By TIOL News Service

NEW DELHI, AUG 29, 2014: THE question before the Bench is - Whether when the first appellate authority has simply directed the AO to pass speaking order before charging interest, such an order can be construed as restrictions being imposed on the AO from levying interest under particular Section. NO is the answer.

Facts of the case

The assessee is a company engaged in the business of financial consultancy. It had filed its return declaring loss for the A.Y 1988-89. The assessee had claimed this amount after deducting amount of Rs. 1,82,69,610 which was declared as income during A.Ys 1986-87 and 1987-88. During the course of assessment proceedings, the assessee requested that entire declared income should be taxed in the A.Y 1988-89 and no portion of the said income be assessed in the A.Y 1986-87 and 1987-88. The assessee also requested that taxes paid on 17th August, 1987, to be treated as payment of advance tax for the A.Y 1988-89. The AO however, referred to the assessment orders for the A.Y 1986-87 and 1987-88 and held that the consultancy fee/commission was taxable in the said years, but Rs. 1,82,69,610 was treated as assessee's income in the A.Y 1988-89 on protective basis. Accordingly, the AO had directed for charging of interest u/s 201 and 217. 

On appeal, the High Court held that,

++ we note the tribunal has left it open to the AO to consider levy and imposition of interest, if permissible and could have been imposed under the statute. It is clear and apparent that the tribunal had not barred or prohibited the AO from imposing interest u/s 215 or 217(1A), as per law. The Tribunal's order regarding levy and imposition has attained finality for the reason that both the application filed by assessee u/s 254(2) & 256(1) were rejected. It is, therefore, impermissible and wrong for the assessee to claim that the tribunal had prohibited the AO from examining the question of interest under other provisions of IT Act. The said discretion was granted to the AO to decide whether or not interest could be imposed under any other provision of Section 217 and after examining the said section, the AO came to the conclusion that the interest was imposable u/s 217(1A). But, in order to find out whether or not interest u/s 217(1A) can be imposed, we have to look to the original assessment order passed u/s 143(3);

++ the original assessment shows that the first appellate authority had directed the AO to pass a speaking order to charge or levy interest u/s 217, but there was no mentioning of the relevant sub-section of Section 217. The direction given by the first appellate authority against the original assessment order to pass a speaking order on levy of interest u/s 217, has attained finality. The assessee cannot now question and state that the original assessment order was defective as the sub-section to Section 217 applicable was not stated. Further the first appellate authority while directing the AO to pass a speaking order on levy of interest, had given power and authority to AO to impose interest but after giving reasons. This meant that the AO had the right to reconsider the question of levy of interest u/s 217 and also examine and state under which sub-section interest was leviable. Accordingly, we answer the question in favour of revenue.

(See 2014-TIOL-1458-HC-DEL-IT)