1985 (7) TMI 150 - AT - Income Tax

Summary

Issues:
1. Whether the assessment order passed by the ITO was erroneous and prejudicial to the interests of revenue.
2. Whether the ITO erred in not including interest income and allowing excess interest under section 214 of the Income-tax Act, 1961.

Detailed Analysis:
1. The appeal was filed against the order under section 263 of the Income-tax Act, 1961, by the assessee for the assessment year 1979-80. The Commissioner found the assessment order passed by the ITO to be erroneous and prejudicial to the revenue's interests due to non-inclusion of interest income and excess interest allowed under section 214. The Commissioner issued a show-cause notice proposing to cancel the assessment order and direct the ITO to redo the assessment.
2. The assessee contended that the interest income in question was not part of its income based on a previous Tribunal order and that the excess interest under section 214 was a clerical error. The Commissioner, however, disagreed and held the sum as taxable income. The assessee further argued that the ITO followed the Tribunal's order and the interest payment was made as advance tax, hence not erroneous. The Commissioner, despite the possibility of rectification under section 154, maintained that the assessment order was erroneous and fell under the ambit of section 263.
3. The representative for the assessee cited legal precedents to support the contention that following a higher authority's decision does not constitute an error by the ITO. Additionally, the payment made on 15-9-1978 was considered advance tax, as evidenced by the department's treatment of the amount. The department's representative supported the Commissioner's order, emphasizing the strict criteria for interest under section 214.
4. The Tribunal analyzed the contentions of both parties and found that the ITO had conducted a proper enquiry, considering the Tribunal's order and the IAC's review. The non-inclusion of interest income and the treatment of the payment as advance tax were found to be in accordance with the law. The Tribunal concluded that the Commissioner's assumption of jurisdiction under section 263 was not sustainable, and hence, the impugned order was canceled, allowing the appeal.