1988 (8) TMI 131 - AT - Income Tax

Issues Involved:

1. Validity of rectification under Section 154.
2. Treatment of Rs. 75,000 seized as advance tax.
3. Charging of interest under Sections 139(8) and 217.
4. Procedural fairness regarding notice under Section 154.
5. Applicability of Rule 40/117 for waiver of interest.

Detailed Analysis:

1. Validity of Rectification under Section 154:

The appeal challenges the order under Section 154 passed by the Income Tax Officer (ITO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The ITO issued a notice under Section 154 to rectify an alleged mistake in the computation of interest, which was purportedly apparent from the record. The CIT(A) upheld the ITO's rectification, noting that the original assessment order did not direct the charging of interest under Sections 139(8) or 217. The rectification was not of the original assessment order dated 14th July 1982 but of the subsequent order dated 29th April 1983, which treated Rs. 75,000 as advance tax based on the assessee's letter dated 18th April 1983. The Tribunal agreed that the rectification was valid as it aimed to correct an apparent mistake in the subsequent order, not the original assessment order.

2. Treatment of Rs. 75,000 Seized as Advance Tax:

The central issue was whether the Rs. 75,000 seized from the assessee on 27th January 1977 could be treated as advance tax for the assessment year 1977-78. The CIT(A) and the Tribunal concluded that the seizure could not be regarded as payment of advance tax. Advance tax, by definition, must be paid voluntarily and within the financial year preceding the assessment year. The Rs. 75,000 was appropriated towards tax only on 29th April 1983, well beyond the financial year ending 31st March 1977. Therefore, it could not be considered as advance tax for the financial year 1976-77.

3. Charging of Interest under Sections 139(8) and 217:

The ITO initially charged interest under Sections 139(8) and 217 in the order dated 29th April 1983, which the assessee did not appeal against, allowing it to become final. The ITO later issued a notice under Section 154 to rectify the interest computation, which included Rs. 75,000 as advance tax. The CIT(A) upheld the rectification, stating that the interest could be charged even if it was not directed in the original assessment order. The Tribunal agreed that the mistake in treating Rs. 75,000 as advance tax was apparent from the record and could be rectified.

4. Procedural Fairness Regarding Notice under Section 154:

The assessee contended that the notice under Section 154 mentioned only Section 217 and not Section 139(8), thus violating procedural fairness. The CIT(A) reviewed the ITO's records and found that the office copy of the notice mentioned both sections. However, the Tribunal noted that the assessee's reply to the notice referred only to Section 217, suggesting a possible procedural lapse. The Tribunal remanded the matter to the CIT(A) to verify the original notice and ensure procedural fairness. If the notice did not mention Section 139(8), the assessee should be given a fresh opportunity to be heard on this issue.

5. Applicability of Rule 40/117 for Waiver of Interest:

The assessee argued that the absence of a direction to charge interest in the original assessment order implied a waiver under Rule 40/117. The CIT(A) rejected this, noting that there was no evidence of the ITO waiving interest. The Tribunal agreed, stating that the ITO's conduct did not indicate a waiver, as interest was charged in the order dated 29th April 1983.

Conclusion:

The Tribunal upheld the rectification of the ITO's order under Section 154 regarding the treatment of Rs. 75,000 as advance tax and the charging of interest under Section 217. However, it remanded the issue of procedural fairness regarding the notice under Section 154 for interest under Section 139(8) to the CIT(A) for further verification. The appeal was treated as partly allowed for statistical purposes.

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