P.K. Mehta, Accountant Member -
(1.) THESE are two inter-connected appeals of the assessee, who is taxed in the status of individual, for the same assessment year 1975-76 against two orders of the ITO, one being an order under Section 155 of the Income-tax Act, 1961 ('the Act'), dated 7-2-1979 and the other being an order dated 8-3-1979 under Section 154 of the Act.
(2.) We may first state the relevant facts in respect of the two orders passed. The ITO passed the assessment order dated 3-9-1977 for the assessment year 1975-76 and towards the end the following observations were made:
Assessed under Section 143(3). Tax shall be worked out on the above income. Notice of demand together with the challan shall be issued after giving credit for taxes paid under Section 210. Interest under Section 139(8) shall be charged.
Notice under Section 274 read with Section 271 shall also be issued, also issue notice under Section 274 read with Section 273.
In consequence of this assessment order after calculation of tax, a notice of demand was issued to the assessee demanding payment of Rs. 16,804. On the back side of the demand notice the details of the working of the amount demanded were given. It is seen from the photostat copy of the demand notice included in the assessee's paper-book that the amount demanded included interest under Section 217 of the Act, amounting to Rs. 3,683 and interest under Section 139 of the Act, amounting to Rs. 381. The assessee addressed a letter dated 3-8-1978 pointing out that on verification it was found that interest under Section 217 of Rs. 3,683 had been charged and that from the order it was found that there was no order for charging interest under Section 217. In view of this, it was stated that the interest was wrongly charged and a request was made to rectify the demand. The ITO did not dispose of this application of the assessee but issued a notice proposing rectification in respect of tv o points, viz.,
(i) deduction of Section 80G should be restricted to 10 per cent of total income ;
(ii) interest under Sections 139(8) and 217 are to be recalculated.
Thereafter, he passed an order under Section 154 dated 8-3-1979 in which he not only dealt with the mistakes pointed out in his notice to the assessee referred to earlier but also with the assessee's pending application dated 3-8-1978. The order passed is clearly a combined order and in para 2 in the opening part he deals with the assessee's letter dated 3-8-1978 objecting 'to the charging of interest under Section 217 as it was not mentioned in the body of the assessment order'. The ITO disposed of this issue in the next sentence as under:
Since this is the mistake apparent from records, it is rectified under Section 154.
The ITO in the next sentence in the same para referred to the assessee's objection about the refusal of interest charged under Section 139(8), in view of revised total income consequent upon the withdrawal of excess rebate allowed under Section 80G of the Act. In other words, the ITO started dealing with the second item of his notice about recalculation of interest chargeable under Sections 139(8) and 217. In para 3, the ITO observed that interest under Sections 139(8) and 217(1) shall be revised in view of his observations above. In that order he also referred to the total income assessed as per order dated 7-2-1979. Shri K.C. Patel, the assessee's counsel, submitted that the assessee had no idea about the passing of order dated 7-2-1979 as he had not been issued any notice before the passing of the order. He stated that on making enquiries, the assessee found that the ITO had earlier passed an order dated 7-2-1979 under Section 155 in order to revise the assessee's share of income from the firm Jaylaxmi Credit Corporation. As a result of order under Section 155, the assessee's income got revised downwards and this explanation, the absence of any notice to the asses-see prior to the amendment made by the ITO (sic). However, in that order as is seen from the photostat copy included in the assessee's paper-book, the ITO in hand had included the following line:
Interest under Sections 139 and 217 shall be charged.
This completes the narration of basic facts.
Shri K.C. Patel challenged both the orders of the ITO for the following reasons:
(i) He contended that as in the assessment order charging of interest under Section 217 was not mentioned by the ITO even though he had specifically mentioned about the charging of interest under Section 139(8) of the Income-tax Act, interest could not be charged through the demand notice. Tt was stated that demand notice was like a decree in a civil case while assessment order was like a judgment.
(ii) The ITO had not properly disposed of the assessee's application for rectification dated 3rd August, 1978 in the order passed on 8-3-1979. Tt: was pointed out that when the ITO had accepted the mistake, he should have cancelled the demand of interest under Section 217 and not proceeded further.
(iii) In respect of order under Section 155 dated 7-2-1979, it was submitted that so far as the reduction part of the income of the assessee was concerned no notice was required but as the ITO had added one sentence in hand for charging of interest under Section 217, this could not be done, being a substantive order to levy interest, without giving a notice to the assessee.
It was also stated that the AAC was not right in observing that there was no appeal provided in the circumstances of the assessee's case and attention was invited to the fact that the appeals in this case were filed against rectification orders under Sections 154 and 155 and not simply against charging of interest under Section 217.
(3.) ON behalf of the revenue, it was submitted that as held by the Allahabad High Court in the case of Ram Kishan Rajendra Kumar v. ITO, no separate order for charging of interest under Section 217 was required in the assessment order and the levy of interest being an automatic imposition under the relevant provision, the ITO's action in demanding the interest through the demand notice after making the tax calculations in the prescribed form was in order. It was also pointed out that the ITO was aware of the default in filing the estimate of advance tax when in the last sentence he referred to issuing of notice under Section 274 read with Section 273 of the Act, and, therefore, even though the levy of interest under Section 217 was not specifically mentioned, interest was rightly charged at the time of making calculations of the amount payable by the assessee. It was next stated that the ITO having charged the interest under Section 217 at the time of assessment itself while passing the first order under Section 155, dated 7-2-1979 was merely referring to the recalculation of interest payable under Section 217 though he did not use accurate words. It was pointed out that as a result of an order under Section 155, the assessee's income had come down and what the ITO meant by the sentence was to revise downward the demands of interest under Sections 139 and 217 also. Lastly, it was submitted in respect of the order under Section 154 of the Act, dated 8-3-1979 that the mistake which the ITO accepted in that order was merely of not mentioning the fact of charging of interest under Section 217 in the body of the assessment order and that mistake only is sought to be made good in his order and not that he ordered for the levy of interest under Section 217 itself for the first time since interest had in fact been levied at the assessment stage itself. It was also submitted that the ITO thereafter dealt with his own notice of rectification of the assessee and disposed of both the assessee's application and his notice together after hearing the assessee and also directed for recalculation of both the interests under Sections 139(8) and 217(1) on account of upward revision of the income due to mistake in the calculation of deduction under Section 80G. Alternatively, it was submitted that the ITO could also charge interest under Section 217 and recalculate the same under Section 154, if it is held that he had failed to properly charge the interest at the assessment stage. Reliance was placed on an unreported decision of the Gujarat High Court in the case of Dalwadi & Co. v. CIT [IT Reference No. 54 of 1972], order dated 17-12-1973 and two reported decisions of the Gujarat High Court in Addl. CIT v. Mohanlal P. Jain  102 ITR 584 (which was relied upon by the Tribunal in an order dated 6-91975 in the case of Girishchandra & Co. [IT Appeal No. 1234 (Ahd.) of 1974-75] wherein interest under Section 217 was charged by issuing notice under Section 154, also cited by the revenue) and CIT v. Ramjibhai Hirjibhai & Sons  110 ITR 411 (Guj.).;