Interest charged under section 220(2) is part of assessment and is deemed to be tax for the purpose of section 246. Appeal filed by assessee against order of AO objecting to amount of interest is admissible.

Short Overview Interest charged under section 220(2) is part of assessment and is deemed to be tax for the purpose of section 246 and consequently appeal filed by assessee against such order of AO objecting to amount of interest was maintainable and matter was remanded to CIT(A) for deciding the issue on merits.

Assessee was aggrieved by levy of interest under sections 220(2), 234D as well as withdrawal of interest under section 244A by AO while passing the giving effect order to judgment of jurisdictional High Court. CIT(A)  dismissed  appeals of  assessee on the ground that  giving effect order passed by AO under section 260A was not an appealable order.

It is held that  Assessment under section 143(3) would include not only determination of  amount of tax calculated at the rate prescribed under  Finance Act but also interest or any other thing which has the effect of reducing or enhancing  total amount payable by  assessee under such an assessment. Therefore, interest charged under section 220(2) is part of assessment and is deemed to be tax for the purpose of section 246 and consequently appeal filed by assessee against such order of AO objecting to amount of interest was maintainable. Accordingly, impugned order of CIT(A) was set aside and matter was remanded to CIT(A) for deciding the issue on merits.

Decision: In assessee’s favour.

IN THE ITAT, JAIPUR BENCH

RAMESH C. SHARMA, A.M. & VIJAY PAL RAO, J.M.

ABC Exports v. Asstt. CIT

I.T.A. Nos. 1352, 1353, 1354/Jaipur/2019

18 March, 2020

Assessee by: Rajeev Sogani, Chartered Accountant

Department by: K.C. Gupta, Joint Commissioner of Income Tax

ORDER

Vijay Pal Rao, J.M.

1. These three appeals by the assessee are directed against 3 separate orders of the learned Commissioner of Income Tax-2, Jaipur, all dated 8-11-2019 for the assessment years 2002-03 to 2004-05. The assessee has raised common grounds in these three appeals except the quantum involved in the disputes. The grounds raised for the assessment year 2002-03 are reproduced as under :–

“1. In the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax has erred in considering that the appeal effect order passed by the learned assessing officer in order to give effect to the order of the Hon’ble Rajasthan High Court under section 260A is not appealable under section 246A. The action of the learned Commissioner of Income Tax is illegal, unjustified and arbitrary and against the facts of the case. Appropriate relief may please be granted.

2. In the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax has erred in charging interest of Rs. 13,63,760 under section 220(2) in ITNS 150, i.e., section 143(3) read with section 260A while giving appeal effect of the order of the Hon’ble Rajasthan High Court. The action of the learned assessing officer is illegal, unjustified and arbitrary and against the facts of the case. Relief may please be granted by quashing the said charge of interest of Rs. 13,63,760.
3. In the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax has erred in charging interest of Rs. 4,43,248 under section 234D in ITNS 150, i.e., section 143(3) read with section 260A while giving appeal effect of the order of the Hon’ble Rajasthan High Court. The action of the learned assessing officer is illegal, unjustified and arbitrary and against the facts of the case. Relief may please be granted by quashing the said charge of interest of Rs. 4,43,248.
4. In the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax has erred in charging interest of Rs. 1,86,479 under section 244A in ITNS 150, i.e., section 143(3) read with section 260A while giving appeal effect of the order of the Hon’ble Rajasthan High Court. The action of the learned assessing officer is illegal, unjustified and arbitrary and against the facts of the case. Relief may please be granted by quashing the said withdrawal.
5. The assessee-firm craves its right to add, amend or alter any of the grounds on or before the hearing.”

Ground No. 1 is regarding the maintainability of the appeal filed before the learned Commissioner of Income Tax against the appeal effect order passed by the assessing officer in pursuant to the judgment of the Hon’ble jurisdictional High Court.

2. The assessee is a partnership firm and was engaged in the business of export of woollen carpets, woollen durries, brass art ware, cotton and woollen bags, etc. The assessee filed its return of income for the assessment year 2002-03 on 22-10-2002 declaring a total income of Rs. 2,40,04,791. While completing the assessment under section 143(3) of the Income Tax Act on 16-12-2004, the assessing officer disallowed the claim of deduction under section 80-IB in respect of income from duty draw back and DEPB. The assessing officer has also disallowed deduction under section 80HHC in respect of interest received on FDR. Aggrieved by the assessment order passed by the assessing officer, the assessee filed an appeal before the learned Commissioner (Appeals) which was dismissed by the learned Commissioner (Appeals) videOrder, dated 14-3-2006. The matter was carried to this Tribunal and this Tribunal vide Order, dated 20-3-2008 allowed the appeal of the assessee and granted relief in respect of the disallowance of deduction under section 80-IB. The Department challenged the order of this Tribunal before the Hon’ble jurisdictional High Court and vide Judgment, dated 12-1-2016 the Hon’ble High Court has reversed the order of this Tribunal and decided these issues of deduction under section 80-IB as well as under section 80HHC in favour of the Revenue and against the assessee. In the meantime, the assessee paid the tax after the orders of the learned Commissioner of Income Tax but after the order of this Tribunal granting the relief to the assessee, the assessing officer granted refund along with the interest. Since the issue was finally settled and decided by the Hon’ble jurisdictional High Court, therefore, to give effect to the judgment of the Hon’ble High Court, the assessing officer passed the giving effect order raising the demand along with the interest under sections 244A, 220(2) and 234D of the Income Tax Act. The details of the demand as well as interest raised by the assessing officer while passing giving effect Order, dated 17-6-2016 are as under :–

A.Y.	Balance demand	Interest under section 244A	Interest under section 220(2)	Interest under section 234D	Total payable
2002-03	11,18,684	1,86,479	13,63,760	4,43,248	31,12,171
2003-04	19,71,966	4,53,552	27,32,800	10,78,073	62,36,391
2004-05	11,52,998	2,36,362	28,42,211	—	42,31,571
TOTAL	42,43,648	8,76,393	69,38,771	15,21,321

The interest under section 244A is the amount which was earlier paid by the assessing officer at the time of issuing the refund and, therefore, the same is on account of withdrawal of interest allowed under section 244A of the Act. The assessee was aggrieved by the levy of interest under sections 220(2), 234D as well as withdrawal of interest under section 244A of the Act by the assessing officer while passing the giving effect order to the judgment of the Hon’ble jurisdictional High Court. The learned Commissioner (Appeals) dismissed the appeals of the assessee on the ground that the giving effect order passed by the assessing officer under section 260A of the Income Tax Act is not an appealable order and, therefore, in view of the learned Commissioner of Income Tax the appeals were not maintainable and the same were dismissed. The learned Commissioner (Appeals) did not go into the merits of the issue raised by the assessee. Aggrieved by the orders of the learned Commissioner of Income Tax, the assessee filed these appeals.

3. Before us, the learned authorised representative of the assessee has referred to the judgment of the Hon’ble Bombay High Court in the case ofCaltex Oil Refining (India) Ltd. v. CIT (1993) 202 ITR 375 (AP) : (1994) 73 Taxman 231 (Bom)  : 1993 TaxPub(DT) 0931 (Bom-HC) and submitted that the Hon’ble High Court has held that the effect of the appellate order is that the assessment either stands confirmed, reduced or enhanced or it stands annulled or set aside. In the case of confirmation, reduction or enhancement of assessment, the original order of assessment stands modified to the extent of the directions given by the appellate authority. In case an order is set aside, the authority has to start the entire process afresh and make a fresh order of the assessment complying with the directions of the appellate authority. Therefore, what remains as a final order after giving effect to the orders of the appellate authorities is an order of the assessment under section 143(3) or 144. The learned authorised representative has contended that the Hon’ble High Court has held that an assessment under section 143(3) would include not only determination of the amount of tax calculated at the rate prescribed under the Finance Act but also interest or any other thing which has the effect of reducing or enhancing the total amount payable by the assessee under such an assessment. Therefore, the interest charged under section 220(2) is part of the assessment and is deemed to be tax for the purpose of section 246 of the Income Tax Act and consequently the appeal filed by the assessee against such order of the assessing officer objecting to the amount of interest is maintainable. The learned authorised representative has then relied upon the judgment of the Hon’ble Calcutta High Court in the case of Kooka Sidhwa and Co. v. CIT (1964) 54 ITR 54 (Cal) : 1964 TaxPub(DT) 0115 (Cal-HC) and submitted that the order passed by the assessing officer to give effect to the directions of the appellate authority is an appealable order as held by the Hon’ble High Court. He has then relied upon the judgment of the Hon’ble Bombay High Court in the case of Empire Industries Ltd. v. CIT (1992) 193 ITR 295 (Bom) : 59 Taxman 443 (Bom) : 1992 TaxPub(DT) 0404 (Bom-HC) and submitted that the Hon’ble Bombay High Court has also taken a similar view that the order passed by the assessing officer to give effect to the order of the appellate authority is an appealable order and the appeal filed by the assessee is maintainable. Similarly he has relied upon the Hon’ble Andhra Pradesh High Court in the case of Bakelite Hylam Ltd. v. CIT (1988) 171 ITR 344 (AP) : (1988) 37 Taxman 210 (AP) : 1988 TaxPub(DT) 0970 (AP-HC). Thus, the learned authorised representative has submitted that in all these judgments it is held that the giving effect order passed by the assessing officer to the orders of the appellate authority is an appealable order. The learned authorised representative has then relied upon the judgment of the Hon’ble Delhi High Court in the case of Televista Electronics Ltd. v. Dy. CIT (2018) 400 ITR 36 (Delhi) : 2017 TaxPub(DT) 5174 (Del-HC) and submitted that the Hon’ble Delhi High Court decided the issue in favour of the assessee.
4. On the other hand, the learned Departmental representative has submitted that the assessing officer has not taken any decision while passing the giving effect order to the order of the Hon’ble jurisdictional High Court but has calculated the amount of demand in pursuant to the judgment of the Hon’ble jurisdictional High Court. He has further contended that the learned Commissioner of Income Tax has followed the judgment of the Hon’ble Calcutta High Court in the case ofANZ Grindlays Bank Plc v. CIT (2000) 241 ITR 269 (Cal) : 2000 TaxPub(DT) 0789 (Cal-HC) wherein the Hon’ble High Court after considering the earlier judgment in the case of Kooka Sidhwa and Co. v. CIT (supra) has held that the order passed by the assessing officer giving effect to the order of the appellate authority is not an appealable order as the assessing officer was not having any discretion but to follow the orders of the appellate authority. The learned Departmental representative has submitted that this is not the case of setting aside the matter to the assessing officer for fresh adjudication or for reconsideration of any issue in terms of the directions of the High Court order but the issue was finally decided by the Hon’ble High Court and consequently the assessing officer has passed the giving effect order calculating the demand which includes tax and interest. He has relied upon the order of the learned Commissioner (Appeals).
5. We have considered the rival submissions as well as the relevant material on record. In the case in hand, the assessing officer while framing the original assessment under section 143(3) on 16-12-2004 for the assessment year 2002-03 has assessed/determined the total income of the assessee as under :–

“9. Subject to above remarks the total income of the assessee is computed as under :–

Profit as per profit and loss account		Rs. 7,02,72,801
Add :
Depreciation for separate consideration		Rs. 25,56,045
		Rs. 7,28,28,846
Add : Expenses disallowed
(i) Income Tax		84,28,958
(ii) Charity and donation		17,82,422
(iii) Delayed PF payment under section 1		35,081
(iv) Delayed PF payment under section 43B		39,786
(v) On account of telephone expenses		45,357
(vi) On account of travelling and conveyance		22,199
		Rs. 1,03,53,803
		Rs. 8,31,82,649
Less: DEPB for separate considered	2,29,806
Less: Depreciation as claimed	25,56,045	Rs. 27,85,851
Gross income from business and profession		Rs. 8,03,96,798
Less:
1. Deduction under section 80-IB as calculated above	1,22,73,389
2. Deduction under section 80HHC as calculated	4,69,80,196	Rs. 5,92,53,585
Income from business :		Rs. 2,11,43,213
Add: Income from other sources DEPB		Rs. 2,29,806
TOTAL INCOME		Rs. 2,13,73,019″

Thus, the assessing officer computed the total income of the assessee at Rs. 2,13,73,019. The assessee challenged this order of the assessing officer in respect of the disallowance of deduction under section 80-IB and deduction under section 80HHC. The matter was carried to this Tribunal and this Tribunal vide Order, dated 20-3-2008 allowed the claim of deduction under section 80-IB as well as under section 80HHC and consequently the demand to the extent of relief granted by the Tribunal got reduced. The assessing officer then granted refund to the assessee along with the interest under section 244A in pursuant to the order of the Tribunal. The Revenue challenged the order of the Tribunal before the Hon’ble jurisdictional High Court and vide Judgment, dated 12-1-2016 the Hon’ble High Court has reversed the order of the Tribunal on these two issues of deduction under section 80-IB as well as under section 80HHC and consequently the order of the assessing officer got restored. In pursuant to the judgment of the Hon’ble jurisdictional High Court, the assessing officer has again computed the total income of the assessee vide Order, dated 17-6-2016 as under :–

So far as the computation of total income by the assessing officer in pursuant to the judgment of the Hon’ble jurisdictional High Court, the income of the assessee remained the same as it was computed at the time of passing the original assessment order under section 143(3). Hence there is no dispute or grievance of the assessee against this recomputation of income as a result of the judgment of the Hon’ble jurisdictional High Court. The assessing officer then also computed the Income Tax liability of the assessee on the total income and, therefore, the tax liability of the assessee is varied from as it was at the time of the original assessment order passed under section 143(3) due to the reason of levy of interest under section 220(2) as well as interest under section 234D of the Act though the assessing officer has also raised the demand by adding an amount on account of withdrawal of interest under section 244A which was granted along with the refund. The main grievance of the assessee is against the interest levied under section 220(2) of the Act and, therefore, the said computation of Income Tax in pursuant to the judgment of the Hon’ble High Court was challenged by the assessee before the learned Commissioner (Appeals). The learned Commissioner (Appeals), as we have discussed earlier, has dismissed the appeal of the assessee in limine being not maintainable as the said order of the assessing officer in computing the Income Tax liability/demand is not appealable. The learned authorised representative of the assessee has relied upon a series of decisions in support of the contention that the order passed by the assessing officer in pursuant to the appellate authority is an appealable order. It is pertinent to note that there are divergent views on this issue about the maintainability of the appeal against the order of the assessing officer and particularly levying the interest under section 220(2) in pursuant to the order/judgment of the appellate forum. The learned Commissioner of Income Tax relied upon the judgment of the Hon’ble Calcutta High Court in the case of ANZ Grindlays Bank Plc v. CIT (supra) whereas the learned authorised representative of the assessee has relied upon a series of decisions of other High Courts in support of his contention. So far as the recomputation of the total income of the assessee in pursuant to the judgment of the Hon’ble High Court, the assessing officer has not passed any order or decided any issue but he has simply computed the total income as it was determined while passing the original assessment order. Therefore, to that extent the said order of the assessing officer dated 17-6-2016 cannot be regarded as a decision of the assessing officer which can be challenged in the appeal until and unless some calculation mistake or typographical mistake occurred which can be rectified under section 154 of the Income Tax Act.

However, the computation of Income Tax liability of the assessee in pursuant to the said order certainly increased the demand which was raised at the time of original assessment order passed under section 143(3) and further since after the order of the Tribunal there was no demand outstanding against the assessee and, therefore, it becomes a debatable question whether the interest under section 220(2) will be reckoned from the original demand arising from the assessment order passed under section 143(3) or it will be reckoned from the giving effect order passed by the assessing officer to the judgment of the Hon’ble High Court. This aspect requires application of mind and also to take a decision whether the interest under section 220(2) has to be levied for the period reckoning from the original demand till the recomputation of Income Tax as per the outcome of the finality of the dispute. Once the assessing officer has to take a decision regarding the reckoning of the period from which the interest has to be calculated on the outstanding demand then the said order of the assessing officer would certainly be challenged by filing appeal before the Commissioner (Appeals) under section 246 of the Income Tax Act. In the recent judgment in the case of Televista Electronics Ltd. v. Dy. CIT (supra), the Hon’ble High Court has held in paragraphs 14 to 18 as under (page 40 of 400 ITR) :–

“In our opinion, in the present case, the appeal would be maintainable under clause (c) of section 246(1) of the Act. The said pro vision, as applicable to the case of the assessee in the relevant year when the appeal was preferred, reads as under :–

‘246. Appealable orders.–(1) Subject to the provisions of sub-section (2), any assessee aggrieved by any of the following orders of an assessing officer (other than the Deputy Commissioner) may appeal to the Deputy Commissioner (Appeals) (before the 1-6-2000) against such order: …………………….

(c) an order under section 154 or section 155 having the effect of enhancing the assessment or reducing a refund or an order refusing to allow the claim made by the assessee under either of the said sections.’

The order under section 154 of the Act had the effect of enhancing the assessment. Such orders are appealable on all aspects decided and adjudicated. The order under section 154 of the Act had also specifically dealt with and examined the question of interest under section 220(2) of the Act and the date from which the interest was chargeable. The direction to charge interest was specifically given in the order under section 154 of the Act. The claim and contention of the appellant-assessee to the contrary was rejected and disallowed. The assessing officer had refused to accept the contention made by the assessee that interest would not be chargeable under section 220(2) of the Act until and unless there was non-payment pursuant to the order passed. This is a peculiar case wherein the question of levy of interest under section 220(2) of the Act, which is payable on non-payment was decided, levied and imposed in the order under section 154 of the Act. In the present case, there was a specific direction and finding in the order passed under section 154 in respect of charging interest under section 220(2) of the Act. Consequently, the direction for payment of interest which was contested by the appellant-assessee would be appealable under clause (c) of section 246(1) of the Act.

We are aware of the decisions in Associated Stone Industries (Kotah) Ltd. v. CIT (1997) 90 Taxman 553 : (1997) 224 ITR 560 (SC) : 1997 TaxPub(DT) 1055 (SC), Central Provinces Manganese Ore Co. Ltd. v. CIT (1986) 27 Taxman 275 : (1986) 160 ITR 961 (SC) : 1986 TaxPub(DT) 1657 (SC), CIT v. Mahabir Prashad and Sons (1980) 125 ITR 165 (Delhi) : (1980) 4 Taxman 166 (Delhi) : 1980 TaxPub(DT) 1018 (Del-HC) which draw a distinction between cases where the assessee denies his liability to pay interest; and where quantum of interest is in dispute or where waiver and reduction is prayed. In the latter cases appeal is not maintainable, whereas in the former set of cases where the assessee claims that he is not liable to pay interest at all appeal would be maintain able and the plea as to non-liability to pay interest may be raised while disputing the assessment in appeal. However, more appropriate and direct on the point is the decision of the Bombay High Court in British Bank of the Middle East v. CIT (2003) 131 Taxman 106 : (2004) 266 ITR 269 (Bom) : 2004 TaxPub(DT) 0751 (Bom-HC), wherein reference was made to section 246(1)(f) which was in pari materia to the clause applicable and it was held as under (page 273 of 266 ITR) :–

‘However, we find merit in the argument advanced on behalf of the assessee that appeal was maintainable under section 246(1)(f). For the sake of convenience, we reproduce hereinbelow section 246(1)(f) which reads as follows :–

‘Subject to the provisions of sub-section (2). Any assessee aggrieved by any of the orders of the Income Tax Officer may appeal against such order under section 144 (sic. 154) or section 155 having the effect of enhancing the assessment or reducing the refund or refusing to allow the claim made by the assessee under either section 154 or section 155.’

In the case of Empire Industries Ltd. v. CIT (1992) 193 ITR 295 (Bom) : 59 Taxman 443 (Bom) : 1992 TaxPub(DT) 0404 (Bom-HC) the assessee had paid advance tax of Rs. 24.47 lakhs on regular assessment being completed under section 143(3). The assessing officer raised the demand under section 156 of the Act of Rs. 7.27 lakhs including interest of Rs. 56,000. By order dated June 27, 1974 the appellate authority allowed the appeal partly. While giving effect to the appellate order, the Income Tax Officer determined the amount refundable to the assessee at Rs. 9.46 lakhs. The amount was refunded but interest thereon under section 214 of the Act was not paid. Being aggrieved, the assessee filed an appeal before the appellate authority and claimed that the Income Tax Officer ought to have granted interest under section 214. The appellate authority and the Tribunal held that the appeal was not competent. On a reference, it was held by the Bombay High Court that the Income Tax Officer’s order had been passed under section 154 and appeal therefrom was competent under section 246(1)(f). This judgment, to the above extent, applies to the facts of our case. In the present case also, the assessing officer was concerned with giving effect to the Order, dated 31-12-1986 passed by the Commissioner (Appeals) when he failed to grant interest under section 214 and under section 244(1A). This is very clear also from page 5 of the paper book which refers to the order of the assessing officer dated 18-2-1987 giving effect to the order passed by the appellate authority dated 31-12-1986. Hence, the second part of the above issue is answered in favour of the assessee and against the Department. We accordingly hold that the appeal filed by the assessee with the Commissioner (Appeals) being Appeal No. Commissioner (Appeals)/XXII/ARIII/D/227/87-88 was maintainable under section 246(1)(f).’

The question of law is accordingly, answered in favour of the appellant-assessee and against the Revenue. We, however, clarify that we have not examined the question of chargeability of interest under section 220(2) of the Act or the date from which it would be payable as the said question would be examined by the Tribunal.

We have not expressed any opinion on the contention raised by the counsel for the Revenue that they would be entitled to raise the issue of levy of interest under sections 215 and 217 of the Act. If any such contention is raised, the same would be examined by the Tribunal including the question whether the Revenue can raise such a contention or not.”

Accordingly, in view of the facts and circumstances of the case, the impugned order of the learned Commissioner of Income Tax is set aside and the matter is remanded to the record of the learned Commissioner of Income Tax for deciding the issue on the merits. Needless to say, Circular No. 334, dated 3-4-1982 : (1982) 135 ITR (St.) 10 issued by the Central Board of Direct-tax is also relevant to be considered.

6. All the impugned orders of the learned Commissioner of Income Tax are identical and rather based on the one order. Therefore, in view of our finding for the assessment year 2002-03, the orders of the learned Commissioner of Income Tax for the assessment years 2003-04 and 2004-05 are set aside on the similar terms and directions.
7. In the result, the appeals of the assessee are allowed for statistical purposes.