K.C. Agrawal, J. - (1.) THIS reference relates to the assessment years 1968-69 and 1969-70. The assessee, a registered firm, runs a distillery at Gorakhpur. It was served with a notice under Section 210 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for payment of advance tax for two years in question. The assessee paid advance tax in accordance with its own estimate. On completion of regular assessment, the tax determined to be payable worked out to be much more than the advance tax paid by the assessee on the basis of its estimate. Since the advance tax paid by the assessee on the basis of its own estimate was less than 75 per cent, of the tax determined on completion of the regular assessment, interest was payable under Section 215 of the Act by the assessee. THIS interest was, however, not charged and included in the notice of demand. As in the opinion of the Additional Commissioner of Income-tax the assessment order, determining the liability, was erroneous and prejudicial to the interest of the revenue, notice was issued under Section 263(1) for the assessment years 1968-69 and 1969-70, requiring the assessee to show cause why interest under Section 215 of the Act be not charged.
(2.) IN response to the notice, the assessee appeared before the Additional Commissioner of INcome-tax. It was contended on its behalf that as there was no order of the INcome-tax Officer on the point under reference, the question of charging interest under Section 215 did not arise. The assessee further contended that since no interest had been charged at the assess-ment stage, it should be presumed that the same had been waived by the INcome-tax Officer under Sub-section (4) of Section 215 read with rule 46(1) of the INcome-tax Rules. The Additional Commissioner repelled the contentions raised on behalf of the assessee and on being satisfied that the INcome-tax Officer had not acted in accordance with the provisions of law, while determining the assessee's liability, directed him to charge interest and to recover the same from the assessee. Similar order was passed by the Additional Commissioner in respect of the assessment year 1969-70. The assessee preferred appeals before the Income-tax Appellate Tribunal. These appeals were allowed on 30th August, 1973, and the order of the Additional Commissioner was set aside. The revenue thereafter tiled two applications under Section 256(1) of the Act requiring the Tribunal to draw up a statement of the case and to refer the question of law to the High Court for its opinion. Being satisfied that the case involves substantial questions of law, the Tribunal drew up a consolidated statement of the case for both the years and referred the following two questions to the High Court for its opinion: "1. Whether, on the facts and in the circumstances of the case, charging of interest under Section 215 is a part and parcel of the order of assessment under Section 143(3)? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the orders passed by the Additional Commissioner of Income-tax under Section 263(1) were without jurisdiction ?" A review of the relevant provisions of the Act would indicate that Chapter XIV deals with the procedure for assessment. Section 143 confers power on the Income-tax Officer to make assessment. Chapter XVII deals with collection and recovery of tax. It has 5 sub-chapters. Chapter "C" deals with the advance payment of tax. Under Section 210 of the Act, an order is required to be passed by an Income-tax Officer requiring an assesses to pay to the credit of the Central Government advance tax. Section 212 contemplates the payment of advance tax by an assessee on the basis of its estimate. Sub-section (1) of Section 215 lays down that where, in any financial year, an assesses has paid advance tax under Section 212 on the basis of his own estimate and the advance tax so paid is less than 75 per cent. of the assessed tax, simple interest at the rate of 12 per cent. per annum from the 1st day of October, next following the said financial year up to the date of regular assessment shall be payable by the assessee upon the amount by which the advance tax so paid falls short of the assessed tax. A reading of Section 143, read with Section 215, would indicate that at the time of regular assessment interest has to be charged from persons who have paid advance tax on their own estimate in an amount which falls short of the assessed tax by more than 75 per cent. thereof. For charging interest for default or shortfall in payment of advance tax due, the Income-tax Officer is not required to pass any formal order. Under the law he is required to calculate the interest in the manner provided under the Act and the Rules framed thereunder. (See P. C. Dwadesh Shreni and Co. Ltd. v. Income-tax Officer [1962] 46 ITR 586 (All) and Santamal Pitamber Prasad v. Income-tax Officer [1963] 47 ITR 562 (All). If an Income-tax Officer does not calculate interest and make a demand of it, the inevitable result would be that the revenue would be deprived of the interest payable to it. Such an order would substantially affect the legal rights of the revenue, hence the same would be prejudicial to its interest.
(3.) UNDER section 263 of the Act the Commissioner of Income-tax can modify the assessment or cancel it by directing the Income-tax Officer to make a fresh assessment order if he considers that any order passed by the Income-tax Officer is erroneous in so far as it is prejudicial to the interest of the revenue. The determination whether or not a particular error is prejudicial raises many complex problems. The test appears to be whether upon a review of the record, it sufficiently appears that the rights of the complaining party have been injuriously affected by the error or that he has suffered a miscarriage of justice. In such an event the complaining party is required to show that there is a fair likelihood that but for the error there would have been a different result. What is meant by the expression "prejudicial to the interest of the revenue", the High Court of Calcutta has explained as under in Dawjee Dadabhoy and Co. v. S. P. Jain [1957] 31 ITR 872 at page 881 : "The words 'prejudicial to the interests of the revenue' have not been defined, but it must mean that the orders of assessment challenged are such as not in accordance with law, in consequence whereof the lawful revenue due to the State has not been realized or cannot be realized. It can mean nothing else." We respectfully agree with the view taken by the Calcutta High Court in the above case.;