2008 (6) TMI 88 - HC - Income Tax

Court clarifies notice requirement for interest levied under Income Tax Act

The court held that the Income-tax Appellate Tribunal was incorrect in concluding that a notice before levying interest under sections 139(8) and 215 was ... Provisional assessment - Tribunal was not justified in law in entertaining the assessee’s appeal against charging of interest u/s 139(8) & 215 in the order passed u/s 154, when the assessee had not challenged the enhancement of income – admittedly assessee did not exercise his right u/s 155(4) – hence assessee’s appeals were not maintainable as the same were filed only against the levy of interest payable u/s 215 pursuant to the orders passed u/s 154/155 Issues Involved:1. Whether the Income-tax Appellate Tribunal was correct in law in concluding that the application of section 154(3) is mandatory for charging interest under sections 139(8) and 215.2. Whether the Tribunal was justified in entertaining the assessee's appeal against charging of interest under sections 139(8) and 215 when the assessee had not challenged the enhancement of income.Issue-wise Detailed Analysis:Issue 1: Application of Section 154(3) for Charging Interest under Sections 139(8) and 215The core question was whether the Income-tax Appellate Tribunal was right in law in concluding that the application of the provisions of section 154(3) is mandatory for charging interest under sections 139(8) and 215. The court noted that the assessee's assessment was provisionally completed and later subjected to rectification under section 154/155 of the Income-tax Act, 1961. The assessee was issued a show-cause notice indicating that the assessment order required amendment, which would enhance the assessment and increase the liability. The assessee did not object to the proposed rectification, and the revised assessment increased the total income, resulting in a direction to pay interest under sections 139(8)/215/217 of the Act.The Tribunal had relied on a previous decision, holding that without giving any specific notice under section 155, the Assessing Officer could not have charged interest under the Act. However, the court clarified that section 215(3) requires only the issuance of a 'notice of demand' specifying the 'sum payable,' not a show-cause notice. The statutory requirement was to issue a notice of demand, which contrasts with a show-cause notice not envisaged under the statute. The court emphasized that the assessee had adequate opportunity to present and plead its case, as evidenced by the show-cause notice indicating the rectification of the original assessment.Thus, the court concluded that the Tribunal was incorrect in holding that a notice before levying interest under section 139(8) and 215 was mandatory. The requirement of issuing the 'notice of demand' was for exercising the power of waiving or reducing the interest as envisaged under section 215(4) of the Act. Therefore, the question of law No. (i) was answered accordingly.Issue 2: Justification of Entertaining Appeal Against Charging of InterestThe second issue was whether the Tribunal was justified in entertaining the assessee's appeal against charging of interest under sections 139(8) and 215 when the assessee had not challenged the enhancement of income. It was an admitted case that the assessee had not challenged the amount of income assessed, the amount of tax determined, or the status under which the assessee was assessed but had restricted his ground only to the interest payable under section 215 of the Act.The court referred to clause (c) of section 246, which provides an appeal against an order where the assessee denies his liability to be assessed under the Act or against any assessment order under section 143(3) or 144, where the assessee objects to the amount of income assessed, the amount of tax determined, or the status under which he is assessed. The apex court in Central Provinces Manganese Ore Co. Ltd. v. CIT held that the levy of interest is part of the process of assessment, and it is open to an assessee to dispute the levy in appeal provided he limits himself to the ground that he is not liable to the levy at all.The court observed that the assessee did not exercise his right under section 155(4) of the Act to demonstrate a case for waiving or reducing the levy of interest. Therefore, the court concluded that the assessee's appeals were not maintainable as they were filed only against the levy of interest payable under section 215 pursuant to the orders passed under sections 154/155 of the Act. The question of law No. (ii) was answered accordingly.Conclusion:For the aforesaid reasons, the appeals were allowed.