Assessment under Income-tax Act: Interest not levied retrospectively

The court addressed whether an assessment made after a notice under section 148 of the Income-tax Act constitutes a regular assessment for levying interest under sections 139(8) and 217. Assessments were conducted for certain years, with interest levied and subsequently enhanced by the Assessing Officer. The Appellate Assistant Commissioner reduced the income, leading to a reduction in interest. The Tribunal allowed appeals against the interest levied, emphasizing that assessments under section 147 are not considered regular assessments for interest purposes. The court concluded that interest could not be levied retrospectively and rejected the applications.

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Issues involved:
The judgment addresses the question of whether an assessment made after the issuance of a notice under section 148 of the Income-tax Act, 1961 constitutes a regular assessment for the purpose of levying interest under sections 139(8) and 217 of the Act.

Assessment and Interest Levied:
A survey under section 133A revealed escaped income, leading to notices under section 148 for assessment years 1983-84 and 1984-85. Assessments were conducted, with interest levied under sections 139(8) and 217. The Assessing Officer later enhanced the interest under section 154. The Appellate Assistant Commissioner reduced the income, subsequently reducing the interest. The Tribunal allowed the appeals against the interest levied.

Definition of Regular Assessment:
The term "regular assessment" as defined in section 2(40) of the Act refers to assessments under section 143 or section 144. Interest is chargeable based on the total income determined in a regular assessment.

Judicial Interpretations:
Various High Courts have examined the concept of "regular assessment." The Calcutta High Court and Karnataka High Court held that assessments under section 147 are not regular assessments for interest purposes. The Andhra Pradesh High Court and Patna High Court also emphasized the requirement of a "regular assessment" for levying interest.

Amendments and Interpretation:
Explanation 2 was inserted in section 139(8) to deem assessments under section 147 as regular assessments. The argument that this amendment should be retrospective was rejected by the court, citing the substantive nature of the provision.

Precedent and Conclusion:
The court cited a case where interest could not be levied retrospectively, emphasizing that interest under the Act is not merely procedural. The court concluded that the amendments effective from April 1, 1985, did not apply retrospectively, and since it was not a regular assessment, interest could not be levied under the pre-amended law. The court declined the question referred and rejected the applications.

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