Andhra Pradesh H.C : The petitioner is challenging the validity of levy of interest under s. 220(2) of the IT Act, 1961, for the period 15th March, 1975, to 1st April, 1977. For a proper appreciation of the contention urged herein, it is necessary to state a few facts.

Counsel Appeared

Y. Ratnakar, for the Petitioner : M. Suryanarayana Murthy, for the Respondent

B.P. JEEVAN REDDY, J.:

The petitioner is challenging the validity of levy of interest under s. 220(2) of the IT Act, 1961, for the period 15th March, 1975, to 1st April, 1977. For a proper appreciation of the contention urged herein, it is necessary to state a few facts.

By his order of assessment dt. 15th March, 1975, the ITO determined the petitioner’s assessable income for the asst. yr. 1971-72 at Rs. 13,74,314, whereon the tax payable came to Rs. 11,28,210. While the appeal preferred by the petitioner-assessee against the said order was pending, the assessment was reopened under s. 147 and an order of reassessment was made on 1st April, 1977. According to the reassessment order, the income assessed came to Rs. 17,65,611 whereon the tax payable was Rs. 15,15,582. The petitioner preferred an appeal against the reassessment order as well. The Tribunal, by its order dt. 5th Feb., 1979, reduced the assessable income to Rs. 3,48,955, the tax whereon came to Rs. 2,84,480.

In pursuance of the Tribunal’s order dt. 5th Feb., 1979 a modification order was passed by the ITO on 12th Aug., 1983. We are not concerned with the other particulars of the said order, except the item of interest charged under s. 220(2) of the Act. After deducting the tax deducted at source and the tax paid under s. 140A [and after including interest under s. 139(8)], the tax payable came to Rs. 2,18,035. This was taken to be the tax truly payable under the original assessment order dt. 15th March, 1975. Interest was charged thereon under s. 220(2) from that date up to 12th Aug., 1983, the date of modification order, which came to Rs. 2,16,945. The petitioner does not dispute the leviability of interest w.e.f. 1st April, 1977, up to the date of the Tribunal’s order, i.e., 5th Feb., 1979; but, he is challenging the levy of interest for the period 15th March, 1975, to 1st April, 1977. Though the contention was not raised in the writ petition, learned counsel for the petitioner also contended that levy of interest for the period 5th Feb., 1979 (the date of the Tribunal’s order) till 12th Aug., 1983 (on which date the modification order was passed), is equally illegal. We shall first deal with the main contention relating to the period 15th March, 1975, to 1st April, 1977.

The levy of interest for the period 15th March, 1975, the date of the first assessment order, to 1st April, 1977, the date of the reassessment order is challenged on the following grounds : Once an assessment is reopened by issuing a notice under s. 148, the first assessment becomes void and non est; the entire income is reassessed and not merely the income escaping assessment in such reassessment proceedings; the reassessment order is the only order of assessment in such a case; it cannot be said that any tax is due prior to the date of the reassessment order. Hence, no interest can be charged under s. 220(2) of the Act.

We find ourselves unable to agree with this contention. Sub-s. (2) of s. 220 reads as follows : “(2) If the amount specified in any notice of demand under s. 156 is not paid within the period limited under sub-s. (1), the assessee shall be liable to pay simple interest at fifteen per cent per annum from the day commencing after the end of the period mentioned in sub-s. (1) : Provided that, where as a result of an order under s. 154, or s. 155, or s. 250, or s. 254, or s. 260, or s. 262, or s. 264, 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.”

According to this provision, interest at the prescribed percentage (prior to 1st Oct., 1984, it was 12 per cent) is leviable on the amount specified in the notice of demand issued under s. 156 of the Act, after the expiry of 35 days from the date of service of the notice upon the person concerned. Sec. 147 provides for assessment of income escaping assessment. The two clauses in the section contemplate two situations, governed by different periods of limitation. The reassessment proceedings are initiated by issuing a notice under s. 148. The object of s. 147 is to bring to tax income which has escaped assessment. It applies where a person under an obligation to file a return has not filed the same and consequently no assessment has been made, as also to a case where a return has been submitted and an assessment has been made, but later it comes to light that certain income has escaped assessment, whether on account of concealment on the part of the assessee or in consequence of information reaching the ITO. It is true that once reassessment proceedings are validly initiated, the reassessment proceedings are not confined to the items mentioned in the notice issued under s. 148. It is also true that assessment or reassessment under this section is made as if it were made for the first time in the relevant assessment year and tax is charged at the rate applicable to the relevant assessment year subject to certain restrictions, one of them being that on such reassessment, the assessable income should not fall below the income originally assessed in the course of the assessment proceedings. But it does not follow from this that once a notice under s. 148 is given, the order of the original assessment becomes void ab initio or non est. The original assessment order remains good, valid and effective till it is substituted by the reassessment order. The situation is akin to what happens in the case of substitution of a section in an enactment. Where a particular section in an enactment is substituted, it does not erase the operation or efficacy of the substituted provision during the period it was in force. The substituted provision takes effect from the date of substitution. Similarly, in the case of a reassessment order, the original assessment order remains good and effective till it is substituted by the reassessment order. The reassessment order substitutes the original order of assessment. It takes the place of the original order. Learned counsel is not right in contending that the moment a notice under s. 148 is given, the original assessment order becomes non est and void ab initio and that the efficacy and the enforceability of the original order of assessment comes to an end the moment a notice under s. 148 is given. This contention, if accepted, would lead to startling results. It would mean that the moment a notice under s. 148 is given, the appeals or other proceedings relating to the original assessment order should automatically abate and come to an end; any recovery proceedings being taken in pursuance thereof must also cease and become non est; the amount of tax paid has to be refunded; the levy which has become due and payable by the assessee but has not been paid, would stop earning interest under s. 220(2); even if such interest has been accruing, it would disappear the moment a notice under s. 148 is given. Indeed, the acceptance of this argument would really work to the benefit of the assessee who has been guilty of either concealing the income, or where some of this income has escaped assessment. It would amount to conferring an immunity upon him and would also involve the State in unnecessary loss. It would also lead to multiplicity of proceedings. It may happen that in a given case, a notice under s. 148 is given, but is dropped or withdrawn later. The acceptance of the petitioner’s argument would create an anomalous situation in such a case. Moreover, it is well-settled that the income assessed in the reassessment proceedings cannot in any event go below the income assessed during the original assessment proceedings. It can go above the said amount but it cannot go below such amount. Similarly, deduction claimed earlier and disallowed cannot be reagitated. This itself shows that the original assessment is not erased or effaced. As stated above, the original assessment order is good and effective till it is substituted by the reassessment order. Once the reassessment order is passed, it is that order alone that is effective and operative. There is no hiatus. The mere issuance of a notice under s. 148 does not affect the validity or efficacy of the original assessment order, or the appeals or other proceedings arising therefrom, or other proceedings, if any, taken in pursuance of such original assessment order.

8. Sri Y. Ratnakar, learned counsel for the petitioner, however, placed strong reliance upon certain judgments of the Supreme Court and other High Courts in support of his contention to which we may now refer. The first decision relied upon is of the Supreme Court in V. Jaganmohan Rao vs. CIT (1970) 75 ITR 373 (SC) (a case arising under s. 34 of the Indian IT Act, 1922). While dealing with the scope of the reassessment proceedings, the Supreme Court made the following observations : “It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-s. (2) of s. 22, the previous underassessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under s. 34(1)(b), the ITO had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year”.

9. Similarly, in CST vs. H. M. Esufali H. M. Abdulali 1973 CTR (SC) 317 : (1973) 90 ITR 271 (SC), a case arising under s. 19 of the Madhya Pradesh General Sales Tax Act, 1958, the Supreme Court observed : “What is true of the assessment must also be true of reassessment because reassessment is nothing but a fresh assessment. When reassessment is made under s. 19, the former assessment is completely reopened and in its place fresh assessment is made. While reassessing a dealer, the assessing authority does not merely assess him on the escaped turnover but it assesses him on his total estimated turnover.”

10. Again in Dy. Commr. of Commercial Taxes vs. H. R. Sri Ramulu (1977) 39 STC177 (SC), a case arising under the Mysore Sales Tax Act, 1957, the following observations were made : “Once an assessment is reopened, the initial order of assessment ceases to be operative. The effect of the reopening the assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made on reassessment. The initial order for reassessment cannot be said to survive, even partially, although the justification for reassessment arises because of turnover escaping assessment in a limited field or only with respect to a part of the matter covered by the initial assessment order. The result of reopening the assessment is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of the turnover escaping assessment.”

11. In our opinion, these observations have to be read in their context and in the light of the contention which was being dealt with in each of the cases. In the first case, the contention was that at least one-third of the income which escaped assessment could have been assessed even at the time of the original assessment and that, not having done that, only the remaining 2/3rds can be included in the reassessment proceedings. While rejecting the said argument, the aforementioned observations were made. In the second case, the observations aforesaid were made in the context of the contention urged that in the reassessment proceedings it was not open to the STO to make a best judgment assessment in the absence of a specific provision empowering him to do so in reassessment proceedings. In the third case, the observations quoted were made in the context of the argument that the power of revision of the Commissioner having been exercised beyond four years of the original assessment order, is barred. The said argument was rejected holding that once a reassessment order was made, it is that order alone that is revised, and that the original order does not survive so as to enable the assessee to contend that the period of limitation of four years must be computed from that date. In none of the above cases was it said by the Supreme Court that once reassessment proceedings are initiated, the initial order of assessment becomes non est or void ab initio and that it loses all efficacy. Indeed, in H. R. Sri Ramulu’s case (supra), the Supreme Court specifically said that the order of reassessment substitutes the original order of assessment. We are, therefore, of the opinion that none of the decisions of the Supreme Court are of any help to the petitioner.

12. Mr. Y. Ratnakar then relied upon certain other decisions to which also a brief reference may be made. The first decision relied upon is a Full Bench decision of this Court in CWT vs. Subakaran Gangabhishan (1980) 14 CTR (AP)(FB) 1 : (1980) 121 ITR 69 (AP)(FB). This decision rendered under the provisions of the WT Act. The main contention urged by the assessee was to the following effect : “The WTO has no jurisdiction to reopen the previous assessment and assess or reassess the net wealth chargeable to tax which escaped assessment whether by reason of underassessment or assessment at too low a rate or otherwise, in respect of items falling under s. 17(1)(b) after the expiry of four years prescribed therefor, in a proceeding initiated by the WTO pursuant to a notice under s. 17(1)(a) of the Act. To put it differently, according to the assessee, the reassessment proceedings initiated through a notice under s. 17(1)(a) of the Act must be confined only to the items which fall under s. 17(1)(a) of the Act, and in support of this contention the assessee’s counsel relied strongly upon the decisions in Veerappa Chettiar vs. CIT (1973) 91 ITR 116 (Mad) and Jaganmohan Rao vs. CIT (1970) 75 ITR 373 (SC) and other decisions.”

13. While rejecting the said contention, the Full Bench referred to not only Jaganmohan Rao’s case (supra) but also to H. M. Esufali H. M. Abdulali’s case (supra) and H. R. Sri Ramulu’s case (supra) and made the following observations : “From the aforesaid decisions, it is clear that reassessment wipes out the original assessment and the reassessment must be in respect of not only the items that escaped assessment but the entire assessment for the year. The assessing authority, whether under the IT Act or under the ST Act, has a statutory duty and obligation, apart from having jurisdiction, to include all items that escaped assessment notwithstanding the fact that he had mentioned in the notice only some and complete the assessment as if the reassessment proceedings are de novo and afresh….. On a careful reading of the provisions of s. 17(1) of the Act, we are of the view that once an assessment is validly reopened under s. 17(1), no distinction can be made between the items falling under cl. (a) and cl. (b) thereof, that the reassessment proceedings wipes out the original assessment which results in obtaining the same position as it was prior to the completion of the original assessment and that the assessing authority would, consequently, have jurisdiction to assess the items falling under cl. (a) as well as cl. (b) of s. 17(1) of the Act.”

In our opinion, again, the said observations must be understood in the context of the contention urged and which was being repelled. The observations in a judgment—it is well-settled—cannot and should not be read as the provisions of a statute and must be understood in the context of the contention urged and the issue raised.

We do not think that it is worthwhile to refer to all the decisions cited, since none of the cases cited deal with the situation or the point arising before us. The decision of the Madras High Court in CIT vs. Standard Motor Products of India Ltd. (1983) 35 CTR (Mad) 107 : (1983) 142 ITR 877 (Mad) : TC27R.158, which too contains certain observations, which prima facie appear to be very widely worded, have to be confined to the facts of that case. Indeed, in Sharda Trading Company vs. CIT (1984) 40 CTR (Del) 274 : (1984) 149 ITR 19 (Del), the Delhi High Court correctly set out the position, saying : “The order of reassessment would take the place of the original order of assessment and till that is done, the original order of assessment would still be operative. None of these authorities cited by the counsel for the petitioner lays down that mere reopening of the assessment has the automatic effect of cancellation of the (original) assessment order.” That is precisely our opinion as well. Indeed, in our opinion, no other view is possible in the circumstances. We had to deal with the said argument at such length because of the great conviction and force with which learned counsel for the petitioner urged the said contention. We are, therefore, of the opinion that the charging of interest under s. 220(2) for the period 15th March, 1975, to 1st April, 1977, is neither illegal nor invalid.

So far as the leviability of interest for the period 5th Feb., 1979, to 12th Aug., 1983, is concerned, we do not propose to go into the question as it was not at all raised in the writ petition. Whether the delay of 4-1/2 years in passing the order of recomputation (modification order dt. 12th Aug., 1983) is the result of negligence or inaction on the part of the ITO or whether the petitioner was responsible therefor are questions of fact. The petitioner did not refer to this aspect in his writ petition and hence the respondents had no opportunity to deal with or reply to it. Allowing counsel for the petitioner to argue the said question without the necessary factual data would not be an advisable exercise. In the counteraffidavit, it is pointed out that the proper forum to raise this question is the CIT under sub-s. (2A) of s. 220. We too are of the opinion that, in the circumstances, that may be the proper course for the petitioner to adopt. It is obvious that if and when the petitioner approaches the CIT under s. 220(2A), his representation will be considered and disposed of according to law.

The writ petition accordingly fails and is dismissed. No costs, Advocate’s fee Rs. 250.

[Citation : 172 ITR 13]