S.K. Mal lodha, J. - (1.) AT the instance of the Commissioner of Income-tax, Jodhpur, the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur ("the Tribunal" herein), has referred the following questions for our opinion, which arise out of its order dated June 30, 1978, passed in Income-tax Application No. 375/JP/76-77 : " 1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the Appellate Assistant Commissioner of Income-tax has rightly entertained the appeal on the point of levy of penal interest under Section 215 of the Income-tax Act, 1961 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the learned Appellate Assistant Commissioner had not travelled outside his jurisdiction in this case ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the order passed by the learned Appellate Assistant Commissioner waiving interest for the period from April, 1973, to the date of assessment?"
(2.) THE assessee is a partnership concern. THE assessment year under consideration is 1971-72. For this assessment year, the return of income was filed initially on March 23, 1972. In this return, the income declared was Rs. 1,12,370. A revised return was filed on January 19, 1974 claiming deduction under Section 80J of the Income-tax Act, 1961 (Act No. XLIII of 1961) (for short " the Act"). THE asscssee had claimed registration. THE Income-tax Officer, however, refused the registration by a separate order passed under Section 185 of the Act. He made the assessment of the assessee in the status of an unregistered firm by an assessment order dated January 9, 1975. THE income determined was Rs. 94,535. In the appeal, the Appellate Assistant Commissioner (AAC) assessed the income at Rs. 81,020. THE tax payable on this amount as a registered firm was Rs. 7,685. THE assessee-firm had already paid advance tax of Rs. 10,000 on October 9, 1970, being a person not hitherto assessed in terms of Section 212(3) of the Act. THE Income-tax Officer (ITO), however, stated in the assessment order "charge interest as per the Rules". Interest to the tune of Rs. 16,970 was charged. An appeal was lodged by the assessee against the assessment order passed under Section 143(3) of the Act. One of the grounds taken was that the Income-tax Officer erred in levying interest amounting to Rs. 16,970 under Section 215 of the Act. THE Appellate Assistant Commissioner in his order dated March 18, 1976, held that the interest was correctly charged ; however, the amount of interest chargeable may be re-calculated on the basis of the reduced income. While dealing Math the question of interest, the Appellate Assistant Commissioner observed as under : " THErefore, it is a case where the interest under Section 215 should be waived for the period beginning from April, 1973, to the date of the assessment. " Repelling the contention that an appeal did not lay before him on the question of interest, the Appellate Assistant Commissioner has expressed himself in the following words : " Though this ground is not separately appealable, I derive the power to decide the issue because the entire assessment has been challenged in appeal." Being dissatisfied, the Department went in appeal. Two contentions were raised before the Tribunal : (1) That the Act does not provide specifically for appeal against the levy of penal interest under Section 215 of the Act, and, therefore, the Appellate Assistant Commissioner should not have entertained the appeal. (2) That the Appellate Assistant Commissioner had erred in directing that the interest charged under Section 215 should be waived. The Tribunal, after noticing the authorities that were cited before it, in which diverse views have been expressed, dismissed the appeal. The Commissioner of Income-tax submitted an application under Section 256(1) of the Act. The Tribunal has referred the aforesaid questions of law reproduced hereinabove to this court for its opinion.
(3.) WE take up question No. 1 first. Section 246 of the Act deals with appeals to the Appellate Assistant Commissioner. It enumerates various orders against which an appeal lies to the Appellate Assistant Commissioner. We may notice Section 246(c) of the Act which is as under ; "(c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under Sub-section (3) of Section 143 or Section 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." Section 215 of the Act lays down as to when interest is payable by the assessee. Section 217 deals with interest payable by the assessee when no estimate is made. Thus, a reading of Sections 215 and 217 make it clear that they provide that, in the circumstances set out therein, interest, shall be payable by the assessee. This is, however, mitigated by a discretion given to the Income-tax Officer to reduce or waive the interest payable by the assessee under Sections 215 and 217 of the Act. Reference in this connection may be made to Sections 215(4) and 217(2) of the Act. The discretion to reduce or waive the interest is regulated by Rule 40 of the Income-tax Rules, 1962 (for short "the Rules"). Rule 40 of the Rules is as under : "40. Waiver of interest.--The Income-tax Officer may reduce or waive the interest payable under Section 215 or Section 217 in the cases and under the circumstances mentioned below, namely :-- (1) When the relevant assessment is completed more than one year after the submission of the return, the delay in assessment not being attributable to the assessee. (2) Where a person is under Section 163 treated as an agent of another person and is assessed upon the latter's income. (3) Where the assessee has income from an unregistered firm assessed under the provisions of Clause (b) of Section 183. (4) Where the previous year is the financial year or any year ending about the close of the financial year and large profits are made after the 1st March (or the 15th March in cases where the proviso to Section 211 applies) in circumstances which could not be foreseen. (5) Any case in which the Inspecting Assistant Commissioner considers that the circumstances are such that a reduction or waiver of the interest payable under Section 215 or Section 217 is justified." ;