1973 (9) TMI 14 - HC - Income Tax

Whether the assessee is liable for interest as provided by section 215 (1) of the Income-tax Act 1961 - Whether provisions of section 263 can be invoked when there is failure to charge interest under section 215 - (1) Whether the presumption made by the Appellate Tribunal that the Income-tax Officer had exercised his discretion and decided not to levy the penal interest u/s 215 of the Income-tax Act 1961 is supported by any material ? (2) Whether Tribunal was right in law in holding that the Commissioner of Income-tax was not justified in modifying the assessment order of the Income-tax Officer u/s 263 of the Income-tax Act 1961 ? we have to answer question No. 1 in the negative that no material has been relied on by the Tribunal for the presumption it had drawn - second question referred to us has to be answered also in the negative that is in favour of the department and against the assessee

Issues:
Assessment of interest under section 215 (1) of the Income-tax Act, 1961 for the years 1964-65, 1965-66, and 1966-67; Commissioner's power to revise orders under section 263; Interpretation of the words "erroneous in so far as it is prejudicial to the interests of the revenue"; Tribunal's reliance on previous judgments in determining the exercise of discretion by the Income-tax Officer.

Analysis:
The judgment pertains to the assessment of interest under section 215 (1) of the Income-tax Act, 1961 for the years 1964-65, 1965-66, and 1966-67. The Income-tax Officer did not charge interest under the section, leading to the Commissioner of Income-tax setting aside the assessment orders due to oversight and inadvertence to section 215 of the Act. The Commissioner's order was appealed to the Income-tax Appellate Tribunal, which allowed the appeals, stating that the Income-tax Officer had exercised discretion to waive or reduce interest in favor of the assessee, based on previous court decisions.

The issues raised before the High Court included whether the Tribunal's presumption of the Income-tax Officer exercising discretion not to levy interest was supported by any material and whether the Commissioner was justified in modifying the assessment order under section 263 of the Income-tax Act. The High Court analyzed the provisions of section 215(1) and (4) of the Act, which allow the Income-tax Officer to reduce or waive interest payable by the assessee under certain circumstances.

The Court discussed the power of the Commissioner under section 263 to revise orders if they are erroneous and prejudicial to the revenue's interests. The Tribunal's reliance on previous judgments, particularly the Bombay High Court's observations, was scrutinized. The Court emphasized that an order not charging interest is prima facie prejudicial to the revenue's interests and must be supported by adequate grounds. If an order is silent on charging interest, the Commissioner may set it aside for fresh consideration by the Income-tax Officer.

The High Court concluded that the Tribunal had drawn a presumption without sufficient material and that the Commissioner was justified in modifying the assessment orders to reassess interest. The judgment highlighted the necessity for a judicial exercise of discretion by the Income-tax Officer and the requirement for reasons to be stated for waiving or reducing interest. The Court answered both questions in the negative, in favor of the department and against the assessee, directing the parties to bear their respective costs and forwarding a copy of the judgment to the Income-tax Appellate Tribunal, Cochin Bench.

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