TMI Blog1992 (6) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 154 to the extent of charging interest under section 217 be cancelled. 2. The assessee is an AOP. Original assessment was completed under section 143(3) for the assessment year 1985-86 on 12-2-1987 on a total income of Rs. 74,850. Interest income of Rs. 18,478 declared in the original return by the assessee was not assessed by the ITO. The assessee conceded the assessment of such interest income in the rectificatory order under section 154 passed by the ITO on 5-9-1988. Thus there is no dispute about the assessment of such interest income. Later it was noticed that the ITO has not ordered levy of interest under section 217 in the original assessment order or in the demand notice accompanying that order or in the 154 order passed by the ITO on 5-9-1988. However, in the challan and the calculation of tax, interest under section 217 is charged at Rs. 3,679. It is for this reason it was stated in the statement of facts that interest under section 217 was charged for the first time in 154 proceedings without giving an opportunity to the assessee and since it was not a regular assessment, interest under section 217 could not be levied for the first time in 154 proceedings. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en heard at length. It was contended that there must be an order for charging of interest in regular assessment which meant only first order of assessment. If this condition is not satisfied, charging of interest under section 217 while calculating the tax in pursuance of an order under section 154 was not justified. Reliance was placed on the order of the Tribunal, Chandigarh Bench in the case of Hans Raj v. Asstt. CIT [1992] 42 TTJ (Chd.) 28. Though this decision of the Tribunal relates to charging of interest under section 215, it has been cited for the proposition that there should be an order for charging of interest and that too in regular assessment which means the first order of assessment. The decision of the Karnataka High Court in the case of CIT v. Bangalore Animal Food Corpn. Ltd. [1992] 194 ITR 242 has been relied upon in which it has been held that where payment of advance tax is made after the due date and such payment is accepted and interest is levied under section 139(8) taking into account the payment of advance tax, rectification proceedings cannot be taken under section 154 to recompute the interest under section 139(8) treating the payment of advance tax as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e learned departmental representative, on the other hand, did not dispute the facts as stated by the learned counsel for the assessee, especially the fact that the interest was levied in the demand notice issued to the order under section 154 and yet he vehemently supported the order of the ITO. In this connection, reliance was made on the judgment of the jurisdictional Bombay High Court in the case of Ratanlal Dhondiram v. CIT [1983] 141 ITR 363 for the proposition that mere non-mention by the ITO in the assessment order of levy of penal interest under section 217(1) of the Income-tax Act, 1961 for failure of the assessee to file an estimate of advance tax and pay advance tax as required under section 212(3) cannot lead to the assumption that the ITO had waived the levy of penal interest. The decision of the Orissa High Court in the case of Ramswarup Bhawsinka v. CIT [1975] 101 ITR 827 was relied upon for the proposition that though settlement was arrived at by the assessee with the CIT on account of disclosure under section 271(4A) covering the liability to Income-tax and penalty and not interest under sections 139 and 217 the mere non-mention of interest in the settlement would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l representative. From the specific grounds raised before the Dy. CIT(A) as reproduced at page 3 bottom of appellate order, it is seen that the assessee pleaded for cancellation of levy of interest charged under section 217 on the ground that no interest was charged in the original order passed under section 143(3) nor intention was indicated in the show-cause notice under section 154 issued with the result interest has been charged without giving the appellant an opportunity of being heard. In the light of these grounds and pleadings, the decision of the Dy. CIT (A) in setting aside the rectificatory order with direction to reexamine the issue after giving the assessee an opportunity of being heard and taking into account all the facts of the case including possibility of waiver under Rule 40 is quite justified and warranted in the facts and circumstances of the case. In fact, in para 2 of the appellate order at page 4 it is clearly mentioned that no opportunity was given to the assessee before levy of interest under section 217 of the Income-tax Act, 1961 as was done in respect of the earlier assessment year 1984-85 and therefore, in the absence of such notice, the principle of n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id Act would clearly show that where the conditions laid down therein are satisfied. penal interest at the rate of twelve per cent per annum has to be levied. It is true that Rule 40 of the IT Rules, 1962, provides for a reduction or waiver of interest leviable under section 215 or section 217 in the circumstances set out in that rule. There is, however, nothing in the assessment order which would suggest that the assessee had applied for the penal interest being waived or reduced or submitted that there was any circumstance in the case which could come within the scope of Rule 40. In fact, even before the Tribunal it was never contended by the assessee that by reason of any of the circumstances set out in Rule 40 the levy of penal interest against the assessee should have been waived. In these circumstances, we utterly fail to see that it could be said that merely because the ITO failed to mention penal interest in the assessment order he had waived the same. " The abovesaid observations of their Lordships of the Bombay High Court was based on the judgment of the Karnataka High Court in the case of CIT v. Executors of the Estate of Late H.H. Rajkuverba Dowager Maharani Saheb of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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