1. The appeal by the assessee is directed against the order of the Commissioner as passed under Section 2.63 of the Income-tax Act, 1961 ('the Act') on 14-3-1985.
2. The Commissioner noted that the ITO did not charge interest under Section 217 of the Act, when the assessment for the assessment year 1981-82 was completed. He initiated action under Section 263 which was objected by the assessee. The assessee submitted that after considering the tax payable, tax deducted at source, etc., it would be found that no interest was chargeable under Section 217 as alleged. The assessee also submitted that action under Section 263 cannot be taken as the assessment order was passed by the ITO after considering the instructions of the I AC under Section 144B of the Act. It was also contended by the assessee that the order of the ITO was not erroneous or prejudicial to the interest of the revenue. It was urged, therefore, that the proceedings under Section 263 should be dropped.
3. The Commissioner noted that Section 217 has to be read with Section 215(5) of the Act and the assessed tax would be the tax determined on the basis of regular assessment as reduced by the tax deducted at source. He found no force in the submissions made by the assessee in this regard. in respect of the point of jurisdiction after assessment was completed under Section 144B, the Commissioner was of the view that after clarification made by the Taxation Laws (Amendment) Act, 1984, this contention of the assessee has no force. He also considered other objection that the order of the ITO was not erroneous or prejudicial to the interest of the revenue. The Commissioner found that since the ITO failed to charge interest under Section 217 while passing order under Section 143(3)/144B of the Act without giving any reason, the order of the ITO was erroneous and prejudicial to the interest of the revenue.
4. The Commissioner took into account the ratio of the decisions in CIT v. Cochin-Malabar Estates Ltd. [1974] 97 ITR 466 (Ker.), Premchand Sitanath Roy v. Addl. CIT [1977] 109 ITR 751 (Cal.), Singho Mica Minning Co. Ltd. v. CIT[1978] 111 ITR 231 (Cal.), Addl. CIT v. Saraya Distillery [1978] 115 ITR 34 (All.) and CIT v. City Palayacot Co.
[1980] 122 ITR 430 (Mad.). He, accordingly, cancelled the order of assessment made under Section 143(3) with a direction that he should make the fresh assessment after giving the assessee an opportunity of being heard. Hence, this appeal by the assessee.
5. It is submitted on behalf of the assessee that the Commissioner acted wrongly in initiating proceedings under Section 263 and to cancel the assessment on the grounds noted in the order. In fact, the submissions made before the Commissioner have been incorporated in the grounds of appeal mostly. It is also appealed by the assessee that the Commissioner erred in cancelling the whole assessment and in directing the ITO to make fresh assessment and in the circumstances the Commissioner has exceeded his powers conferred by Section 263 and in the circumstances, his order requires to be quashed. It is the assessee's submissions that even otherwise, the direction of the Commissioner should confine only to the point contained in the show-cause notice and, therefore, the order of the Commissioner on the facts of the case, cannot be sustained.
6. It is urged by the assessee's learned counsel that the order to charge or not to charge interest under Section 217 was not for the Commissioner to decide and it was for the ITO to deal with it after considering the s`ection as well as Rule 40 of the Income-tax Rules, 1962 which gives the ITO discretion to waive or to reduce the interest.
It is, therefore, submitted that the order of the Commissioner should be cancelled.
7. The learned departmental representative supported the order of the Commissioner.
8. We have heard both the sides at length and we have perused the orders of the authorities below for our consideration. We have taken note of the decisions cited by the Commissioner in the impugned order.
Similar situation has arisen in different High Courts in which it has been noted that the order could be said to be erroneous where either it did not decide the point or record a finding or an issue which should have been done or decided wrongly. In the case of Addl. CIT v. Krishna Narayan Naik [1984] 150 ITR 513 (Bom.) it was held that the ITO was bound to charge interest under Section 139(8) of the Act. He had, however, the power to waive or reduce it. Since his order was silent on the point action under Section 263 by the Commissioner was justified.
Similar is the view of the Hon'ble Madhya Pradesh High Court in the case of Addl. CIT v. Indian Pharmaceuticals [19801 123 ITR 874. We may also refer the other decisions as decided by the different High Courts, namely, City Palayacot Co.'s case (supra), Vishnu Kumar Soni v. CIT [1985] 155 ITR 34 (MP) and Cochin-Malabar Estates Ltd.'s case (supra).
9. In the case of Singho Mica Mining Co. Ltd. (supra) the Hon'ble Calcutta High Court held that the order of the ITO failing to charge interest and no reason was mentioned for which it would not be possible to infer that the ITO has considered the matter at all or exercised his discretion. Action under Section 263 was upheld. In the case of Premchand Sitanath Roy (supra), the Calcutta High Court has sustained the order under Section 263 as the ITO did not charge interest under Section 139 on the facts of the case.
10. Thus, after hearing both the sides and after considering the orders of the authorities below and keeping in view the ratio of the different decisions noted above, we are of the opinion that the Commissioner has validly initiated the proceedings under Section 263 in the present case. This aspect of his order is sustained. But there is some force in respect of the submissions made on behalf of the assessee that the Commissioner cannot cancel the assessment under Section 143(3) with a direction to the ITO to pass a fresh assessment order, We are of the opinion that this part of the order of the Commissioner cannot be sustained as the subject matter which was found to be erroneous was not the assessment order as such as discussed earlier. In the circumstances, we would modify the direction of the Commissioner on the point that the ITO should examine the facts of the case and apply his mind regarding charging of interest under Section 217 and after giving the assessee an opportunity of being heard. The assessment order as a whole is not set aside. Subject to the above modification the order of the Commissioner is sustained.