITAT and therefore no liability to payinterest can arise under Section 220 (2) of the Act. 12.We thus, find that the demand for interest raised by the AO is contraryto the Circular issued by CBDT as well as the mandate of Section 220(2).The Section 220(2) does not empower the revenue to demand interestrelating back to a set aside order, when a fresh assessment order has beenpassed thereafter. The facts of the present case are clearly covered by para2.1 of the said CBDT circular which anticipates the situation that has arisenin the present proceedings and therefore, the CIT(A) and the ITAT havecorrectly held that the levy of interest by the AO relating back to the setaside assessment order, was incorrect and have correctly ordered the same tobe deleted. Thus, this Court sees no merit in the appeal and accordingly, thesame is dismissed. MANMEET PRITAM SINGH ARORA, J NOVEMBER 17, 2022/msh MANMOHAN, J