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TMI Blog1978 (6) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal the AAC, the assessed income was reduced to Rs. 81,020. Tax as registered firm on this income works out to Rs. 7,685. The assessee firm was a person not hitherto assessed in terms of s. 212(3) and as such it was required to make estimate of its income and to pay advance tax on the basis of such estimate during financial year 1970-71. It appears from the assessment order that the assessee did pay Rs. 10,000 on 9th July 1970 by way of advance-tax under s. 210 The ITO, however directed in the assessment order that interest should be charged as per rules. The interest seems to have been charged according to the ITO s direction and it amounted to Rs. 16,970. 4. The assessee appealed to the learned AAC against the assessment under s. 143(3) including levy of the said penal interest of Rs. 16,970. Before the AAC two fold argument was advanced in respect of the levy of penal interest. Firstly, it was urged that the penal interest was wrongly charged by the ITO treating the firm as unregistered firm since the assessee had all along presumed that registration would be granted. Secondly, referring to Rule 40 of the IT Rules, 1962 it was pointed out that the assessment for this year w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... URF but the adoption of the status as URF by the ITO was later on disputed and the learned AAC allowed the assessee's claim for registration. Further, the learned counsel stated, the assessee also contended that in the circumstances of the case the learned ITO should have completely waived the penal interest under R. 40 of the IT Rules, 1962. He stressed that the assessee was thus disputing before the AAC the very liability to pay penal interest and, therefore, the assessee did have right to appeal under s. 246(c) and the AAC was right in entertaining the appeal. In support of this view, the learned counsel referred to Karnataka High Court decision in National Products vs. CIT(5) and Bombay High Court decision in CIT vs. Daimler Benz A.G. (6). Proceeding further the learned counsel for the assessee said that the learned AAC came to the conclusion after examining the facts that the assessee should not have been charged penal interest for the period beginning from April, 1973 to the date of the assessment and since the correctness of his conclusion has not been questioned by the Department, no interference was called for and the argument of the learned departmental Representative tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to consider whether the assessee was entitled to waiver or reduction of interest. It is, therefore, clear that levy of penal interest under s. 139 and 215 is part of the assessment. When such penal interest is levied the assessee is 'assessed', meaning thereby he is subjected to the procedure for ascertaining and imposing liability on him. If the assessee denies his liability to be assessed under the Act, he has a right of appeal to the AAC against the order of assessment. Where penal interest is levied under s. 215 by the order of assessment, the assessee may altogether deny his liability to pay such interest on the ground that he was not liable to pay advance-tax at all or that the amount of advance-tax determined by the ITO as payable ought to be reduced. In either case he denies his liability, wholly or partially, to be assessed. Similarly, where interest is levied under s. 139 of the Act, the assessee may deny his liability to pay such interest on the ground that the return was not belated or that the penal provision was not attracted at all to his case. In such a case also he denies his liability to be assessed to interest. But where the assessee does not deny his liability t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o say, he is not a non-resident). Similarly, he also decides that the assessee is not in respect of an income which is not chargeable at all (that is to say, his income is not agricultural). If, in respect of such decisions which are implicit in his section in resorting to s. 18A(1) of the Act, the assessee feels that the ITO has gone wrong, he would be an assessee desiring to 'deny his liability to be assessed under this Act" and, therefore, it would be unfair to deny him the right of appeal, to the AAC. It does appear to us that if after resorting to s. 18A(2) the ITO was to proceed against the assessee by way of charging penal interest on him either under s. 18A(6) or under s. 18A(8) for some default on his part and the assessee was minded to challenge merely the quantum of penal interest charged to him, he would have no right of appeal to the AAC inasmuch as the assessee in that event would not fall within the phrase "assessee denying his liability to be assessed under this Act" occurring in s. 30(1) of the 1922 Act, therefore, we are clearly of the view that in the former type of cases an appeal would lie to the AAC whereas no appeal would lie merely against the quantum of pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penal interest, but no right of appeal has been given to the assessee to appeal simply against the quantum of penal interest". Sum and substance of these judgments is that if an assessee challenges only the quantum of penal interest, then it is not permissible to him to go in appeal to the learned AAC under s. 246(c) but if the assessee denies the very liability to be charged with penal interest, then it is permissible to him to go in appeal to the learned AAC under s. 246(c) and when such an appeal has been filed, it will be open to the learned AAC to take into account all points which may legitimately reduce the taxable income or the tax to be paid but also substantially reduce the quantum of the penal interest. 9. The Gujarat case thus does not help the Revenue. The other cases relied upon by the learned Departmental Representative also do not help. In the Gauhati case their Lordships were concerned with penal interest under s. 139(8) and, therefore, being on a different provision of the Act, it cannot be applied. In the Allahabad case (1978 CTR (All) 181 : 107 ITR 533) their Lordships were no doubt concerned with penal interest under s. 18A(6) and 18A(8) and s. 18A(6) does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be accepted. Before the learned AAC a specific point was raised in appeal which was that under R. 40, the interest should have been completely waived. The Act, as stated, did authorise the ITO to reduce or waive penal interest in certain specified circumstances. The ITO had himself directed in the assessment order that the interest should be charged according to rules, but while levying the interest he failed to apply his mind to the said rule. The learned AAC merely made up the ITO' s omission. There is no dearth for authority that in an appeal the learned AAC can do all that under the law the ITO is empowered to do. The only limitation on his powers is that he cannot travel outside the for corners of the assessment and that the learned AAC has not done. He has merely done what under the law should have been done by the ITO, but he failed to do. In such circumstances, two courses were open to the learned AAC. Either, he should have sent back this issue to the ITO for examination in the light of R. 40 or given a decision himself on the basis of the facts of the case whether the penal interest levied was reasonable or not. The learned AAC chose to decide the issue himself. In doin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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