High Court validates interest levy under Income Tax Act Section 220(2), dismissing appeal.

The High Court upheld the levy of interest under Section 220(2) of the Income Tax Act, ruling it as valid and consequential to the tax payable under the Assessment Order. The Court found that the CBDT Circular No.334 did not apply in this case as the assessment was not entirely set aside, and the order imposing interest was not appealable under Section 246A of the Act. The Assessee's appeal was dismissed, and the decision favored the Revenue.

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Issues Involved:
1. Whether the Income Tax Appellate Tribunal was right in law in upholding the levy of interest under Section 220(2) of the Income Tax Act, 1961.
2. Applicability of CBDT Circular No.334 dated 03.04.1982.
3. Appealability of the order imposing interest under Section 220(2) of the Act.

Detailed Analysis:

1. Whether the Income Tax Appellate Tribunal was right in law in upholding the levy of interest under Section 220(2) of the Income Tax Act, 1961:

The Assessee contended that the levy of interest under Section 220(2) should be suspended until a fresh Assessment Order is passed upon remand by the Tribunal. The Tribunal, however, upheld the levy of interest, reasoning that the remand was for a limited issue and not a complete setting aside of the assessment. The High Court concurred with the Tribunal, stating that the interest levy is consequential to the tax payable under the Assessment Order. Since the original assessment was not entirely set aside, the interest under Section 220(2) continued to be applicable.

2. Applicability of CBDT Circular No.334 dated 03.04.1982:

The Assessee relied on CBDT Circular No.334, which states that no interest under Section 220(2) can be charged if the original assessment order is set aside or cancelled by an appellate or revisional authority. The High Court, however, clarified that this circular applies only when the entire assessment is set aside or cancelled. In this case, since the Tribunal only remanded the matter for limited re-computation, the circular was deemed inapplicable. The High Court emphasized that the re-computation did not amount to setting aside the entire Assessment Order, and thus, the interest levy for the interim period was valid.

3. Appealability of the order imposing interest under Section 220(2) of the Act:

The Revenue argued that the order imposing interest under Section 220(2) is not appealable before the Commissioner of Income Tax (Appeals) as per Section 246A of the Act. The High Court agreed, noting that Section 246A does not list orders imposing interest under Section 220(2) as appealable. The Assessee’s challenge to the interest levy during the appeal hearing, relying on the CBDT Circular, was not maintainable. The Tribunal correctly reversed the Commissioner of Income Tax (Appeals) decision, which had erroneously granted relief from the interest levy.

Conclusion:

The High Court dismissed the Assessee’s appeal, affirming the Tribunal’s decision to uphold the levy of interest under Section 220(2). The Court ruled that the interest levy was consequential and valid since the original assessment was not entirely set aside. The CBDT Circular No.334 was deemed inapplicable, and the order imposing interest under Section 220(2) was not appealable under Section 246A of the Act. The question of law was answered against the Assessee and in favor of the Revenue.

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