Bombay High Court
The Commissioner Of Income Tax-1 vs M/S. Chika Overseas Pvt. Ltd on 18 November, 2011
Bench: J.P. Devadhar, A. R. Joshi
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sas
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.3737 OF 2010
The Commissioner of Income Tax-1, Mumbai ..Appellant.
V/s.
M/s. Chika Overseas Pvt. Ltd. ..Respondent.
Mr. Vimal Gupta for the appellant.
Ms. Aarti Vissanji with S.P. Mehta for the respondent.
ig CORAM : J.P. DEVADHAR AND
A.R. JOSHI, JJ.
DATED : 18TH NOVEMBER, 2011
ORAL JUDGMENT (PER J.D. DEVADHAR, J.)
1. Whether the ITAT was justified in holding that the assessee
was liable to pay interest u/s.220(2) of the Income Tax Act, 1961 ('the
Act' for short) after thirty days from the service of the fresh demand
notice dated 24/12/2006 pursuant to the fresh assessment order passed
under Section 143(3) of the Act, is the question raised in this appeal.
2. The assessment year involved herein is AY 1994-95.
3. Initially, by an assessment order passed under Section 143
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(3) of the Act on 28/2/1997, the income for the assessment year in
question was assessed at Ra.2.05 crores and by a demand notice dated
28/2/1997, demand of Rs.1.76 crores was raised against the assessee.
On appeal filed by the assessee, the CIT(A), by his order dated 8/9/1997
partially allowed the claim of the assessee, as a result whereof the
income was reduced to Rs.18.30 lakhs. Lateron, the ITAT set aside
the assessment order dated 28/2/1997 and directed the assessing
officer to pass fresh assessment order.
4.
Accordingly, the matter was heard afresh and by a fresh
assessment order dated 24/12/2006 the assessing officer assessed the
income at Rs.44.88 lakhs and raised a demand of Rs.22.02 lakhs. The
assessee paid the amount beyond thirty days from the service of the
demand notice dated 24/12/2006. The assessing officer held that the
assessee was liable to pay interest under Section 220(2) of the Act after
thirty days from the service of the original demand notice dated
28/2/1997. Challenging the aforesaid order, the assessee filed an
appeal before the CIT(A) who held that the assessee is liable to pay
interest after thirty days from the date of service of demand notice dated
24/12/2006 and not after thirty days from the service of demand notice
dated 28/2/1997. The said order was upheld by the ITAT. Challenging
the aforesaid order, the revenue has filed the present appeal.
5. The argument of the revenue is that even though the original
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assessment order dated 28/2/1997 was set aside by the ITAT, once the
fresh assessment order is passed, the demands arising therefrom would
relate back to the date of service of the original demand notice. In the
present case, the original demand was served on 28/2/1997 and,
therefore, interest under Section 220(2) would be leviable after thirty
days from 28/2/1997.
6) We see no merit in the above contention. Under Section
156 of the Act, service of the demand notice is mandatory. Section
220(2) of the Act provides that if the amount specified in any notice of
demand under Section 156 is not paid within the period prescribed
under sub-section (1) of Section 220, then, the assessee shall be liable
to pay simple interest at the rate prescribed therein.
7) In the present case, it is not in dispute that the original
assessment order dated 28/2/1997 was set aside by the ITAT with a
direction to pass fresh assessment order. Accordingly, fresh assessment
order was passed on 24/12/2006 and the demand notice was served on
24/12/2006. As per Section 220(1) of the Act, the assessee was liable
to pay the amount of demand within thirty days from the service of
demand notice dated 24/12/2006. It is only if the assessee fails to pay
the amount demanded, within thirty days of the service of the demand
notice dated 24/12/2006 as stipulated under Section 220(1) of the Act,
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the assessee was liable to pay interest under Section 220(2) of the Act.
If the liability to pay interest under Section 220(2) arises after thirty days
of the service of the demand notice dated 24/12/2006, the question of
demanding interest for the period prior to 24/12/2006 does not arise at
all. Neither the assessment order dated 24/12/2006 nor the demand
notice dated 24/12/2006 required the assessee to pay interest after thirty
days from the date of service of the original demand notice dated
28/2/1997. Since the demand itself was crystallized under the
assessment order dated 24/12/2006 and the assessee under Section
220(1) of the Act had time to pay that demand upto thirty days of the
service of the demand notice dated 24/12/2006, the argument of the
revenue that the assessee was liable to pay interest under Section
220(2) of the Act, for the period prior to the crystallization of the
demand on 24/12/2006 cannot be sustained. Therefore, in the facts of
the present case, the decision of the ITAT in holding that the assessee is
liable to pay interest under Section 220(2) of the Act from the end of the
period mentioned in Section 220(1) of the Act i.e. thirty days after the
service of notice of demand dated 24/12/2006 till the date on which the
amount demanded was paid cannot be faulted.
8. In the result, we see no merit in the appeal and the same is
hereby dismissed with no order as to costs.
(A.R. JOSHI, J.) (J.P. DEVADHAR, J.)
