ORDER
I.P. Bansal, Judicial Member
1. This appeal by the assessee is directed against the order of the CIT (A) dated 22nd March, 2007 for assessment year 1997-98. Grounds of appeal read as under:
The Learned CIT (A) has erred in law and on facts in holding that the Assessing Officer was justified in charging interest Under Section 220(2) brushing aside Appellant’s submissions made before me to the effect that the Appellant is not liable to charge of interest Under Section 220(2) of the Income-tax Act.
1. That the Ld. CIT (A) has erred in law and on facts in upholding A.O.’s action in treating the appellant to be in default and liable to charge of interest Under Section 220(2) ignoring he fact that the demand raised by the A.O. pursuant to order Under Section 143(3) dated 29.3.2000 was vacated by the Ld. CIT (A) vide his appellate order dated 20.5.2000 and there remained no outstanding demand prior to passing of consequential order Under Section 254 in a unilateral manner, to give effect to Tribunal’s order in the appeal preferred by the Revenue.
2. That the ld. CIT (A) erred in law and on facts in holding that the order passed Under Section 154 is a speaking order and gives out reasons, which, even if debatable and there is certainly not any mistake apparent from the record
3. That the appellant reserves its right to add, amend, modify any ground before final adjudication of the appeal.
2. The return of income in the present case was filed at a sum of Rs. 37,32,858/- plus agricultural income of Rs. 1,85,806/- on 27th June, 1997. The tax including interest was calculated by the assessee to be a sum of Rs. 14,82,8907- against which the pre-paid taxes were Rs. 14,99,821/- [this fact is mentioned in the statement of facts filed before the CIT (A)], thus, leaving an excess payment of a sum of Rs. 16,931/- which was claimed as refund by the assessee.
3. Assessment Under Section 143(3) was made on 29th March, 2000 on an income of Rs. 5,25,96,711/- and agricultural income of Rs. 1,76,131/-. The assessment order and demand notice was served on assessee on 31st March, 2004.
4. The assessee did not make payment of tax as per demand notice issued Under Section 156 of Income Tax Act, 1961 (Act) which was required to be paid by 30th April, 2000. However, against that assessment, the assessee filed an appeal before the CIT (A) on 19th April, 2000 and the assessee also submitted stay application to the Assessing Officer Under Section 220(6). Simultaneously, stay application was also filed before the CIT (A) for grant of stay.
5. The Assessing Officer did not communicate any decision on stay application furnished Under Section 220(6). However, the CIT (A) vide his order dated 15th May, 2000 had granted the stay till the disposal of the appeal by him and he also directed the Assessing Officer not to press the payment of demand and also not to take any coercive measure to recover the demand till the disposal of the appeal by him
6. On 20th May, 2000 the Ld CIT (A) disposed of the appeal and deleted the major additions, which resulted in nil demand.
7. Against the said order of the CIT (A) the Revenue had filed an appeal which is decided by the Tribunal on 30th November, 2004 by which the addition made by the Assessing Officer on account of capital gain was restored which was a sum of Rs. 4.77,14,279/-. The Assessing Officer has passed the impugned order giving effect to the said order of the Tribunal in which the income has been determined at a sum of Rs. 5,14,56,012/- plus Rs. 1,85,806/- agricultural income and a demand of Rs. 2,69,79,782 has been raised which includes a sum of Rs. 1,11,55,850/- as interest levied Under Section 220(2) for the period from May, 2000 to January, 2005.
8. Against such order of the Assessing Officer which has been passed for giving effect to the said order of the Tribunal dated 30th November, 2004, the grievance of the assessee is against levy of interest Under Section 220(2). As per claim of the assessee such levy of interest is not permissible as for the said period assessee cannot be treated to be in default so as to entail levy of such interest. On the basis of the facts that: (i) the stay application was pending with the Assessing Officer; (ii) the stay was granted by the CIT (A) and (iii) the deletion of entire addition by CIT (A), it was contended that after the order of the CIT(A) in quantum appeal, nothing was found due against the assessee and the demand against the assessee was revived only after the order passed by the Tribunal, therefore, the assessee cannot be charged with the interest levied Under Section 220(2). To contest the levy of interest, the assessee had filed an appeal before the CIT (A) and simultaneously an application was also filed before the Assessing Officer Under Section 154. The application filed by the assessee against levy of the interest is rejected by the Assessing Officer as according to him, as per Board’s Circular No. 334 dated 3rd April, 1982 in case the assessment order passed by the Assessing Officer is set aside by one appellate authority, but on further appeal the order setting aside is reversed by the second appellate authority, the demands get finally determined and interest Under Section 220(2) is to be computed with reference to the due date reckoned from original payment notice with reference to tax finally determined Thus, the levy on interest was upheld by the Assessing Officer.
9. The CIT (A) rejected the appeal of the assessee on the ground that the appeal against quashing of interest Under Section 220(2) is not maintainable as the order passed Under Section 220(2) is not applicable as per Section 246A.
10. Against such order of CIT (A) the assessee had preferred an appeal before the Tribunal which was decided vide order dated 9th February, 2007 in which it was held that appeal of the assessee was maintainable and CIT(A) was directed to pass order on merits. It is in pursuance of the said directions of ITAT the impugned order has been passed by the CIT (A). In the appeal it was the contention of the assessee that the Assessing Officer’s reliance on circular is misplaced as the said circular is not binding on the appellate authorities It was contended that Circular of CBDT cannot overwrite, modify or amend the provisions of the Act. It was contended that levy of interest Under Section 220(2) in a unilateral manner without issuing notice Under Section 154(3) was not tenable in law. Rejecting he contentions of the assessee it is hold by CIT(A) that there was no infirmity in the order passed by the Assessing Officer Under Section 154 entailing levy of interest Under Section 220(2) and on merits it is held by CIT (A) that in view of following decisions the charging of interest was mandatory and the same should be calculated from the date of original notice of demand:
(i) Anjum Ghaswala 252 ITR 1 (SC)
(ii) Vikrant Tyres Limited 247 ITR 821
(iii) Sanjay Bhai Patel AOP 267 129 (Guj)
(iv) Ghanshyam Dass Jatia 87 ITR 683 (Cal)
(v) J. Jai Lalita 244 ITR 74 (Mad)
(vi) Rajan Picture Circuits 241 ITR 735
(VII) K.V. Nambiar 231 ITR 607 (Ker.)
(viii) Super Spinning Mills Ltd. 244 ITR 814 (Mad)
(ix) P. Duli Chand 148 CTR 352
11. In this manner the CIT (A) has upheld the levy of interest Under Section 220(2).
12. The Ld. AR after narrating the sequence of events pleaded that no demand existed against the assessee for the period from 16th May, 2000 to 4th January, 2005. Therefore, levy of interest Under Section 220(2) is contrary to law.
13. He pleaded that the Circular referred to by the Assessing Officer gives the view of the Department and taxing provisions have to be construed regardless of the views expressed in the Circular. It was pointed out that the assessee had presented an appeal Under Section 246A and had applied for grant of stay of demand. The Assessing Officer was legally bound to dispose of the application of the assessee and inaction on the part of the Assessing Officer is equivalent to deemed stay of demand without any condition. It was contended that even CIT (A) did not impose any condition while granting the stay. Thus, it was pleaded that assessee cannot be treated to be in default, at least for the period from 1.4.2000 (after expiry of 30 days from the service of notice of demand on 31st March, 2000) to 15th May, 2000 {when stay was granted by the CIT (A)} and, thus, the assessee for that period cannot be treated to be an assessee in default. The demand remained unenforceable and, thus, no interest could be charged for that period.
14. Reference was made to the decision of Hon’ble Supreme Court in the case of Vikrant Tyres v. First ITO 247 ITR 821 to contend that where the assessee has deposited entire demand raised in the demand notice and went in appeal and the appellate authority decides the matter in favour of the assessee, the amount paid was refunded, but after appeal, the assessment order was restored, assessee could not be charged interest Under Section 220(2). Thus, it was pleaded by Ld. AR that charging of interest Under Section 220(2) should be deleted for the period from grant of stay by the CIT (A) till the order passed by Assessing Officer dated 4th January, 2005 to give effect to the order of the Tribunal as for the said period no demand was outstanding against the assessee It was pleaded that interest at best could be charged for the period 1.4.2000 (after expiry of 30 days from the service of notice of demand on 31th March, 2000) to 15th May, 2000, the day on which the stay was granted by the Ld CIT (A) as the assessee cannot be treated to be assessee in default for any other period and this plea of the assessee is an alternative plea.
15. Thus, it was submitted that interest levied Under Section 220(2) should be deleted or, in the alternative, be reduced accordingly
16. On the other hand, it was pleaded by Ld. DR that levy of interest Under Section 220(2) is mandatory and automatic He contended that if assessee fails to pay the demand by the date mentioned in the notice of demand, such failure will attract levy of interest and it cannot be reduced or waived except in the circumstances prescribed Under Section 220 itself He referred to the provisions of Sub-section 2A to Section 220 which is an exception to Sub-section (2) wherein Chief Commissioner or Commissioner of Income-tax has been authorized to reduce or waive amount of interest paid or payable if the said authority is satisfied that the payment of interest has caused or would cause genuine hardship to the assessee and also that the default in payment of outstanding demand on which the interest is paid or payable was due to circumstances beyond the control of the assessee and the assessee had cooperated in the inquiry relating to the assessment or in proceedings for the recovery of any amount due from him. Ld. DR pleaded that though the power is vested with the Assessing Officer to extend the due date of payment under Sub-section (3) of Section 220, but it is in the sole discretion of Assessing Officer to extend the time of payment or to allow payment by installments subject to conditions as he may think fit in the circumstances of the case. He contended that even Sub-section (3) does not give power to the Assessing Officer to reduce or to waive or not to charge interest as levied under Sub-section (2) of Section 220 as, according to the decision of Hon’ble Supreme Court in the case of Anjum Ghaswala 252 ITR 1, the levy of interest is mandatory as the word used in the statute is ‘shall’. He contended that according to Sub-section (A) of Section 220, if the assessee fails to pay the amount specified in notice of demand within the time or within the time as extended by the Assessing Officer under Sub-section (3), then the assessee shall be deemed to be assessee in default. He contended that Sub-section (4) of Section 220 only prescribe that in what circumstances the assessee can be treated to be assessee in default, however, for the levy of interest under Sub-section (2), it is not a condition precedent that whether the assessee is treated to be assessee in default or not.
17. Ld. DR. contended that Sub-section (5) also prescribes that if any installment is granted by the Assessing Officer under Sub-section (3) and there is default in making payment according to the said installments then also the assessee will be treated to be assessee in default as the due date for payment of tax shall be the due date of installment.
18. The Ld. DR contended that under Sub-section (6) the Assessing Officer has been given discretion for not treating the assessee to be in default if an appeal has been filed by the assessee against the order in respect of which the demand is outstanding against the assessee.
19. Thus, explaining the scheme of the provisions of Section 220 it was argued by Ld. DR that in case of failure of the assessee to pay the outstanding demand of income-tax by the date prescribed in the notice of demand, that failure will attract the levy of interest under Sub-section (2) which is mandatory and automatic and even the filing of application by the assessee before the Assessing Officer or filing of appeal before the CIT (A) cannot vitiate such levy of interest as long as the assessee has committed the default of not paying the sum specified in notice of demand on or before the due date. Further reliance was placed by Ld. DR on the following decisions:
(i) Super Spinning Mills v. CIT 244 ITR 814 (Mad) wherein it has been held that in case the CIT (A) allowed the claim of the assessee, but the Tribunal disallowed it, the original notice of demand continue to be valid and operative in view of Section 3 of the Taxation Laws (Continuation and Validation of Recovery Proceedings) Act, 1964 and Revenue Authorities were justified in claiming interest Under Section 220(2) of the IT Act, 1961.
(ii) Bharat Commerce and Industries v. Union of India and Ors. 188 ITR 277 wherein it was held that when the Tribunal restored the original assessment order of the Assessing Officer by setting aside the order of the CIT (A), interest was chargeable Under Section 220 (2) in respect of non payment of tax as per ITO’s order and interest Under Section 220(2) is not penal in nature.
Thus, Ld DR pleaded that CIT (A) was right in upholding the levy of interest which is in accordance with the scheme of the provisions of Section 220 as well as the decisions relied upon by him.
20. We have carefully considered the rival submissions in the light of the material placed before us. One of the reasons given by the Assessing Officer for justifying the levy of interest Under Section 220(2) and rejecting the application filed by the assessee Under Section 154 is that levy of interest Under Section 220(2) is in accordance with Circular No. 334 dated 3rd April 1982. The text of such Circular is as under:
2. These issues were comprehensively examined in consultation with the Ministry of Law and the Board has been advised:
(i) where an assessment order is cancelled Under Section 146 or cancelled/set aside by an appellate/revisional authority and the cancellation/setting aside becomes final (i.e. it is not varied as a result of further appeals/revisions), no interest Under Section 220(2) can be charged pursuant to the original demand notice. The necessary corollary of this position will be that even when the assessment is reframed, interest can be charged only after the expiry of 35 days from the date of service of demand notice pursuant to such fresh assessment order.
(ii) where the assessmenl made originally the ITO is either varied or even set aside by one appellate authority but, on further appeal, the original order of the ITO is restored either in part or wholly, the interest payable under Section 220(2) will be computed with reference to the due date reckoned from the original demand notice and with reference to the tax finally determined. The fact that during an intervening period, there was no tax payable by the assessee under any operative order would make no difference to this position.
21. According to well settled law where the issue relates to interpretation of statutory provision and in that respect CBDT has issued Circulars, such circulars are administrative instructions and are not binding upon the Tribunal or courts. Therefore, not going by the reasons of the Assessing Officer that such levy of interest Under Section 220(2) is in accordance with that Circular, we will decide the chargeability or otherwise of the interest as per statutory provisions existing on the statute. Now it will be relevant here to reproduce the provisions of Section 220:-
220. (1) Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under Section 156 shall be paid within thirty days (Before 1.4.89 – thirty five days) of the service of the notice at the place and to the person mentioned in the notice:
Provided that, where the Assessing Officer has any reason to believe that it will be detrimental to revenue if the full period of thirty days aforesaid is allowed, he may, with the previous approval of the [Joint Commissioner] direct that the sum specified in the notice of demand shall be paid within such1 period being a period less than the period of thirty days aforesaid, as may be specified by him in the notice of demand.
(2) If the amount specified in any notice of demand under Section 156 is not paid within the period limited under Sub-section (1) the assessee shall be liable to pay simple interest at one percent w.e.f. 8.9.03 for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in Sub-section (1) and ending with the day on which the amount is paid:
Provided that, where as a result of an order under Section 154, or Section 155, or Section 250 or Section 254, or Section 260, or Section 262, or Section 264 [or an order of the Settlement Commission under Sub-section (4) of Section 245(D)], the amount on which interest was payable under this Section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded.
22 The provisions of Section 220(2) had come up for consideration before the Hon’ble Supreme Court in the case of Vikrant Tyres Ltd v. ITO (supra) and it was observed that a bare reading of the said Section clearly indicates that if the assessee does not pay the amount demanded under a notice Under Section 156 of the Act within the time stipulated under Sub-section (1), the assessee is liable to pay simple interest at 1 1/2% for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in Sub-section (1) and ending with the day on which the amount is paid and, therefore, the condition precedent under said Section is that there should be a demand notice and there should be a default to pay the amount so demanded within the time stipulated in the said notice.
23. Now it has to be seen that on the facts of the present case that whether there is a default of assessee Under Section 220(2). Assessment in the present case was framed Under Section 143(3) at a sum of Rs. 5,25,96,711/- and demand notice pursuant to said assessment was served on assessee on 31st March, 2000. Period of 30 days from the date of service of the demand notice expired on 30th April, 2000 and the said demand was not paid by the assessee till that date. However, assessee had submitted stay application Under Section 220(6) on 29th April, 2000 i.e., before the due date of making payment. Simultaneously, the assessee had submitted appeal against the said assessment order on 19th April, 2000 and a stay application was also filed with the Commissioner of Income-tax (Appeals) seeking stay of demand till the disposal of the appeal. The Assessing Officer did not make any order in response to the stay application filed by the assessee. However, CIT (A) stayed the demand on 15th May, 2000 and the appeal of the assessee was allowed by the order of the CIT (A) dated 20th May, 2000 by which the entire demand is said to have been deleted Relying on these facts it has been claimed by the authorized representative of the assessee that interest Under Section 220(2) could not be levied as the demand was stayed by the CIT (A) and after the order of the CIT (A) there was no demand and the same was revived only when Tribunal had revised the order of CIT (A) on 30th November, 2004 It is the submission of Ld AR that at least for the period from the date of order of CIT (A) till the date of order of the Tribunal, interest should not be levied as during that period no demand whatsoever was outstanding against the assessee. It is a fact that assessee did not make payment of taxes as required to be paid as per demand notice issued by the Department Under Section 156 in pursuance of the assessment framed on 29th March, 2000 and which was served on 31st March, 2000. Filing of stay application with the Assessing Officer or CIT (A) does not mitigate the default of the assessee of non-payment of tax according to demand notice issued and served Under Section 156 The consequence of stay was that for the purpose of levy of penalty Under Section 221 the assessee may not be considered to be the assessee in default, which is a condition precedent for holding the assessee liable for penalty Under Section 221. So as it relates to levy of interest Under Section 220(2), grant of stay has no role to play. The nature of interest to be levied Under Section 220(2) is compensatory in nature and is also mandatory as the word used in the Section is ‘shall’ which has been interpreted by Hon’ble Supreme Court to make the levy mandatory and reference can be made to the decision of Hon’ble Supreme Court in the case of Anjum Ghaswala (supra).
24. It has been the contention of Ld. AR that no interest should be levied for the period starting from the order of CIT (A) till the order of Tribunal and for that purpose the reliance has been placed on the decision of Hon’ble Supreme Court in the case of Vikrant Tyres (supra). It is observed that if the ratio of that case is applied, then no such relief can be granted to the assessee. In the case of Vikrant Tyres (supra) the levy of interest was held invalid for the reason that the assessee had made the payment of taxes within the time stipulated in demand notice. However, as pointed out earlier, in the present case no payment has been made by the assessee in response to demand notice. The deletion of demand by CIT (A) cannot be considered to be equivalent to payment according to the demand notice The payment made in accordance with demand notice will only absolve the assessee from the liability of interest Under Section 220(2)
25. In the ahnvp mentioned case of Vikrant Tyres (supra) it was further observed by the Hon’ble Supreme Court that Section 3 of Validation Act could not be relied upon to construe the authority of the Revenue to demand interest Under Section 220 of the Act as the said Section was enacted to cope up with a different fact situation and that Section only revives the old demand notice which had never been satisfied by the assessee and which notice got quashed during some stage of the challenge and finally the said quashed notice gets restored by an order of a higher forum. It was observed that in such a situation Section 3 of Validation Act restores the original demand notice which was never satisfied by the assessee and the said Section does away with the need to issue a fresh notice Beyond that, the said Section could not be resorted to for reviving a demand notice which is already fully satisfied.
26. For proper understanding of the issue, it will be relevant to state the objects and reasons for enacting Validation Act, 1964-
8. The Parliament has enacted the Validation Act, and the statement of objects and reasons reads thus:
Recently in the case of ITO v Seghu Buchiah Setty [1964] 52 ITR 538, the Supreme Court had occasion to consider the scope of Sections 29 and 45 of the Indian Income-tax Act, 1922, and it has been held in that case that when a demand levied by the Income-tax Officer as a result of an assessment is varied by an appellate or revising authority, the original order of the Income-tax Officer merges into the order of such authority and, consequently, in all cases of an order varying the assessment, the original order goes and all steps already taken for the recovery of the demand become null and void and that in such cases it is the duty of the Income-tax Officer to issue a fresh notice of demand in the prescribed form and serve it upon the assessee. Though the judgment is with reference to the Indian Income-tax Act, 1922, which has been repealed but kept alive only for some limited purposes, the same interpretation may hold good with respect to the corresponding provisions in the Income-tax Act. 1961 and in the other Acts relating to the imposition of direct taxes.
2. The above decision of the Supreme Court will create difficulties in the collection of income-tax and other direct taxes The number of assessments involved in the arrear demands of the direct taxes is nearly 6 lakhs and recovery certificates have been issued to Collectors or Tax Recovery Officers in approximately 2,25,000 cases and the revenue involved comes to Rs. 157 crores. In view of the above decision of the Supreme Court, in most of these cases, fresh notices of demand may have to be served upon the assessees and the assessees will have to be allowed a further period for paying the tax. It will be only after the expiry of the said period that fresh proceedings for recovery can be started The result would be that recalcitrant assessees would get sufficient time to withdraw their funds or alienate their properties with a view to defeating the claims of revenue.
3. In order to overcome these difficulties, it is proposed to provide that in such cases, it shall not be necessary to take proceedings afresh or to serve fresh notices of demand except that in The case of an enhancement of assessment, another notice of demand shall be served upon the assessee with respect to the amount by which the assessment has been enhanced. Opportunity has also been taken to provide for certain matters which are ancillary to the above proposal.
The said Validation Act received the assent of the President on 12-5-1964 and was published in the Gazette of India on the same date.
Now it will be relevant to reproduce the relevant Sections of the Validation Act:;
The assessee, the Taxing Authority and the TRO have been defined in Section 2(a), 2(d) and 2(e) of the Validation Act, respectively, in the following terms:
2. Definitions.- In this Act, unless the context otherwise requires,-
(a) ‘assessee’, in relation to-
(i) the Excess Profits Tax Act, 1940 (15 of 1940), or the Business Profits Tax Act, 1947 (21 of 1947), means a person by whom the tax or any other sum is payable under that Act;
(ii) the Estate Duty Act, 1953 (34 of 1953) means a person accountable or an accountable person as defined in that Act;
(iii) any other scheduled Act means an assessee as defined in that Act;
(d) ‘Taxing Authority’, in relation to any scheduled Act means an officer (by whatever name called) empowered to serve upon an assessee a notice of demand in respect of any Government dues under that Act;
(e) ‘Tax Recovery Officer’, in relation to any scheduled Act, means a Tax Recovery Officer as defined in that Act and where there is no such definition, means an officer (by whatever name called) to whom a certificate for the recovery of arrears of Government dues may be issued under that Act.
Section 3 of the Validation Act reads thus:
3. Continuation and validation of certain proceedings.- (1) Where any notice of demand in respect of any Government dues is served upon an assessee by a Taxing Authority under any scheduled Act, and any appeal or other proceedings is filed or taken in respect of such Government dues, then,-
(a) where such Government dues are enhanced in such appeal or proceeding, the Taxing Authority shall serve upon the assessee another notice of demand only in respect of the amount by which such Government dues are enhanced and any proceedings in relation to such Government dues as are covered by the notice or notices of demand served upon him before the disposal of such appeal or proceeding may, without the service of any fresh notice of demand, be continued from the stage at which such proceedings stood immediately before such disposal;
(b) where such Government dues are reduced in such appeal or proceeding,-
(i) it shall not be necessary for the Taxing Authority to serve upon the assessee a fresh notice of demand;
(ii) the Taxing Authority shall give intimation of the fact of such reduction to the assessee, and where a certificate has been issued to the Tax Recovery Officer for the recovery of such amount, also to that officer;
(iii) any proceedings initiated on the basis of the notice or notices of demand served upon the assessee before the disposal of such appeal or proceeding may be continued in relation to the amount so reduced from the stage at which such proceedings stood immediately before such disposal;
(c) no proceedings in relation to such Government dues (including the imposition of penalty or charging of interest) shall be levied by reason only that no fresh notice of demand was served upon the assessee after the disposal of such appeal or proceeding or that such Government dues hove been enhanced or reduced in such appeal or proceeding.
Provided that if as a result of any final order such Government dues (other than annuity deposit) have been reduced and the penalty imposed on the assessee for default in payment thereof exceeds the amount so reduced, the excess shall not be recovered and if it has already been recovered, it shall be refunded to the assessee on an application made by him to the Taxing Authority within such time and in such manner as may be prescribed by the rules made under this Act.
Provided further that if the amount of penalty imposed on the assessee for failure to make any annuity deposit exceeds one-half of the amount of the annuity deposit required to be made as a result of such order, the excess shall not be recovered, and if it has already been recovered, shall be refunded to the assessee on an application made by him to the Taxing Authority within such time and in such manner as may be prescribed by rules made under this Act:
Provided further that where any Government dues are reduced in such appeal or proceeding and the assessee is entitled to any refund thereof, such refund shall be made in accordance with the provisions of that Act.
(2) For the removal of doubts, it is hereby declared that no fresh notice of demand shall be necessary in any case where the amount of Government dues is not varied as a result of any order passed in any appeal or other proceeding under any scheduled Act.
(3) The provisions of this Section shall have effect notwithstanding any judgment, decree or order of any Court, Tribunal or other authority.
27. The above provisions of Validation Act have been interpreted and explained by their Lordships of Hon’ble Supreme Court in the case of Vikrant Tyres Ltd. (supra) and for the sake of convenience the relevant observations from the said decision are reproduced below:
9. The High Court also fell in error in relying on Section 3 of the Validation Act to construe Section 220(2) in the manner in which it has done in the impugned judgment. Section 3 of the Validation Act, in our opinion, cannot be relied upon to construe the authority of the revenue to demand interest under Section 220 of the Act. The said Section was enacted to cope up with a different fact-situation. That Section only reviews the old demand notice which had never been satisfied by the assessee and which notice got quashed during some stage of the challenge and finally the said quashed notice gets restored by an order of a higher forum. In such a situation, Section 3 of the Validation Act restores the original demand notice which was never satisfied by the assessee and the said Section does away with the need to issue a fresh notice. Beyond that, that Section cannot be resorted to for reviving a demand notice which is already fully satisfied.
(emphasis ours)
28. Keeping in view the above observations of their Lordships it has to be held that if the assessee has not satisfied the original demand notice, then, according to Section 3 of Validation Act, the original demand notice will be restored. In the case of ITO v. Seghu Buchiah Setty while interpreting the provisions of Sections 29 and 45 of Indian Income-tax Act, 1922 it was held that in a case where demand levied by the Assessing Officer was varied by the appellate or revising authority, the original order of the ITO merges into the order of such authority, and, consequently, in all cases of an order varying the assessment, the original order goes and all steps already taken for recovery of the demand become null and void and that in such cases it is the duty of the ITO to issue a fresh notice of demand in the prescribed format and serve it upon the assessee. To overcome such difficulty Section 3 of Validation Act, 1964 was enacted.
29. If the facts of the present case are considered in the light of Validation Act (the relevant provisions of which are reproduced in the above part of this order) as interpreted by their Lordships of Hon’blc Supreme Court in the aforementioned decision of Vikrant Tyres Ltd. (supra), then the conclusion is that assessee is liable for levy of interest under Section 220(2) from the due date as prescribed in the demand notice issued in’ pursuance of assessment order passed Under Section 143(3) of the Income-tax Act, 1961 till the date of actual payment. In the present case assessee has never satisfied the demand notice issued in pursuance of regular assessment, therefore, provisions of Validation Act will be applicable and the original demand notice is considered to be revived.
30. In view of above discussion, we find no infirmity in the order of GIT (A) vide which it has been held that assessee is liable for interest Under Section 220(2) from the due date as prescribed in demand notice issued in pursuance of regular assessment till the date of actual payment. We decline to interfere and the appeal filed by the assessee is dismissed.
31. In the result, the appeal filed by the assessee is dismissed. The order pronounced in the open court on 20/6/2008.