1984 (3) TMI 127 - AT - Income Tax

Summary

Issues:
1. Challenge to the order under section 263 of the Income-tax Act, 1961 canceling the assessment for the assessment year 1977-78.
2. Interpretation of rule 119A of the Income-tax Rules, 1962 regarding the calculation of interest by the Income Tax Officer (ITO).
3. Whether the mistake made by the ITO in charging interest was prejudicial to the interests of the revenue.
4. Authority of the Commissioner to set aside the ITO's order and direct recalculation of interest under section 263.

Detailed Analysis:
1. The appeal was filed by the assessee against the order passed by the Commissioner under section 263 of the Income-tax Act, 1961, canceling the assessment for the assessment year 1977-78. The Commissioner directed the ITO to recalculate the interest charged, citing a mistake in the interpretation of rule 119A of the Income-tax Rules, 1962. The department opposed the appeal.

2. The dispute revolved around the calculation of interest by the ITO on the assessed tax and the balance of unpaid tax. The Commissioner believed the ITO's interpretation of rule 119A was incorrect and directed a recalculation of interest. The authorized representative for the assessee contended that the Commissioner's interpretation was erroneous, while the departmental representative supported the Commissioner's order. The Tribunal found that the computation of the period for interest calculation was incorrect by both the ITO and the Commissioner.

3. The Tribunal analyzed rule 119A, emphasizing that the period for which interest is to be charged should be rounded off to a whole month or months, without disregarding any broken part of a month at the beginning or end of the period. The Tribunal concluded that the mistake made by the ITO in charging interest on the reduced amount of tax was not prejudicial to the revenue's interests, as it resulted in the revenue obtaining interest for an extra month.

4. The Tribunal highlighted that for the Commissioner to exercise powers under section 263, both the existence of a mistake and its prejudicial impact on the revenue's interests must be established. In this case, although a mistake was identified in the ITO's calculation of interest, it was deemed non-prejudicial to the revenue. Therefore, the Commissioner's order was set aside, and the appeal was allowed. The Tribunal clarified that the Commissioner had no authority to direct the ITO to recalculate the interest in this scenario.