Whether interest on account of default in making tax payment is to be calculated with reference to date of first assessment order and not with date of an order passed in remand - YES: ITAT

THE issue before the Bench is - Whether interest on account of default in making payment of Income Tax would have to be calculated with reference to the date of first assessment order and not with the date of an order passed in remand proceedings. And the verdict goes against the assessee.

Facts of the case

The assessee Company filed its return declaring huge tax free income which was earned from investments made. During the course of assessment proceedings the AO disallowed proportionate expenses attributable to these investments by applying section 14A of the Act. The CIT(A) partly allowed the appeal of the assessee. However, ITAT restored the issue to the file of AO.

Upon completion of fresh assessment proceedings the AO recomputed the income of the assessee and charged interest under section 220(1) with effect from the first date of assessment order. Aggrieved with the order of the AO assessee filed appeal before CIT(A) who allowed the appeal.

On appeal, the ITAT held that,

++ from the facts stated above of the Vikrant’s case we can understand that in that case before the Supreme Court, the assessee had paid the entire tax demanded of him at the first instance itself i.e. when the original assessment was made and demand raised, at that time itself the assessee has made the payment: and even when it was restored by an order of the appellate authority, after being quashed by a lower appellate authority, since the tax demands were fully satisfied by the assessee even at the initial stage, the assessee was held not liable to pay interest. This case is distinguishable from the case before us inasmuch as the assessee before us did not pay the tax demanded of him by the assessing officer in the year 2003. He has not paid till date the tax for the assessment year 2000-01, which was assessed by the AO. Whereas he has received a refund, when the CIT(A) partially allowed his appeal. Though the question before the Supreme Court in Vikrant case was whether the Revenue is entitled to demand interest in regard to the amount which was refunded to the assessee by virtue of the judgment of the appellate authority and which was repaid to the Revenue after decision in reference by the High Court on fresh demand notices being issued to the Assessee. Here in this case though refund was made, the fact of the matter does not in any way change that the assessee did not pay tax exigible, when the tax was demanded u/s 156 of the Act, after the original assessment order of 22nd March, 2003. In Vikrant’s case it may be noted that the assessee paid tax both at the time of original assessment and also when finally High Court restored the original assessment order, then also the assessee made the payment without any default, though tax was refunded due to the order of ld CIT(A). Here that is not the case. In the case before us, the assessee did not make any payment when the first demand notice in pursuance to the assessment order was passed by AO in the year 2003, and till date the assessee has not made any payment even though, the AO, in pursuance of the Tribunal order, recomputed the tax to be levied u/s 14A. Therefore this case is distinguishable from the facts and circumstances of the Vikrant’s case;

++ in our opinion this decision squarely covers, the issue, before us. In view of above discussion assessee was required to pay interest u/s 220(2) as it had not initially satisfied the demand raised in 2003. We are in agreement with ld. counsel for the assessee that interest on refund is to be charged from the date of grant of refund. The assessee has given computation at page 64 and 65 of its paper book which may be considered by AO while computing the interest leviable u/s 220(2).