Judgment:
recording by assessing officer whether interest under ss. 139(8) and 217 charged or waived.
Charging of interest under section 139(8) and under section 217 is part of the process of assessment proceedings and anything done about that will form part of the assessment which if otherwise open for review to the Commissioner under section 263 would come in for consideration for lawful assumption of jurisdiction.
In this case the assessing officer neither recorded that he was satisfied that interest under section 139(8) and 217 was not chargeable nor he issued any directions for charging of interest, there was no deliberate application of his mind to the issue. In fact, the statute provides for waiver or reduction of interest. The discretion vested in the assessing officer ranges between a right to waive interest or to reduce it. His order being quasi-judicial in nature, it must state some reason for the waiver or reduction of interest. Interest cannot altogether be waived by inaction. Hence, non-charging of interest under sections 139(8) and 217 was erroneous and prejudicial to the interests of revenue.
Central Province Manganese Ore Ltd. v. CIT (1986) 160 ITR 961 (SC) and Indian Telephone Industries Cooperative Society Ltd. v. ITO (1972) 86 ITR 566 (Mys.) relied.
Revision under s. 263--ERRONEOUS AND PREJUDICIAL ORDER--Charging of interest under ss. 139(8) & 217.
Charging of interest under sections 139(8) and 217 is a part of assessment proceeding. Absence of recording of reasons by assessing officer whether interest is chargeable or waived gave rise to jurisdiction under section 263.
Revision under s. 263--ERRONEOUS AND PREJUDICIAL ORDER--Non-consideration of interest chargeable under section 139(8) and 217.
Charging of interest under section 139(8) and 217 was part of assessment proceedings and absence of recording by assessing officer whether interest was chargeable or waived, would resulted in erroneous and prejudicial order.
In this case the Income Tax Officer neither recorded that he was satisfied that interest under section 139(8) and 217 was not chargeable nor he issued any directions for charging of interest.
Charging of interest under section 139(8) and under section 217 is part of the process of assessment proceedings and anything done about that will form part of the assessment which if otherwise open for review to the Commissioner under section 263 would come in for consideration for lawful assumption of jurisdiction.
Central Province Managese Ore Ltd. v. CIT (1986) 160 ITR 961 (SC) and Indian Telephone Industries Cooperative Society Ltd. v. ITO (1972) 86 ITR 566 (Mys) followed.
Revision under s. 263--JURISDICTION OF COMMISSIONER--Against the original assessment made under section 147(a).
Assessment made under section 147(a) could be revised by the Commissioner if it was found erroneous as well as prejudicial to the interest of revenue as section 263(2)(a) barring the jurisdiction was applicable only when reassessment was made under section 147.
The law applicable as on the statue book for the assessment year in appeal did not debar the Commissioner from calling for the examining the record of any proceedings under the Act in a case, where proceedings had been taken for an original assessment under section 147(a) if he considers that any order passed thereon by the assessing officer is erroneous, insofar as it is prejudicial to the interest of revenue. However, it will be a matter entirely different if the Commissioner were to proceed to decide the issue himself on merits also. Thus, the Income Tax Officer had made an order which was open for revision or review by the Commissioner.
Revision under s. 263--JURISDICTION OF COMMISSIONER--Original assessment made under s. 147(a).
The law applicable as on the statute book for the assessment year in appeal did not debar the Commissioner from calling for the examining the record of any proceedings under the Act in a case, where proceedings had been taken for an original assessment under section 147(a), if he considers that any order passed thereon by the assessing officers is erroneous, insofar as it is prejudicial to the interest of revenue. However, it will be a matter entirely different if the Commissioner were to proceed to decide the issue himself on merits also. Thus, the assessing officer had made an order which was open for revision or review by the Commissioner.
1. This appeal by the assessee is directed against the order of the Commissioner of Income-tax (Administration), Uttar Pradesh, made under Section 263 of the Income-tax Act, 1961 (hereinafter referred to as the Act) on 29-1-1986 for the assessment year 1975-76. Before we record the submissions of the rival parties before us, we bring into focus the background from which the appeal arises.
2. The assessee had not been, hitherto, assessed to Income-tax. For the assessment year under appeal no return u/s. 139 of the Act had been filed. Finding that the assessee along with others had made investment in the construction of a building of M/s. Om Rice Mills, the Income-tax Officer issued notice u/s. 148 calling for a return from the assessee.
This notice was issued on 7-2-1980. The assessee filed a return declaring 'nil' income on 28-2-1980. However, after taking into consideration, the report of the Valuation Officer regarding the cost of construction for the period Diwali, 1974 to Diwali, 1975 and for the period for Diwali 1976 to Diwali 1977, the ITO compared the cost of construction declared as recorded in the books of account and the cost of construction estimated by the assessee's valuer. Finally, he concluded, as recorded in his impugned order dated 29th Feb., 1984, apparently made under Section 143(3) read with Section 147(a), that the assessee had made investment of Rs. 1,51,550 in the construction of the building as against the amount debited in the books of account at Rs. 1,00,743. According to the ITO, the balance of Rs. 50,807 remained unexplained. He rounded *it off to Rs. 50,800 and brought it to tax u/s. 69B of the Income-tax Act, 1961. While completing the assessment, the ITO also issued show-cause notices for imposition of penalties under Sections 271(l)(c) and 273(b) of the Act.
3. After the assessment had been so completed, it appears, it was found by the ITO that interest under Sections 217 and 139(8) had not been charged and penalty action under Section 271(l)(a) had not been initiated. He, therefore, made a reference to the Commissioner under Section 263 of the Act. The Commissioner of Income-tax called for the record and issued a notice under Section 263 of the Act to the assessee to show cause why an order under Section 263 need not be made, the order of the ITO being erroneous and prejudicial on account of non-initiation of penalty and non-charging of interest. In response to this show cause notice, the ld. counsel for the assessee, Shri B.S.Vaish, Advocate appeared before the Commissioner and contended that the impugned assessment had been completed under Section 147(a) of the Act and this being, thus, not a regular assessment, interest under Section 139(8) etc. could not be charged because explanation to Section 139(8) had been introduced w.e.f. 1-4-1985 and it was applicable for and from the assessment year 1985-86 onwards. It was also contended that failure of the ITO to initiate penalty proceedings under Section 271(l)(a) did not empower the Commissioner to assume jurisdiction under Section 263 of the Act. It was projected to the Commissioner that an assessment made by the ITO could not be held to be erroneous and prejudicial to the interests of revenue merely because of the failure of the ITO to record his opinion about the penalty, if any, leviable upon the assessee. In any case, it was argued that such a minor omission or mistake could not justify the action of the Commissioner under Section 4. The Commissioner considered the submissions made on behalf of the assessee before him. According to him, though the assessment had been made under Section 143(3) read with Section 147 yet, it was the first assessment for the asstt. year 1975-76 because the assessee had not submitted a return under Section 139(1) of the Act. The Commissioner pointed out that it was, thus, not a case of reassessment and as such, he was not debarred u/s. 263 from reviewing such an assessment.
Thereafter, the ld. Commissioner observed that it is mandatory on the part of the 1TO to charge interest under Section 139(8) and Section 217 of the Act. According to him, the ITO committed an error in not charging interest under Sections 217 and 139(8) and since, the ITO had not left any note as to why such interest was not charged or was not chargeable, there was no application of mind by the ITO: Hence, according to the Commissioner, non-charging of interest under Section 139(8) and Section 217 was erroneous and prejudicial to the interests of revenue. He, therefore, directed the ITO to verify whether interest in accordance with the law under the above sections was chargeable or not. In support of his view, the Commissioner cited some authorities as recorded in his impugned order.
5. From the order of the Commissioner, it appears, that whereas he proceeded to examine the possibility of action under Section 263 taking into consideration non-charging of interest under Sections. 139(8) and 217 of the Act and non-initiation of penalty proceedings under Section 271(l)(a) but in final terms while making the impugned order, he did not mention anything about initiation of penalty proceedings under Section 271(l)(a). Thus, it would be seen that the order of the ITO was held to be erroneous and prejudicial to the interests of the revenue because, the ITO neither recorded his opinion anywhere in his record of the proceedings about charging of interest under Section 139(8)/217, nor he actually levied any interest under these sections.
6. The ld. counsel for the assessee submitted before us that under the provisions of Section 263, as applicable to the assessment year under appeal, there is prohibition provided in Sub-section (2) ibid that no order shall be made under Sub-section (1)(a) either to revise an order of reassessment made under Section 147, or (b) after the expiry of two years from the date of the order sought to be levied. Since, the impugned order made by the ITO was not a regular assessment order as defined under Section 2(40) of the Act, the CIT was barred from assuming jurisdiction to review or revise the same. It was further contended that the Commissioner had proceeded to assume jurisdiction, inter alia, on the basis that the ITO had not initiated penalty proceedings under Section 271(l)(a), but it is apparent from the impugned order that he had given up that as the basis for assumption of jurisdiction. With regard to charging of interest under Section 139(8)/217, the ld. counsel submitted that the ITO had applied his mind and had in his judicial discretion decided not to levy interest as conspicuous absence of any mention of it in the assessment order indicates. On such facts, it was submitted, the Commissioner could not invoke Section 263 to issue directions to the ITO to charge interest under these sections.
7. The ld. counsel, nevertheless, argued that in case all the points on which the Gommissioner started proceedings under Section 263 were to be considered as to whether he had lawful assumption of jurisdiction, then lack of initiation of penalty proceedings could not be considered by the Commissioner as one of the reasons making the order of assessment erroneous as well as prejudicial to the interests of revenue in the light of Hon'ble Delhi High Court case of Addl. CIT v. 3.K. D'Costa [1982] 133 ITR 7. He emphasised that against the judgment of the Delhi High Court, even Special Leave Petition filed before the Supreme Court was dismissed by their Lordships as reported in [1984] 147 ITR 1 (Sts.).
8. Regarding the other points, on which the Commissioner projected to the assessee that action under Section 263 was required, the Id.
counsel reiterated that the assessment made by the ITO not being a regular assessment and having been made under Section 147(a), the jurisdiction of the CIT under Section 263 was statutorily ousted. For this proposition he relied upon the following authorities :Third ITO v. T.R.A. Arunthavaselvan He also reiterated the arguments made on behalf of the assessee before the Commissioner with regard to explanation to Section 139(8) introduced w.e.f. 1-4-1985. He also relied upon the explanatory notes contained in circular No. 397, dated 16-10-1984 issued by the CBDT, appearing at page 1.070 of III Volume of 1988, Direct Taxes Circulars by Taxman.
9. Replying to the above submissions, the ld. D.R., on the other hand, submitted that the assessment made by the ITO was in -original assessment and not a reassessment. The bar under Sub-section (2) of Section 263 upon the powers of the Commissioner is in relation to a reassessment and not regarding an original assessment made under Section 147. The arguments advanced by the Id. counsel for the assessee are, therefore, not relevant and may not be accepted. It was contended by the ld. DR that it is now well settled that charging of interest under Section 139(8) is a part of the process of assessment as laid down by the Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT [1986] 160 ITR 961 and the ratio decidendi of the Mysore High Court judgment in the case of Indian Telephone Industries Co-operative Society Ltd. v. ITO [1972] 86 ITR 566 clearly supports the action of the Commissioner.
10. We have carefully considered the rival submissions. We find that the Commissioner proceeded to assume jurisdiction on the grounds as projected in the narration of facts above. Out of the three points he took up for consideration he appears to have himself given up the point regarding the failure of the ITO to initiate proceedings under Section 271(l)(a) of the Act. Therefore, for all intants and purposes, we have to consider whether non-charging of interest under Section 139(8) and Section 217 by the assessing officer and his failure to indicate his mind about it anywhere on the record of the proceedings could render firm order as erroneous as well as prejudicial to the interest of revenue so as to clothe the Commissioner with lawful jurisdiction under Section 263 of the Act. In determining this issue, we have not only considered the facts of the case but have also very carefully gone through all the authorities cited from both the sides.
11. We are of the opinion that in view of the abovementioned judgment of the Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. (supra) the law is now well settled that levy of interest under Section 139(8) is part of the process of assessment. In fact, Supreme Court laid down this law in a case where the issue for consideration was of waiver or reduction in the levy of interest. In view of this development in law, the judgments of various High Courts, which preceded this judgment, regarding the levy of interest on the assessee being a part of the process of assessment or not, no longer can be said to hold the field. Therefore, we have to proceed on the premise that charging of interest under Section 139(8) and under Section 217 is part of the process of assessment proceedings and anything done about that will form part of the assessment, which if otherwise open for review to the Commissioner under Section 263 would come in for consideration for lawful assumption of jurisdiction.
Therefore, in this case, since, the ITO neither recorded that he was satisfied that interest under Section 139(8) and Section 217 was not chargeable nor he issued any directions for charging of interest, there was no deliberated application of his mind to the issue. In fact, the statute provides for waiver or reduction of interest. The discretion vested in the ITO ranges between a right to waive interest or to reduce it. His order being a quasi-judicial in nature, it must state some reason for the waiver or reduction of interest. Interest cannot altogether be waived by in action.
12. However, the question is whether, when the ITO makes an original assessment under Section 147(a) there is any bar provided under the law to prohibit the Commissioner from assuming lawful jurisdiction within the meaning of Section 263(2)(a) of the Act. In this context, we do not" find any difficulty in determining the issue because the language of Section 263(2)(a) is very clear that the Commissioner is debarred from assuming powers of review or revision only in a case, where an order of reassessment (emphasis added) has been made under Section 147.
An order of re-assessment under Section 147 is different from an order of original assessment under Section 147. Therefore, it is clear that the Legislature in its wisdom has specifically used the word reassessment to debar the Commissioner from reviewing or revising such an assessment.
13. In our considered opinion, the law applicable as on the statute book for the assessment year in appeal did not debar the Commissioner from calling for and examining the record of any proceedings under the Act in a case, where proceedings had been taken for an original assessment under Section 147(a) if he considers that any order passed thereon by the assessing officer is erroneous, in so far as, it is prejudicial to the interest of revenue. However, it will be a matter entirely different if the Commissioner was to proceed to decide the issue himself on merits also. Thus, we find that in this case, the ITO had made an order, which was open for revision or review by the Commissioner. We also find that in the process of assessment, the ITO was to consider the levy of interest under Section 139(8) and under Section 217 of the Act. In the absence of any evidence, whatsoever, on record to show that the ITO had made deliberated application of his mind to these aspects of assessment, the Commissioner had jurisdictional facts to assume lawful jurisdiction to make the impugned order. We uphold his order as having been make after assumption of lawful jurisdiction on the basis of jurisdictional facts. We also find that the Commissioner did not direct the ITO to charge interest under the above sections. He merely directed the ITO to verify about the leviability of the interest and charge the same as per law. If interest is not leviable as per law the ITO will not be able to do so. The assessee is at liberty to project any legal or factual situation before the ITO including amendment in relevant law. Hence with the directions of the ld. Commissioner the assessee cannot find any fault, as these are reasonable and fair directions issued in accordance with law. We, therefore, confirm the order of the Commissioner and dismiss the appeal of the assessee.