1991 (1) TMI 122 - HC - Income Tax

Summary

Issues:
1. Competency of the Income-tax Officer to withdraw interest under section 214 and levy interest under section 217(lA) while revising assessment under section 154/155.
2. Legality of entertaining an appeal against the withdrawing of interest under section 214 and charging of interest under section 217(lA).

Detailed Analysis:
The judgment pertains to a case where the Income-tax Officer completed the assessment of an assessee who was a partner in a firm before the assessment of the firm itself was completed. The assessee's share of profit was initially taken at Rs. 86,000 subject to rectification under section 154/155. The firm was initially treated as an unregistered firm by the Income-tax Officer. However, the Appellate Assistant Commissioner later treated the firm as a registered firm, and this decision became final. Subsequently, the Income-tax Officer rectified the assessment order of the assessee in line with the assessment order of the firm, resulting in the withdrawal of interest granted earlier and imposing interest under section 217 of the Income-tax Act.

The assessee filed appeals against this rectification order and the calculation memo issued by the Income-tax Officer. The Tribunal found that the rectification order was illegal as no notice was issued to the assessee before enhancing the tax liability, as required by sub-section (3) of section 154. The Tribunal also held that the Income-tax Officer lacked the authority to withdraw the interest granted under section 214 and to charge interest under section 217 in this scenario. The Tribunal emphasized the importance of adhering to the principles of natural justice as outlined in the statute.

The judgment highlighted that any rectification order enhancing the liability of the assessee without providing a notice and an opportunity to be heard is invalid in law. Therefore, the questions referred to the court regarding the competency of the Income-tax Officer to withdraw interest under section 214 and levy interest under section 217(lA) were deemed academic in nature, given the invalidity of the rectification order. As a result, the court declined to answer the questions and disposed of the references accordingly, without awarding any costs to either party.