1. This is an assessee's second appeal against an order under Section 154 of the Income-tax Act, 1961 ('the Act') rejecting inter alia the assessee's claim of interest under Section 243 of the Act.
2. We have heard the learned counsel for the assessee and the learned departmental representative.
3. The facts are that vide assessment for the assessment year 1977-78 there was an unabsorbed loss of Rs. 28,204 which was ordered to be carried forward. While making assessment for the assessment year 1978-79, this loss was not carried forward and the assessee's total income was determined vide order dated 28-11-1979 at Rs. 64,490. The assessee moved an application dated 18-8-1983 under Section 154 claiming adjustment of the aforesaid loss and also interest under Section 243 on the resultant refund. The application was allowed vide order dated 27-8-1983 adjusting the said loss and the resultant refund was accordingly granted. The assessee's claim for interest under Section 243 was rejected on the ground that there was no delay in the issue of refund after the passing of the rectification order. The assessee moved an appeal before the AAC but failed.
4. The learned counsel for the assessee contended that under Section 243 interest is to be paid if the refund is not made within three months from the end of the month in which the total income is determined under the Act. According to him the total income was determined vide assessment order dated 28-11-1979 and, therefore, interest is permissible from 1-3-1980. The contention of the authorities below, on the other hand, was that the refund became due only after the rectification order dated 27-8-1983 and the resultant refund was granted without any delay whatsoever and, therefore, no interest is payable.
5. No direct authority on [the respective interpretation has been cited from either side. The learned counsel for the assessee contended that the income is determined only by an assessment order and the assessment order in this case is dated 28-11-1979 and, therefore, even after the rectification the income would be deemed to have been determined only by the original assessment order. This contention does not appear to be correct. The power of rectification is an independent power and the order passed under Section 154 is appealable if it is prejudicial to the assessee. In S. Sankappa v. ITO  68 ITR 760, the Hon'ble Supreme Court has held that an order under Section 35 of the Indian Income-tax Act, 1922 (equivalent to the present Section 154) is a part of the assessment proceedings. Assessment has been defined under Section 2(8) of the Act and includes reassessment. Therefore, an order passed under Section 154 modifying an assessment is itself an assessment order and determines the assessee's total income. The refund, therefore, becomes due as a result of the order passed under Section 154 and it does not flow from the original order of assessment which in this case was passed on 28-11-1979. An assessee would, therefore, be entitled to interest on refund only if the refund was delayed after the passing of the order under Section 154 and the delay cannot be calculated with reference to the assessment order as it stood before the rectification. In our view, therefore, the authorities below were right in negativing the assessee's claim for interest.