Pr. Commissioner Of Income Tax-1 vs.AT And T Communication Services (India) Private Limited - (High Court of Delhi) (17 Nov 2022)

Section 220(2) of IT Act does not empower the revenue to demand interest relating back to a set aside order, when a fresh assessment order has been passed thereafter

MANU/DE/4612/2022

Direct Taxation

The Assessee is engaged in the business of network design, management, communication, connectivity services and related products. The Assessee filed its return of income for the relevant year on 30th October, 2004 declaring an income of 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 assessment order. The issue arising in the present appeal is, whether interest can be charged under Section 220(2) of the Income Tax Act, 1961 (IT Act) from the date of the original assessment order, if the original additions are reiterated by the AO on remand in the reframed assessment order?

The relevant date for charging interest under Section 220(2) of the IT Act, in the facts of this case, is to be determined as per the date of demand notice raised pursuant to the fresh assessment order i.e. 29th March, 2016.

The liability of Assessee to pay interest under Section 220(2) of the IT Act can be levied only after expiry of the time limit prescribed in the fresh demand notice issued by the AO in pursuance to the fresh reframed assessment order dated 29th March, 2016. The reframed order is the subsisting assessment order in the facts of this case.

The contention of the Revenue that the Assessee is liable to pay interest in relation to the demand issued pursuant to the original assessment order, if on a remand, the addition remained under the same head has no basis in law. Section 220(2) of the IT Act does not contemplate a levy of interest which relates back to the date of the passing of original order (which was subsequently set aside by appellate authorities) or applies to pendency of proceedings. Therefore, the AO was not justified in levying the interest of Rs. 1,75,74,756 under Section 220(2) of the IT Act.

The demand for interest raised by the AO is contrary to the Circular issued by CBDT as well as the mandate of Section 220(2) of IT Act. The Section 220(2) of IT Act does not empower the revenue to demand interest relating back to a set aside order, when a fresh assessment order has been passed thereafter. The facts of the present case are clearly covered by para 2.1 of the said CBDT circular which anticipates the situation that has arisen in the present proceedings and therefore, the CIT(A) and the ITAT have correctly held that the levy of interest by the AO relating back to the set aside assessment order, was incorrect and have correctly ordered the same to be deleted. Appeal dismissed.

Tags : INTEREST DELETION LEGALITY