Decided on November 22,1983

F.ALI AHMED Respondents


D.K. KAPUR, J. - (1.)THERE are three references before the Court at the instance of the Department. They relate to asst. yrs. 1966-67, 1967-68 and 1968-69. The assessee in this case was then a Minister of the Union Cabinet. In each of these years, there was a late filing of the return. At that time, s. 139 (1)(b)(iii) of the IT Act, 1961, provided that interest was chargeable in case the return was filed late but, there was also s. 139(8) which allowed the ITO to waive or reduce the interest. In these three years, the amount of interest was Rs. 526 for the asst. yr. 1966-67, Rs. 5,324 for 1967-68 and Rs. 423 for the asst. yr. 1968-69. The assessee had moved under r. 117A(v) for a reduction or waiver of the interest on the ground that he was prevented by sufficient cause from furnishing the return within time. It appears that two letters dt. 1st Jan., 1969, and 31st March, 1969, were written in this behalf. The orders of the ITO were passed on 14th April, 1969, in respect of the three years, but there is no mention of the waiver application in any of the three orders.
(2.)AN appeal was taken by the assessee to the AAC, who, by order dt. 1st September, 1969, accepted the appeal and thought that it was a fit case in which interest should be waived. The Department then went in appeal to the Tribunal and one of the questions raised before the Tribunal was whether an appeal lay in the circumstances of this case. The Tribunal followed the judgment of the Bombay High Court in Keshardeo Shrinivas Morarka vs. CIT (1963) 48 ITR 404 (Bom) : TC6R.608, and held that an appeal lay. It accepted the position that the AAC had acted in accordance with law in waiving interest and it also discussed in detail the reasons for the delay in filing the return. One of the reasons which prevailed with the Tribunal was the fact that the assessee, who had become a Minister in 1966, had suffered a severe heart attack shortly afterwards, which necessitated him taking rest for some period and it also prevented him from going to Assam to collect the material for filing the return. There was thus sufficient material to justify the waiving of the interest. The Department has raised the following question in the reference :
"Whether the Tribunal was correct in law in holding that the AAC was justified in entertaining an appeal against the charging of interest under s. 139(1) of the IT Act, 1961, by the ITO ?"

This question has been argued in great detail by Mr. Wadhera, who has brought to our notice a very large number of judgments relating to the question whether an appeal does lie or not. A large majority of these judgments supports the view of the Department to the effect that no appeal lies and the AAC cannot interfere with the same. At the same time, we are under a handicap as no one has appeared for the assessee and we could answer this question satisfactorily only on hearing both sides.

There is a view among some of the High Courts that the question of penal interest charged under s. 139 of the Act can be agitated in appeal if some other point is raised along with the same concerning the assessment. This High Court in CIT vs. Mahabir Prasad and Sons (1980) 17 CTR (Del) 161 : (1980) 125 ITR 165 (Del) : TC6R.743, has also so held. Most of the High Courts have taken the view that if this point, i.e., only the question of penal interest is involved, then no appeal is competent to the AAC.

In many cases the application of r. 117A has been agitated before the Courts by way of writs following a revision to the Commissioner.

However, there is something also to be said for the assessee in this case. The provisions of s. 246 contain a list of appealable orders and the only relevant one for the purpose of this case is sub-cl. (c) which reads :

"an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under sub-s. (3) of s. 143 or s. 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed ;"

The objection of the assessee is not to the income assessed, nor to the amount of tax determined, not is it to the loss computed or to the status of the assessee. So, at first sight, it would seem that it is not covered by the second part of the section. At the same time, the assessee is also not denying his liability to be assessed. All that the assessee wants is that the interest should be waived.

It appears that interest is chargeable under s. 139 on a mechanical calculation. The method is that for the delay in filing the return, interest at a specified rate is to be charged. If the matter ended there, there would be no difficulty.

However, there were certain changes in the section as a result of the amendment to s. 139. In the first place, sub-s. (8) was introduced by the Finance Act of 1963, with the purpose of permitting the ItO to waive or reduce the interest, and thereafter r. 117A was added to the It Rules, 1962, with a view to dealing with such a situation. That rule gives five clauses under which the waiver or reduction can take place. The rule seems to suggest that in certain cases the waiver or reduction can take place though the word "may" has been used throughout. In the 5th case, where there is a late return, the assessee is permitted to lead evidence before the ItO to justify the waiver or reduction of interest. This is sub-cl. (v) which is in the following terms :

"any case in which the assessee produces evidence to the satisfaction of the ItO that he was prevented by sufficient cause from furnishing the return within time".
Before this clause can be applied, it means that the ItO has to give the assessee an opportunity of showing that he was prevented by sufficient cause.
But, the assessee cannot lead evidence unless this opportunity is given. It appears to us that perhaps the ITO was not fully aware of this provision at that time as it was only recently introduced in the Act. It also appears that the assessee moved the IAC because the amount was more than Rs. 1,000. The rule is that if the amount is more than Rs. 1,000 then the previous approval of the IAC has to be obtained. In any case, for reasons that are not very obvious on the record, the ITO appears to have overlooked r. 117A and has neither passed an order refusing to waive the interest nor does he appear to have applied his minds to this question at all.

The real question in this case is that the ITO himself appears not to have considered the question of waiver or reduction (and that is the subject-matter of appeal) and which he should have done. The question of competency of the appeal would arise only thereafter.

We think that the real solution in a case like the present is not to find out whether the appeal is competent, but to direct the ITO to pass an order either waiving or reducing the interest.

We would, therefore, dispose of these three references in the following terms : as at present advised, we are of the view that an appeal to the AAC is not competent, but this question is not free from difficulty and we would not like to give a final answer in a case like the present inasmuch as the ITO has not applied his mind to this case and if he had, we do not know what order he might have passed. In any case, it seems, prima facie, that in most cases an appeal would not lie to the AAC. In order to see what would be the effect of an actual order, an order would have to be passed in this case. In this connection, we may mention two possibilities, i.e., either the ITO will have to pass the order waiving or reducing the penalty or refusing to reduce or waive the penalty as part of the assessment order. Or, he would have to pass a separate order. If he passes a separate order, a revision would lie to the Commissioner under s. 264 of the Act. If he passed it as part of the assessment order, then the order might be appealable in some cases.

(3.)THE authorities, however, do not seem to have dealt with a case in which no order has been passed either way. THErefore, in our opinion, the proper direction to be given in this case is that the authority should pass the order. In the absence of an order of the ITO, the question of maintainability of an appeal cannot be considered.
There is one word of caution necessary in connection with what is stated in this judgment. This is a peculiar case in the sense that both the AAC as well as the Tribunal were of the view that the waiver should be given, and from the facts stated in the Tribunal's order, there were good grounds for so holding. However, the ITO has said nothing and it is possible in such cases for the assessee to be in doubt whether he should go in revision or whether he should go in appeal. We may point out that the provisions of ss. 139(8) and 139 relating to penal interest have been modified quite substantially and were different for the period we have been dealing with. The present s. 139(8) of the Act is in somewhat different terms.

It may here be mentioned that there are three assessment orders, none of which have mentioned about waiving or not waiving the interest or reducing the same. So, probably, the ItO was not aware of the applications filed before the IAC regarding the waiver or reduction of the interest. As we have observed above, if an order had been passed by the ItO regarding the interest, then the assessee would know whether he had to file an appeal or a revision. But, there being no mention of the same, we have preferred to answer this reference by holding that the appeal does not lie to the AAC. At the same time, as there is no order, no revision lies to the Commissioner. So, the only possible direction that can be given is that this is a case in which the ItO has yet to pass an order waiving or reducing the interest or refusing to waive or reduce the interest and only after the order is passed can it be determined whether an appeal or revision lies. The reference is answered accordingly.


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