S.appaswamy v. The Deputy Commissioner Of Income Taxcentral Circle Iv(2)

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 26.03.2019 CORAM THE HONOURABLE DR.JUSTICE VINEET KOTHARIANDTHE HONOURABLE MR.JUSTICE C.V.KARTHIKEYAN Tax Case Appeal No.916 of 2009 S.Appaswamy...Appellant Vs. The Deputy Commissioner of Income TaxCentral Circle IV(2)No.46, Nungambakkam High Road,Chennai....Respondent Tax Case Appeal filed under Section 260A of the IncomeTax Act, 1961 against the order of the Income Tax AppellateTribunal, Chennai Bench 'B' dated 30.04.2009 in ITANo.1693/MDS/2008 against the order of the Commisioner ofIncome Tax (Appeals) vi Chennai. Dated 27.02.2008 made inITA.NO. 46/06-07. against the order of the Joint Commisionser of IncomeTax (OSD) Circle -I, Chennai. Dated 22.03.2006 made inPA/GI NO. 2114054/A Under Section 143(3) r.w sec 254 ofI.T.Act for the assessment year 1991-1992. For Appellant : Ms.Sreelakshmivalli for Mr.N.Muthukumar For Respondent : Mr.T.R.Senthilkumar, Sr.Standing Counsel JUDGMENT(Delivered by DR.VINEET KOTHARI, J.)The Assessee has filed this appeal under Section 260Aof the Income Tax Act, 1961 ('Act' in short) raising thefollowing substantial question of law, arising from theorder of the Income Tax Appellate Tribunal, Chennai Bench'B' dated 30.04.2009 in ITA No.1693/MDS/ 2008.dated30.04.2009 for the Assessment Year 1991-1992, whereby thelearned Tribunal allowed the appeal of the Revenue andupheld levy of interest under Section 220(2) of the Act, onthe Assessee. https://hcservices.ecourts.gov.in/hcservices/ "Whether on the facts and in thecircumstances of the case, the Income TaxAppellate Tribunal is right in law in upholdingthe levy of interest u/s 220(2) of the IncomeTax Act?” 2.A Co-ordinate Bench of this Court, admitted theappeal on 07.10.2009, on the above substantial question oflaw raised by the Assessee. 3.Learned counsel for the Assessee has urged before usthat since by the order dated 30.04.2009, the learnedTribunal has set aside the order of the AssessingAuthority, the levy of interest for the period till thefresh Assessment Order is passed upon such remand by theTribunal stood suspended and the Assessing Authority haserred in adding back such amount of interest under Section220(2) of the Act in the Appeal Effect Order dated22.03.2006 amounting to Rs.10,05,030/- which was imposed inthe Original Assessment Order dated 15.03.1999 for theAssessment Year 1991-1992 in question. She relied upon theCircular of the Central Board of Direct Taxes, in CircularNo.334 dated 03.04.1982 and submitted that if theAssessment Order is cancelled under Section 146 or setaside by an Appellate / Revisional Authority and thatcancellation / setting aside becomes final, then, interestunder Section 220 if any, can be charged only after a freshdemand notice upon fresh assessment re-framed in pursuanceof such remand by the Higher Appellate Authority. She alsorelied upon the decision of the Rajasthan High Court in thecase of Commissioner of Income Tax vs. Rajesh Kumar DineshKumar in (2010) 325 ITR 346. 4.Learned counsel for the Revenue, however submittedthat the order imposing interest under Section 220(2) ofthe Act is not even appealable before the Commissioner ofIncome Tax (Appeals) in view of Section 246A of the Act,which enumerates various orders against which the appeallies before the Commissioner of Income Tax (Appeals) andnone of the clauses of Section 246A of the Act includes theorder passed for imposing interest under Section 220(2) ofthe Act. Therefore, such an appeal of Assessee was not evenmaintainable before the Commissioner of Income Tax(Appeals). He further submitted that the Tribunal, videorder dated 24.08.2004 in ITA Nos.1070 to 1072/Mds/1997had only remanded the matter back to the AssessingAuthority on a limited issue of tallying the extent ofRs.4,54,566/- and the entire Assessment Order was not setaside by the Tribunal and therefore, the aforesaid Circular No.334 dated 03.04.1982 will not apply to the facts of thepresent case. He therefore submitted that the presentappeal filed by the Assessee before this Court has no meritand it has to be dismissed. 5.We have heard the learned counsels. 6.The provisions of Section 220 of the Act includingSub-Section(2), are quoted below for ready reference: “When tax payable and when assessee deemed indefault. 220. (1) Any amount, otherwise than by way ofadvance tax, specified as payable in a notice ofdemand under section 156 shall be paid withinthirty days of the service of the notice at theplace and to the person mentioned in the notice : Provided that, where the Assessing Officer hasany reason to believe that it will be detrimentalto revenue if the full period of thirty daysaforesaid is allowed, he may, with the previousapproval of the Joint Commissioner, direct thatthe sum specified in the notice of demand shallbe paid within such period being a period lessthan the period of thirty days aforesaid, as maybe specified by him in the notice of demand. (2)If the amount specified in any notice ofdemand under section 156 is not paid within theperiod limited under sub-section (1), theassessee shall be liable to pay simple interestat one per cent for every month or part of amonth comprised in the period commencing from theday immediately following the end of the periodmentioned in sub-section (1) and ending with theday on which the amount is paid : Provided that, where as a result of an orderunder section 154, or section 155, or section250, or section 254, or section 260, or section262, or section 264 or an order of the SettlementCommission under sub-section (4) of section 245D,the amount on which interest was payable underthis section had been reduced, the interest shallbe reduced accordingly and the excess interestpaid, if any, shall be refunded : Provided further that in respect of any periodcommencing 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 asfalls after that date, be calculated at the rateof one and one-half per cent, for every month orpart of a month.” 7.The Tribunal, vide its earlier order dated24.08.2004, had made the following observations, whileremanding the matter to the Assessing Authority: “8.The learned counsel for the Assessee, onthe other hand submitted that as per the decisionof the Tribunal relied upon by the CIT (Appeals),the actual expenditure was Rs.4,54,566/- for theasst.year under consideration, apart fromRs.1,50,064/- debited to the trading account andclaimed as relief in a sum of Rs.3,58,877/- asallowable expenditure. 9.We have heard the rival parties andperused the record. Even as pointed out by thelearned counsel for the Assessee, the amount ofRs.1,50,064/- and Rs.3,58,877/- does not tallywith the total expenditure of Rs.4,54,566/-.Further, according to the learned DepartmentalRepresentative, the estimation was warrantedbecause of non-production of bills and vouchers.In view of this position, we set aside the matterto the file of the Assessing Officer with adirection to recomputed the total income withregard to this issue after giving adequateopportunity of being heard to the assessee. Thisappeal is partly allowed for statistical purpose.” 9.We have heard the rival parties andperused the record. Even as pointed out by thelearned counsel for the Assessee, the amount ofRs.1,50,064/- and Rs.3,58,877/- does not tallywith the total expenditure of Rs.4,54,566/-.Further, according to the learned DepartmentalRepresentative, the estimation was warrantedbecause of non-production of bills and vouchers.In view of this position, we set aside the matterto the file of the Assessing Officer with adirection to recomputed the total income withregard to this issue after giving adequateopportunity of being heard to the assessee. Thisappeal is partly allowed for statistical purpose.” 8.While passing the Appeal Effect Order again on22.03.2006, the Assessing Authority has added back theinterest under Section 220(2) as computed in the earlierAssessmentOrderdated15.03.1999amountingtoRs.10,05,030/-. Though the Assessee in its appeal filedbefore the Commissioner of Income Tax (Appeals) did notraise specifically the challenge to the levy of interestunder Section 220(2) of the Act and it only challenged thelevy of interest under Sections 234A, 234B and 234C of theAct and prayed that interest could be levied only from22.03.2006, the date on which the said Appeal Effect Orderwas again passed by the Assessing Authority, and though nosuch appeal was specifically maintainable as per the clearprovisions of Section 246A of the Act, the Assessee raisedsuch ground of levy of interest under Section 220(2) of theAct during the course of appeal hearing before theCommissioner of Income Tax (Appeals), relying upon theaforesaid CBDT Circular No.334, and the Commissioner of Income Tax (Appeals) granted the said relief and set asidethe levy of interest of Rs.10,05,030/- levied under Section220(2) of the Act. The relevant portion of the order passedby the learned Commissioner of Income Tax (Appeals) in ITANo.46/06-07 dated 27.02.2008 is also quoted below for readyreference: “4.2 Ground relating to levy of interest u/s.220(2) of the I.T.Act:-During the course of appellate proceedingsthe AR has submitted the following writtensubmissions:“The Assessment Order in this casehas been passed after the original orderwas partially set aside by theHonourable Income Tax Appellate Tribunalwith a direction to the AssessingOfficer to reconsider certain issues. Weinvite your kind attention to Circular334 dated 3/4/82 which states that nointerest u/s.220(2) can be levied whenthe order of the Assessing Officer isset aside by the Appellate authority.” The AR has also produced the copy of the saidcircular, a portion of which is as under:-Levy of interest u/s.220(2) when theoriginal assessment is set aside –instructions regarding... “Where an assessment order iscancelled under Section 146 or cancelled/ set aside by an appellate / revisionalauthority and the cancellation / settingaside becomes final (i.e.it is notvaried as a result of further appeals /revisions), no interest under Section220(2) can be charged pursuant to theoriginal demand notice.” 5.I have gone through the facts andcircumstances of the case. I have gone through thewritten submissions and the circular No.334 dated03.04.1982 submitted by the appellant. Aftercareful consideration, I am of the view thatinterest u/s.220(2) of the I.T.Act, has wronglybeen levied by the Assessing Officer. I herebydelete the interest of Rs.10,05,030/- leviedu/s.220(2) of the I.T.Act. Thus, the appellant succeeds on this ground.” 9.Being aggrieved by the same, the Revenue took up thematter further before the learned Tribunal and the learnedTribunal has allowed the appeal of the Revenue with thefollowing observation and therefore, the Assessee has againcome up before this Court in an appeal under Section 260Aof the Act. The learned Tribunal, in its order dated30.04.2009 has made the following observation: succeeds on this ground.” 9.Being aggrieved by the same, the Revenue took up thematter further before the learned Tribunal and the learnedTribunal has allowed the appeal of the Revenue with thefollowing observation and therefore, the Assessee has againcome up before this Court in an appeal under Section 260Aof the Act. The learned Tribunal, in its order dated30.04.2009 has made the following observation: “5.We have heard both the sides, consideredthe material on record as well as precedentsrelied upon by the ld.DR and find it to beundisputed fact that the ITAT has set aside onlylimited issue and not the whole assessment andhence the demand will continue to exist.Therefore, levy of interest under Section 220(2)was warranted and reliance placed by the ld.DR inthis regard on the decision of Hon'ble KeralaHigh Court in the case of K.Venugopalan Nambiarvs. ACIT (supra) is appropriate and the headnotes read as under: “Recovery of tax – delay in payment of tax– interest – assessment and issue of noticeof demand – appeal and order of remand byTribunal to recomputed income – notice ofdemand remained valid and effective toextent tax was finally determined –assessee liable to pay interest undersection 220(2) – Income-tax Act, 1961,s.220.” While holding so, the Hon'ble Kerala High Courthas considered the view of the Hon'ble SupremeCourt in the case of CIT vs. Chitoor ElectricSupply Corporation and Another 212 ITR 404 andtook the view that where an assessment order isset aside and a fresh assessment is directed tobe made, the assessment must be deemed to bestill pending, which is to be completed.Moreover, the order of charging interest undersection 220(2) does not come within the purviewof the appealable order as envisaged underrelevant provision and as power to waive / reducesuch interest lies with the AdministrativeCommissioner / CCIT. 6.Therefore, in our considered view, theld.CIT(A) is not legally correct either inadjudicating upon the issue or directing todelete the interest charged under section 220(2), as such, the impugned order of the ld.CIT(A) isreversed and that of the Assessing Officer isrestored.” 10.Having heard the learned counsels for the parties,we are of the clear opinion that the present appeal filedby the Assessee is devoid of merits and the question of lawframed above deserves to be answered against the Assesseeand in favour of the Revenue. The reasons are as follows: Firstly, the levy of interest under Section 220 of theAct quoted above, is consequential and the interest ispayable if the Assessee fails to pay the tax payable asdetermined in the Assessment Order and a Notice of Demandis issued to the Assessee under Section 156 of the Act. Thelevy of interest naturally therefore, depends upon the levyof tax itself. If the above Assessment Order is set asideor set at naught and the Assessing Authority is required topass fresh Assessment Order, then naturally unless the taxliability is re-determined by the Assessing Authority, thequestion of interest as determined in the earlierAssessment Order, which has been set aside by the Tribunal,cannot arise. 11.Thus, in this context only, the Board seems to haveissued Circular No.334 on 03.04.1982, which is quoted belowfor ready reference: 1211.Levy of interest under sub-section (2)when original assessment is set aside / cancelled1.Doubts have been raised as to the quantum ofinterest chargeable under section 220(2) when theoriginal assessment order passed by the Income-tax Officer is- (a)cancelled by him under section 146;(b)set aside / cancelled by an appellate /revisional authority and such appellate /revisional order has become final; or (c)set aside by one appellate authority but,on further appeal, the order setting aside theassessment is varied by the second appellateauthority and the demand gets finally determined. 11.Thus, in this context only, the Board seems to haveissued Circular No.334 on 03.04.1982, which is quoted belowfor ready reference: 1211.Levy of interest under sub-section (2)when original assessment is set aside / cancelled1.Doubts have been raised as to the quantum ofinterest chargeable under section 220(2) when theoriginal assessment order passed by the Income-tax Officer is- (a)cancelled by him under section 146;(b)set aside / cancelled by an appellate /revisional authority and such appellate /revisional order has become final; or (c)set aside by one appellate authority but,on further appeal, the order setting aside theassessment is varied by the second appellateauthority and the demand gets finally determined. 2.These issues were comprehensively examined inconsultation with the Ministry of Law and theBoard has been advised: 1.Where an assessment order is cancelledunder section 146 or cancelled / set aside by anappellate/revisionalauthorityandthe https://hcservices.ecourts.gov.in/hcservices/ cancellation / setting aside becomes final (i.e.,it is not varied as a result of further appeals /revisions), no interest under section 220(2) canbe charged pursuant to the original demandnotice. The necessary corollary of this positionwill be that even when the assessment isreframed, interest can be charged only after theexpiry of 35 days from the date of service ofdemand notice pursuant to such fresh assessmentorder. 2.When the assessment made originally by theIncome-tax Officer is either varied or even setaside by one appellate authority but on furtherappeal, the original order of the Income-taxOfficer is restored either in part or wholly, theinterest payable under section 220(2) will becomputed with reference to the due date reckonedfrom the original demand notice and withreference to the tax finally determined. The factthat during an intervening period, there was notax payable by the assessee under any operativeorder would make no difference to this position.3.The foregoing legal position will apply mutatismutandis to the proceedings under other directtaxes also.Circular: No.334[F.No.400/3/81-ITCC], dated3-4-1982.” 12.The present case is not a case of totalcancellation or setting aside of the Assessment Orderfully. It was for a limited purpose that the Tribunal inits order dated 24.08.2004 had asked the AssessingAuthority to reconcile the accounts with regard to theamounts of Rs.1,50,064/- and Rs.3,58,877/- which twofigures did not tally with the total of Rs.4,54,566/-.Therefore, such re-computation at the hands of theAssessing Authority, pursuant to the remand of the learnedTribunal, will not amount to setting aside the AssessmentOrder altogether. No fresh determination of the taxliability was to take place upon such remand by the learnedTribunal. Therefore, the question of suspension of the levyof interest for the interim period, upon the order passedby the learned Tribunal dated 24.08.2004 upto 22.03.2006,when a fresh Assessment Order was passed by the AssessingAuthority, could not arise. Circular No.334 dated03.04.1982 had no application to the facts of the presentcase and therefore, the contention of the learned counselfor the Assessee raised before us, is devoid of merit. 13.Secondly, we also do not find that the order underSection 220(2) of the Act as such, namely, adding ofinterest of Rs.10,05,030/- in the Appeal Effect Order dated22.03.2006 was per se appealable. Such provision isnot included in the category of 'Orders Appealable' underSection 246A of the Act. If the levy itself is challenged,the levy of interest consequentially could only bechallenged and if the tax liability is reduced or enhanced,the quantum of interest could go up or down, but withoutmaking a challenge to the tax liability itself, the levy ofinterest independently cannot be challenged before thelearned Commissioner of Income Tax (Appeals). That is whyit seems that the Assessee, conscious of this restriction,did not raise this issue as such in the “Grounds of Appeal”initially, but during the course of hearing of Appealwrongly relying on the aforesaid CBDT Circular No.334 dated03.04.1982, had raised the ground, against levy of interestunder Section 220(2) and the same came to be not onlyentertained by the Commissioner of Income Tax (Appeals) buteven the relief was granted by him, which in our opinion,was rightly reversed by the learned Tribunal. 14.The judgment of the Rajasthan High Court in thecase of Commissioner of Income Tax vs. Rajesh Kumar DineshKumar (supra), relied upon by the learned counsel for theAssessee, was rendered in a different factual background.The assessments were set aside entirely by the Tribunaltwice over, in the case before the Rajasthan High Court andthereupon a fresh Assessment Order was passed, in pursuanceof the said remand order and in that context, the DivisionBench of the Rajasthan High Court held that as per Sub-Para(i) of Circular No.334 dated 03.04.1982, the interest underSection 220(2) of the Act could not be levied for the pastperiod. 15.There is no quarrel over the said proposition laiddown by the Rajasthan High Court. But the facts of thepresent case are different and there is no complete settingaside of the Assessment Order in the present case, as notedby us above. Therefore, the said judgment is of limitedhelp to the learned counsel for the Assessee. 16.Therefore, the present appeal of the Assessee isliable to be dismissed and accordingly it is dismissed andthe question of law framed above, is answered against theAssessee and in favour of the Revenue. No costs. Sd/-- Assistant Registrar(CS) //True Copy// Sub Assistant Registrar KMTo 1.THE INCOME TAX APPELLATE TRIBUNAL, CHENNAI BENCH 'B' 2. THE COMMISIONER OF INCOME TAX (APPEALS) VI CHENNAI. 3.THE JOINT COMMISIONSER OF INCOME TAX (OSD) CIRCLE -I,CHENNAI. +1cc to Mr.Muthukumar, Advocate SR.No. 28173 Tax Case Appeal No.916 of 2009 gp(CO) A.SK(06/05/2019)