2011 (10) TMI 308 - HC - Income Tax

Court rules interest cannot be imposed through notice of demand without specific order in assessment order

Commissioner of Income Tax, Dehradun Versus M/s Dehradun Club Ltd.

Commissioner of Income Tax, Dehradun Versus M/s Dehradun Club Ltd. - [2013] 351 ITR 396 Issues:1. Charging of interest under Section 234-B of the Income Tax Act in the absence of a specific order in the assessment order.Detailed Analysis:The case involved an appeal filed by the Revenue under Section 260-A of the Income Tax Act, 1961 regarding the charging of interest under Section 234-B. The assessing officer had initiated penalty proceedings under section 271(1)(c) and 271B, but had not issued any direction regarding charging interest under Section 243-B of the Act during the assessment. Subsequently, a notice of demand was issued demanding interest under Section 243-B, which the assessee contested through a rectification application under Section 154. The Commissioner of Income Tax (Appeals) allowed the appeal, stating that interest cannot be charged without a specific order in the assessment order. The Income Tax Appellate Tribunal upheld this decision, leading to the current appeal by the Revenue.The main question for consideration was whether interest under Section 234-B could be charged in the notice of demand without a specific order in the assessment order. The court referred to relevant provisions of the Act, emphasizing that any tax, interest, penalty, or fine must be payable in consequence of an order passed under the Act, i.e., the assessment order. Citing precedents, the court highlighted that interest cannot be levied through a notice of demand if not specified in the assessment order. It was noted that the Supreme Court and various High Courts have consistently ruled that interest must be imposed in the assessment order before being included in a notice of demand.The court further explained that the assessment order must clearly indicate the imposition of interest for it to be recoverable through a notice of demand. Drawing an analogy with civil suits, the court likened the assessment order to a judgment and the notice of demand to a decree, stating that the latter must align with the former. Therefore, if the assessment order does not mention charging interest, the notice of demand levying interest would be unlawful. The court concluded that interest cannot be charged or levied under Section 156 of the Act if not specified in the assessment order. Consequently, the appeal by the Revenue was dismissed, and each party was directed to bear their own costs.