Interest recalculation must reflect revised assessed income, but interest runs from the original demand date after intimation.

Where an assessing order is reduced by a rectification under a rectification provision, interest under section 220(2) must be recomputed to reflect the revised assessed income; the Assessing Officer is directed to recompute interest after affording the assessee a reasonable opportunity of hearing. However, the date from which interest runs remains the date relevant to the original demand issued pursuant to the intimation under section 143(1), not the date of the rectification order. The matter is remitted to the jurisdictional Assessing Officer for fresh computation on that basis.

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Issues: Whether, in view of a reduction of assessed income by an order under section 154 of the Income-tax Act, 1961, (i) the interest payable under section 220(2) of the Income-tax Act, 1961 must be recalculated on the basis of the revised assessed income and (ii) whether such interest must be computed from the date of the rectification order or from the date of the intimation issued under section 143(1) of the Income-tax Act, 1961.

Analysis: The returned income was accepted by intimation under section 143(1) and a demand was raised thereafter. A subsequent rectification under section 154 reduced the assessed income. Interest under section 220(2) is payable where the amount specified in the demand notice under section 156 is not paid within the prescribed period; the computation of such interest depends on the correct tax liability. The record did not contain a breakup of the interest computation and the Revenue did not produce evidence of the computation. Prior authorities relied upon by the assessee concerned situations where the original assessment was set aside and fresh assessment dates applied; those authorities are therefore inapplicable to a case where the assessment is only reduced by a section 154 rectification.

Conclusion: Interest under section 220(2) of the Income-tax Act, 1961 is to be recomputed by the Assessing Officer taking into account the revised assessed income as determined by the order under section 154 of the Income-tax Act, 1961. The date from which interest is to be computed remains the date relevant to the demand as issued pursuant to the intimation under section 143(1) of the Income-tax Act, 1961 and not the date of the rectification order. The matter of computation is restored to the file of the jurisdictional Assessing Officer for recomputation as per law after affording the assessee a reasonable opportunity of hearing.

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