1987 (11) TMI 130 - AT - Income Tax

1994 (8) TMI 73 - AT

Issues Involved:
1. Whether the Income Tax Officer (ITO) can levy interest under section 139(8) in rectification proceedings initiated under section 154.
2. Whether the calculation sheet (Form ITNS-150) accompanying the assessment order can be considered part of the assessment order for the purpose of levying interest.
3. Whether the Appellate Assistant Commissioner (AAC) was correct in deleting the interest levied by the ITO.
4. Whether the matter should be sent back to the ITO for fresh examination or the departmental appeal should be dismissed altogether.

Detailed Analysis:

Issue 1: Levy of Interest under Section 139(8) in Rectification Proceedings under Section 154
The revenue appealed against the AAC's order, which held that the ITO cannot levy interest under section 139(8) in rectification proceedings initiated under section 154. The revenue argued that the interest was mentioned in the demand notice and calculation sheet, indicating the ITO's intention to charge interest. However, the assessee contended that unless the interest is explicitly mentioned in the assessment order, the assessee cannot be held liable for interest. The AAC followed the Calcutta High Court decision (139 ITR 946) and the Allahabad High Court decision in CIT v. Himalaya Drug Co. (1982) 135 ITR 368, which supported the view that the calculation sheet does not form part of the assessment order.

Issue 2: Calculation Sheet as Part of Assessment Order
The ITO did not mention any default by the assessee in the assessment order dated 28-2-1983. The calculation sheet (Form ITNS-150) prepared by clerks was argued to be an intermediary working sheet and not an order passed by the ITO. The Calcutta High Court in 139 ITR 946, CIT v. Bharat Machinery & Hardware Mart (1982) 136 ITR 875 (Guj.), and Himalaya Drug Co.'s case held that the calculation sheet cannot be the basis for raising the demand on the assessee. The AAC upheld this view, stating that the presumption should be in favor of the assessee that there was no delay and, therefore, no interest is chargeable.

Issue 3: Deletion of Interest by AAC
The AAC's order deleting the interest was challenged by the revenue. The Judicial Member disagreed with the Accountant Member's view, arguing that an accidental slip by the ITO should not be fatal to the revenue's case. According to section 156 of the IT Act, the notice of demand specifies the sum payable, and the assessment order under section 143(3) is separate from the calculation sheet. The Judicial Member cited CIT v. Executors of the Estate of Late H. H. Rajkuverba Dowager Maharani Saheb of Gondal (1978) 115 ITR 301 (Kar.) and argued that the calculation sheet could be considered part of the assessment order. The Judicial Member also referred to section 292B of the IT Act, which validates proceedings with mistakes, defects, or omissions if they conform to the intent and purpose of the Act.

Issue 4: Remanding the Matter to ITO
The Judicial Member suggested that the matter should be sent back to the ITO for a fresh examination, arguing that the ITO's omission to mention interest in the assessment order could be rectified under section 292B. The Judicial Member emphasized that the AAC should have considered the issue of interest himself rather than canceling the order altogether. The Judicial Member cited CIT v. City Palayacot Co. (1980) 122 ITR 430 (Mad.) and CIT v. R. Giridhar (1984) 145 ITR 246 (Kar.) to support the view that the calculation sheet forms part of the assessment order.

Third Member's Opinion
The Third Member, President Ch. G. Krishnamurthy, was called to resolve the difference of opinion. He reviewed the conflicting judicial opinions and concluded that the calculation sheet should be considered part of the assessment order, following the Karnataka High Court's decision in R. Giridhar's case. The Third Member emphasized that section 292B validates proceedings with mistakes, defects, or omissions if they conform to the intent and purpose of the IT Act. He agreed with the Judicial Member that the matter should be remanded to the ITO for reconsideration regarding the waiver of interest under Rule 117A of the Income-tax Rules.

Conclusion
The majority opinion favored remanding the matter to the ITO for fresh examination regarding the waiver of interest under section 139(8), rather than dismissing the departmental appeal altogether. The Third Member's decision resolved the difference of opinion, emphasizing the application of section 292B and the inclusion of the calculation sheet as part of the assessment order.

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