Tribunal validates re-assessment, exempts interest for non-resident, upholds CBDT Circular on interest charges.

The Tribunal upheld the validity of the initiation of re-assessment proceedings under section 147, dismissing the Assessee's contentions. It ruled that no interest under section 234B was chargeable due to the non-resident status of the Assessee. However, it upheld the charging of interest under section 220(2) as per the CBDT Circular. The Revenue's appeal was partly allowed, and the Assessee's appeals were dismissed.

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Issues Involved:
1. Validity of initiation of re-assessment proceedings under section 147 of the Income Tax Act.
2. Levy of interest under section 234B of the Income Tax Act.
3. Levy of interest under section 220(2) of the Income Tax Act.

Detailed Analysis:

1. Validity of Initiation of Re-assessment Proceedings under Section 147:

The Assessee, a non-resident company, filed a return of income for A.Y. 1992-93 declaring fees received for rendering managerial technical and consultancy services. The Assessing Officer (AO) initially held that the procurement fees paid by Coal India Ltd. (CIL) to the Assessee were in the nature of commission and not technical fees, thus treating them as business income. This decision was upheld by the CIT(A) and the Tribunal. The AO later issued a notice under section 148 for re-assessment, which was challenged by the Assessee through a writ petition. The High Court stayed the proceedings, but the AO eventually passed an order under section 147/143(3) adding Rs. 2,32,28,112/- to the Assessee's income on the grounds that the tax paid by CIL on behalf of the Assessee should be grossed up and included as income.

The Tribunal found that the AO had specific reasons to believe that income had escaped assessment and that the notice under section 148 was issued with proper application of mind and necessary approvals. The Tribunal upheld the validity of the re-assessment proceedings, rejecting the Assessee's contentions regarding the mechanical issuance of the notice and the alleged change in opinion by the AO.

2. Levy of Interest under Section 234B:

The CIT(A) deleted the levy of interest under section 234B, holding that since the Assessee was a non-resident, the payer (CIL) was required to deduct tax at source under section 195. The Tribunal upheld this decision, referencing the ITAT Delhi decision in Sedco Forex International Drilling Vs. DCIT and the Delhi High Court decision in DIT vs. Ericsson AB, which stated that no interest is payable by a taxpayer if the entire tax was deductible at source, even if not actually deducted. The Tribunal concluded that the Assessee was not liable to pay advance tax, and thus, no interest under section 234B could be levied.

3. Levy of Interest under Section 220(2):

The CIT(A) directed the AO to calculate interest under section 220(2) as per CBDT Circular No.334 dated 3.4.1982. The Tribunal noted that the CIT(A) did not provide a specific finding on whether interest under section 220(2) was chargeable. The Tribunal held that since the assessment was set aside for fresh consideration and not rendered final, the charging of interest would be governed by para 2.2 of the Circular. Consequently, the Tribunal upheld the AO's decision to charge interest under section 220(2).

Conclusion:

The Tribunal dismissed the Assessee's appeals for non-prosecution and upheld the validity of the initiation of re-assessment proceedings under section 147. It confirmed that no interest under section 234B was chargeable due to the non-resident status of the Assessee and the obligation of the payer to deduct tax at source. However, it upheld the charging of interest under section 220(2) as per the CBDT Circular. The Revenue's appeal was partly allowed, and the Assessee's appeals were dismissed.

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