COMMISSIONER OF INCOME TAX Vs. NARPAT SINGH MALKHAN SINGH

JUDGEMENT

(1.) THIS is a reference made by the Income-tax Appl-late Tribunal under Section 256(1) of the I.T. Act, 1961, referring for our answer the following question of law :

(2.) THE facts, briefly stated, are that for the assessment year 1970-71, the assessee filed the return declaring a total income of Rs. 28,942. THE ITO, however, assessed the total income at Rs. 33,650 under Section 143(3) of the Act by his order dated 11th December, 1970. THE assessee filed an appeal to the AAC confining his objection to the disallowance of certain expenses amounting to Rs. 3,574 by the ITO. THE AAC, by his order dated 27th March, 1971, accepted the assessee's appeal in part and allowed a reduction of Rs. 2,000 in the total income of the assessee. THE Addl. Commissioner thereafter served a notice under Section 263 of the Act on 28th September, 1972, on the assessee to show cause why the assessment be not set aside as it was prejudicial to the revenue. THE assessee objected. By his order dated 7th November, 1972, the Addl. Commissioner overruled the objection and held that the order of the ITO under Section 143(3) was erroneous and prejudicial to the revenue as it was passed without charging interest under Section 217(1A) and without initiating penalty proceedings under Section 273(c). THE assessee filed an appeal against the order of the Addl. Commissioner which was allowed by the Tribunal on 23rd February, 1974, on the reasoning that the order of assessment passed by the ITO merged in the order of the AAC and, therefore, the Addl. Commissioner had no jurisdiction to interfere in revision under Section 263 of the Act.

(3.) THE next question is whether the Addl. Commissioner in revision could have directed the ITO to charge interest under Section 217(1A) without disturbing the assessment order. Interest under Section 217(1A) can be charged "where, on making the regular assessment, the ITO finds that any such person as is referred to in Sub-section (3A) of Section 212 has not sent the estimate referred to therein". Two things are thus necessary for the exercise of the power to charge interest: (1) the ITO has to find that any such person as is referred to in Sub-section (3A) of Section 212 has not sent the estimate referred to therein; and (2) this finding has to be given on making the regular assessment. THEre has been some debate before us as to the meaning of the words "on making the regular assessment". It was submitted by the learned standing counsel that these words mean that the requisite finding has to be reached at the time of making the assessment in the assessment order itself and the computation of interest chargeable under Section 217(1A) becomes part of the assessment order under Section 143(3). THE learned counsel for the assessee, however, submitted that the words "on making the regular assessment "mean" soon after passing the assessment order". It was also pointed out that under r, 40 read with Section 215(4) the ITO has not only to find that there is a failure to send the estimate but also to see whether there are circumstances which require reduction or waiver of interest. According to the learned counsel, the ITO is required to pass a separate judicial order under Section 217(1A) after notifying the assessee. It was submitted by the learned counsel for the assessee on this basis that as the assessment order was not a bar for passing an order under Section 217(1A) it could not be said that the order of assessment which does not charge interest is an order prejudicial to the revenue revisable on this ground under Section 263. Having regard to the circumstances of this case, it is not necessary for us to decide whether an order charging interest under Section 217(lA) is a part and parcel of the order of assessment or whether the ITO can pass such an order even after passing the order of assessment, for, on either view, in our opinion, the Addl. Commissioner had no jurisdiction to interfere. We may, however, point out that a separate provision for appeal in Section 246 against an order under Section 216 shows that an order under that section does not form part of the order of assessment under Section 143(3) which is separately appealable. Section 217 is similar to s, 216. Section 216 applies when the income has been underestimated for purposes of advance tax and Section 217 applies when no estimate has been sent at all. If an order under Section 216 is different and distinct from an order of assessment passed under Section 143(3), it would be logical to hold that an order under Section 217 is also of the same nature and different and distinct from the order of assessment under Section 143(3). However, as stated earlier, it is not necessary to decide this point. Assuming first that an order under Section 217 is a part of the order of assessment made under Section 143(3) and the finding that the assessee has not sent the estimate referred to in Sub-section (3A) of Section 212 has to be given at the time of making the assessment order, the ITO will have no jurisdiction to charge interest unless the assessment order is set aside. As earlier stated by us; the assessment order could not be set aside by the Addl. Commissioner in revision in the instant case because that would also result in setting aside the order of the AAC passed in appeal. In this view of the matter, the Addl. Commissioner could not in revision set aside the order of assessment and direct the ITO to make reassessment after taking into account the provisions of Section 217(1A) as was done in the instant case. Now, assuming that the ITO is competent to pass an order under Section 217(1A) even after the making of the order of assessment and that the necessary finding that the assessee has failed to submit the estimate for purposes of advance tax need not be recorded in the assessment order, the position then would be that the order of assessment would not be a bar for taking action under Section 217(1A) and, therefore, it would not be possible to say that the order is prejudicial to the revenue on the ground that interest has not been charged therein. We have earlier pointed out that the jurisdiction in revision under Section 263 arises only when the Commissioner finds that an order of the ITO is erroneous in so far as it is prejudicial to the interest of the revenue. THE existence of an order prejudicial to the revenue is the very foundation of the revisional jurisdiction exercisable by the Commissioner. A complete absence of any order under Section 217(1A) will not bring the case within the revisional jurisdiction. So, in either view, the Addl. Commissioner, on the facts and in the circumstances of the instant case, was not competent to direct the charging of interest under Section 217(1A).