2001 (5) TMI 25 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 216 of the Income Tax Act, 1961 regarding the levy of interest for underestimating advance tax.
2. Determination of whether interest under section 216 is chargeable for deficient payment in the first two instalments when assessments are framed under section 143(1) and not under section 143(3).

Issue 1: Interpretation of section 216 regarding the levy of interest for underestimating advance tax:
The petitioner filed a return declaring income for the assessment year 1988-89. The Assessing Officer charged interest under section 216 of the Act, alleging underestimation of advance tax. The Commissioner of Income-tax (Appeals) partially accepted the appeal, directing interest to be charged. The Tribunal, in a common order, quashed the levy of interest under section 216. The Tribunal held that interest cannot be levied under section 216 unless the assessee had underestimated advance tax deliberately or intentionally. The Tribunal emphasized that such a finding can only be made in an order passed under section 143(3) and not under section 143(1). The Tribunal concluded that the Assessing Officer failed to record an 'underestimate' of advance tax, making the levy of interest unwarranted and unjustified.

Issue 2: Chargeability of interest under section 216 for deficient payment in the first two instalments under section 143(1) assessments:
The Revenue contended that interest under section 216 should be levied as the assessee deliberately filed an incorrect return of estimated income. The Revenue argued that the assessee's awareness of the previous year's income should have guided the estimate for advance tax. The Tribunal dismissed the Revenue's reference application, stating that the questions proposed did not arise from its order. The Tribunal held that no judicial finding based on enquiry and application of mind could be recorded in an order passed under section 143(1). The High Court concurred with the Tribunal's interpretation of section 216, emphasizing that recording a finding of underestimation of income is essential for the levy of interest. The High Court held that the Assessing Officer's action in levying interest without such a finding was unwarranted and unjustified.

In conclusion, the High Court dismissed the petition, stating that neither of the questions sought by the Revenue arose in the case. The High Court upheld the Tribunal's decision to quash the levy of interest under section 216, emphasizing that the Assessing Officer must establish deliberate or intentional underestimation of advance tax for such interest to be charged. The judgment reinforces the requirement for a factual finding of underestimation before levying interest under section 216, particularly in cases assessed under section 143(1).