Precedents Cited

The judgment extensively referenced several key precedents:

• K.P Abdul Kareem Hajee v. ITO, [1983] 141 ITR 120 (Ker): This case established that in the absence of a stay order, an assessment order subject to appeal remains provisionally enforceable.
• Mohammed Essa Moosa Sait v. GTO, [1987] 167 ITR 338 (Ker): Reinforced the principle that appellate decisions restoring original assessment orders enforce the demand made therein.
• T.S Balaram, ITO v. Volkart Brothers, [1971] 82 ITR 50: The Supreme Court emphasized that rectification under section 154 is limited to obvious and patent mistakes apparent on the record.
• CIT v. Chloride India Ltd., [1990] 186 ITR 217: Clarified that a fresh order supersedes previous assessment orders, and interest should be calculated based on the latest determination.
• CIT v. Century Enka Ltd.: Highlighted that subsequent appellate orders nullify the enforceability of prior assessment demands.

The petitioner argued that the Kerala High Court's decisions were distinguishable since, in their cases, the appellate orders fully affirmed the original assessments. However, the Calcutta High Court noted significant differences, particularly the partial restoration and subsequent recomputations in the present case, rendering the earlier assists inapplicable.

Legal Reasoning

The Court delved into the provisions of sections 220(1) and 220(2) of the Income-tax Act, emphasizing the following points:

• Section 220(1): Specifies the taxpayer's obligation to pay the demanded amount within 35 days of the notice.
• Section 220(2): Imposes a statutory liability to pay simple interest at 12% per annum if the demanded amount remains unpaid beyond the stipulated period.

Crucially, the Court interpreted that section 220(2) applies only if the amount specified in the demand notice remains outstanding after the 35-day period. In the instant case, the appellate orders altered the assessment, leading to recomputation of the tax payable and effectively nullifying the original demand. As such, no continuous outstanding amount existed from the original notice date, negating the basis for interest under section 220(2).

The Court also highlighted that rectification under section 154 requires an "apparent mistake" evident from the records, as per the Supreme Court's guidance. The alleged error in not charging interest was not an obvious mistake but rather a matter of interpretation requiring detailed reasoning, which falls outside the purview of rectification.

Impact

This judgment has significant implications for tax assessments and the application of interest under section 220(2). It establishes that:

• Appellate decisions that alter or nullify original assessments effectively replace those assessments, rendering earlier demand notices unenforceable.
• Interest under section 220(2) cannot be retroactively applied based on original assessment dates if subsequent appellate orders have modified the tax liability.
• Rectification proceedings are constrained to correcting obvious and apparent errors, not broader interpretative discrepancies.

Tax authorities must consequently issue fresh demand notices post-appellate decisions, and interest liabilities should be calculated based on the latest assessment determinations.