Binding appellate findings govern valuation and depreciation, while section 220(2) interest runs only from the fresh demand notice.

ITAT Chennai held that subordinate tax authorities were bound by earlier appellate findings that inter-divisional transfers of wind turbine generators were not sales, so manufacturing cost had to be spread only over the 156 units actually manufactured and depreciation on the 6 internally transferred units had to be recomputed accordingly. It further held that interest under section 220(2) could run only from the fresh demand notice issued pursuant to the subsequent assessment, not from the original demand, because the earlier demand had been superseded. Both issues were decided in favour of the assessee.

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Issues: (i) Whether the assessee's inter-divisional transfer of 6 wind turbine generators had to be valued on the footing that only 156 wind turbine generators were manufactured, with corresponding recomputation of cost and depreciation; (ii) Whether interest under section 220(2) had to be charged from the date of the original demand or only from the fresh demand raised pursuant to the subsequent assessment order.

Issue (i): Whether the assessee's inter-divisional transfer of 6 wind turbine generators had to be valued on the footing that only 156 wind turbine generators were manufactured, with corresponding recomputation of cost and depreciation.

Analysis: The earlier appellate orders had already concluded that inter-divisional transfers do not amount to sales and that the sales figure must be reduced to that extent, with the corresponding manufacturing cost also being restricted to the actual number of wind turbine generators manufactured. The Tribunal held that the lower authorities were bound by those earlier findings and could not reinterpret them to apportion total manufacturing cost over 209 units when the accepted finding was that only 156 units were manufactured. The cost of one unit therefore had to be worked out by dividing the total manufacturing cost by 156, and depreciation on the 6 internally transferred units had to be recomputed accordingly.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether interest under section 220(2) had to be charged from the date of the original demand or only from the fresh demand raised pursuant to the subsequent assessment order.

Analysis: The Tribunal applied the CBDT circular governing interest under section 220(2) and the principle that where an assessment is set aside and a fresh assessment is made, the assessee's liability to pay interest can arise only after service of the fresh demand notice and expiry of the statutory time for payment. Since the impugned demand arose from the fresh assessment order and the earlier demand had been superseded in the relevant chain of proceedings, interest could not be computed from the original assessment date. The Tribunal followed the view that the clock under section 220(2) runs from the demand notice issued on the fresh assessment.

Conclusion: The issue was decided in favour of the assessee.

Final Conclusion: The Tribunal held that the authorities had to give effect to the earlier binding findings on inter-divisional transfers and recompute depreciation on the correct manufacturing base, and that interest under section 220(2) could be levied only with reference to the fresh demand notice arising from the fresh assessment.

Ratio Decidendi: Subordinate tax authorities must strictly follow binding appellate findings on valuation and depreciation, and interest under section 220(2) becomes chargeable only from the statutory period running after service of the demand notice issued pursuant to the operative fresh assessment.

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