B INDIRA RANI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) LIABILITY of an assessee to pay interest under Section 220(2) of the IT Act, 1961, after fresh demand is raised on the basis of appellate order is the issue to be decided in this case. Facts of this case are not disputed. Appellant filed return for the period 1984 -85, showing to a net income of Rs. 13,42,720 and tax was paid on that income. AO by Ext. P1 order made some additions and assessed a total income of Rs. 17,32,260. One item of such addition was Rs. 50,000 said to be an unexplained cash credit. A notice of demand in the prescribed form under Section 156 for a tax of Rs. 14,66,497 was also served on the assessee along with Ext. P1 order. Appellant's appeal was partly allowed by the CIT(A) by reducing an 'addition of Rs. 4,000 only by Ext. P2 order. But in further appeal by Ext. P3 order the Tribunal directed the AO to reconsider the addition of Rs. 50,000 as the unexplained cash credit. The Tribunal held that the 'addition as it now stands cannot be sustained'. The appellate order Ext. P3 ends with the following :

(2.) EXT . P5(A) demand notice dt. 24th April, 1989, attached to Ext. P5 assessment order shows that it is a demand notice under Section 156 of the IT Act, 1961, and not a mere intimation of giving effect to the appellate order. It was issued under the prescribed form as per rules demanding payment of the amount mentioned therein within 35 days of the service of notice. Clause 3 of Ext. P5(A) demand stated as follows :

(3.) IN this case admittedly no intimation was sent as provided under the above section. But after the appellate order, fresh assessment was made as can be seen from Ext -P5 and fresh demand notice [Ext. P5(A)] in the prescribed form was sent. Whereas in 'Ext. P5(A) notice demand was made to pay the amount within 35 days. It was further stated that if the assessee failed to pay the amount within the time prescribed, he will be liable to pay interest under Section 220(2). In such circumstances, original demand is superseded and fresh demand is issued and liability to pay interest starts only from the date of new demand. First demand is nullified by the second demand. By the action of the assessing authority in making fresh assessment and demand notice, original demand notice is superseded. It is not a case where an intimation is sent under Validation Act, 1964. Validation Act, also has not prohibited issuance of fresh demand notice. It only says that it is not always necessary. First demand is nullified by the second demand.