The Supreme Court in CIT v. Chittoor Electric Supply Corporation (212 ITR 404) held that where an assessment order is set aside and a fresh assessment is directed to be made, the assessment must be deemed to be still pending, which has to be completed. Such is the import of section 240 of the Income tax Act, 1961 as amended w.e.f. 01.04.1989. The Apex Court in this case further held that clause (a) of the proviso to section 240, added with effect from April 1, 1989, is merely clarificatory. Thus the refund if any arising in such cases will fall due only on the framing of fresh assessment. In other words it will not fall due immediately.
But in such cases the recovery proceedings tend to be infructuous too. Now what will happen in such cases of the amount already collected by the department?
In the case of Prabir Kumar Mukherjee v. Union Bank of India (118TAX119) the assessing officer withdrew sums out of assesses joint bank account (irregularity found) at the first instance on passing of the order. The Commissioner (A) set aside the order of the assessing officer. The department went in appeal before the Tribunal.
The Calcutta High Court held that in such cases the assessee should not be deprived of getting back his money. Keeping in interest both of the revenue as well of the assessee the Calcutta High directed the department to refund the amount to the concerned bank to hold such sum in short term deposit till the decision of the Tribunal. The Court also directed for out of turn hearing of the appeal. At least in this case the assessee benefited from interest on such deposit as otherwise the interest meter would have started only from the date of passing order of fresh assessment in view of section 237 requiring determination of the amount paid in excess, being possible only on such fresh assessment.
In the similar manner in the charge of interest u/s 220(2) the original notice of demand remains valid and effective to the extent that the tax is finally determined to be due and payable by the assessee.