Court dismisses assessee's preliminary objection on tax effect, upholds interest under IT Act sections.

The court dismissed the preliminary objection raised by the assessee regarding the minimal tax/interest effect governed by CBDT circulars, emphasizing that once a reference is admitted, it must be decided on its merits irrespective of the tax effect. Additionally, the court held that interest under Sections 139(8), 215, and 220(2) of the Income Tax Act was rightly levied by the revenue, rejecting the Tribunal's decision to the contrary. The court ruled in favor of the revenue, confirming the assessee's liability for interest under the specified sections of the IT Act.

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Issues Involved:
1. Applicability of circulars by the Central Board of Direct Taxes (CBDT) regarding minimal tax/interest effect.
2. Levy of interest under Sections 139(8), 215, and 220(2) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Applicability of CBDT Circulars Regarding Minimal Tax/Interest Effect:

The assessee raised a preliminary objection, arguing that the reference should be dismissed due to minimal tax/interest effect, as per various CBDT circulars. The assessee cited judgments from the Bombay High Court and other courts, which held that such circulars should apply even to pending references.

The court, however, rejected this preliminary objection. It noted that the relevant CBDT circulars were administrative instructions meant to govern the filing of appeals, not their hearing. The court referred to its previous judgments in Commissioner of Income-Tax Vs. Rajasthan Patrika Ltd. and Commissioner of Income Tax Vs. Registhan (P) Ltd., which held that minimal tax effect does not preclude the court from deciding a reference on its merits. The court also cited the Punjab and Haryana High Court's ruling in Commissioner of Income-Tax Vs. Varindera Construction Co., which supported the view that the circulars control the filing of appeals but not their hearing.

Thus, the court concluded that once a reference is admitted, it must be decided on its merits, regardless of the tax effect. The preliminary objection was therefore dismissed.

2. Levy of Interest Under Sections 139(8), 215, and 220(2) of the Income Tax Act, 1961:

The main question was whether the Tribunal was right in holding that interest under Sections 139(8), 215, and 220(2) of the IT Act could not be levied from the date of the assessment order.

The court observed that the assessee had not paid the tax or interest initially levied by the Assessing Officer (AO). The income was modified by the Appellate Assistant Commissioner and further modified by the ITAT, resulting in a higher income assessment. The AO had issued a demand notice and charged interest under the relevant sections of the IT Act.

The court held that subsequent orders modifying the assessment are extensions of the original proceedings, and thus, the original demand notice remains valid. Therefore, fresh notices under Section 156 are not required each time the income is modified due to appeals or revisions. The court referred to Section 3(b)(iii) of the Validating Act, which allows proceedings to continue based on the original notice of demand.

The court also addressed the applicability of the second proviso to Section 220(2), inserted by the Finance No.2 Act, 2014, which the assessee argued was prospective and not applicable to the assessment year 1973-74. The court held that the proviso is curative and clarificatory, and thus applicable to the case at hand.

In conclusion, the court found that the interest under Sections 139(8), 215, and 220(2) of the IT Act was rightly levied by the revenue. The Tribunal's decision to the contrary was held to be erroneous. The court answered the question of law in favor of the revenue and against the assessee, confirming the assessee's liability for interest under the specified sections of the IT Act. No order as to costs was made.

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