2005 (4) TMI 282 - AT - Income Tax

Tribunal cancels interest under Income Tax Act, emphasizes demand notice requirement

Pedda Sankara Rao And Others. Versus Deputy Commissioner Of Income-Tax.

The Tribunal ruled in favor of the appellants, deleting the interest imposed under section 220(2) of the Income Tax Act. It held that the interest could ... Chargeability Issues:- Charging of interest under section 220(2)- Mistake apparent on recordCharging of Interest under Section 220(2):The appeals before the Appellate Tribunal involved a common issue related to the charging of interest under section 220(2) of the Income Tax Act. The cases revolved around the assessment completed under section 143(3) read with section 158BC, where the Assessing Officer (AO) charged interest under section 220(2) for non-payment of self-assessment tax at the time of filing the return for the block period. The contention was that the interest could not be levied as no demand notice was served for the payment of tax before the provisions of section 220(2) could come into effect. The AO rejected the application under section 154, stating that the assessee was deemed a defaulter under section 140A(3) for not paying the tax as per the return filed. The CIT(A) upheld the AO's decision, leading to the appeal before the Tribunal.Mistake Apparent on Record:The Tribunal analyzed the provisions of sections 220, 156, and 140A to determine the applicability of interest under section 220(2). It was observed that the issuance and service of a notice of demand under section 156 were essential for the imposition of interest under section 220(2). As no notice of demand was served on the assessee at the time of levying interest, the Tribunal held that the interest under section 220(2) could not be charged. Citing the decision of the Supreme Court in a similar case, the Tribunal emphasized that the demand notice and default in payment were prerequisites for levying interest under section 220. Consequently, the Tribunal deleted the interest imposed on the assessee under section 220(2) and disagreed with the CIT(A)'s finding that there was no mistake committed by the AO, asserting that the interest could only be imposed when the notice of demand was served and the assessee failed to deposit the amount within the specified time.Conclusion:The Tribunal allowed the appeals of the assessees, ruling in favor of deleting the interest imposed under section 220(2) of the Income Tax Act. Additionally, the Tribunal addressed an objection regarding the payment of fees, determining that the appeals solely related to the levy of interest under section 220(2) and not the computation of total income. Therefore, the Tribunal held that the fees payable should be Rs. 500 in each appeal, finding no defect in the appeal filed by the assessee.