Requirement of an order levying interest u/s 216. - Income Tax - 1311/CBDT

INSTRUCTION NO. 1311/CBDT Dated: February 29, 1980 It has been brought to the notice of the Board that some of the Income-tax Officers do not pass speaking orders while charging interest under section 216" or make an observation that "interest under section 216 is levied" in the assessment order. The order under section 216 is specifically appealable vide sub-clause(m) of Section 216. It is, therefore, obvious that the Income-tax Officer's order directing an assessee to pay interest under section 216 should be a speaking order, giving his reasons for coming to the conclusion that such interest is leviable to enable the appellate authority to appreciate the issues involved. 2. The same conclusion follows if the language of section 216 is compared with the language used in Sections 215 and 217, Sections 215 and 217 come to play as soon as the factual situations mentioned in those sections are objectively found to exist. On the other hand, before interest under section 216 can be levied, it is not merely adequate that the factual conditions prescribed in the section, namely, reduction of the amount payable in either of the first two instalments or deferment of the payment of instalments under section 213 - exist but it must be found that such conditions arise as a result of under estimation of the advance tax by the assessee or wrongful deferment of the payment of instalment by the assessee. The assessing authority should go into the mens rea of the assessee and proper conclusions have to be reached after hearing him on the circumstances under which he committed such defaults. It is only on such a finding that under-estimation/wrongful deferment has been made by an assessee that the Income-tax Officer can levy interest under section 216. Since the finding rests on the Income-tax Officer's appreciation of the facts, the reasons supporting his conclusion should be recorded in the order so that an appellate authority can judge whether the Income-tax Officer's finding is justified on the facts of the case. 3. You may, therefore, take steps to instruct all the assessing officers working under you to ensure that before charging interest under section 216, they hear the assessee on this issue and they also record their findings and the rationale for their findings in the assessment order itself.