Mandatory penal interest can be levied by assessment entry alone, and omission may be corrected through rectification.

Where penal interest under section 18A(6) was mandatory, no separate formal order was required: computation and entry of the interest in the assessment record was sufficient to constitute the levy. The court also held that omission to impose such mandatory interest in the original assessment was a rectifiable error, so correction through section 35 was valid and the revised demand stood. The writ challenge to recovery of the penal interest therefore failed.

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Issues: (i) Whether the levy of penal interest under section 18A(6) required a separate formal order, or whether calculation and entry of the interest in the assessment form was sufficient; (ii) Whether omission to levy penal interest in the original assessment could validly be corrected by recourse to section 35 of the Income-tax Act.

Issue (i): Whether the levy of penal interest under section 18A(6) required a separate formal order, or whether calculation and entry of the interest in the assessment form was sufficient.

Analysis: The levy of penal interest under section 18A(6) was mandatory on the facts found, and no discretion existed with the Income-tax Officer at the relevant time. The absence of any prescribed form for making such levy meant that the liability could be created by calculation and entry in the assessment form. The later rectification proceedings also showed that the imposition of interest was a conscious act and not a mere clerical omission.

Conclusion: A separate formal order was not necessary, and calculation with entry in the assessment form was sufficient to constitute the levy.

Issue (ii): Whether omission to levy penal interest in the original assessment could validly be corrected by recourse to section 35 of the Income-tax Act.

Analysis: Since the levy of penal interest was obligatory under section 18A(6) as applicable to the assessment year in question, omission to impose it in the original assessment amounted to an error capable of rectification. The subsequent notice under section 35 and the revised demand were therefore within the rectificatory machinery of the Act. The Bombay decision relied on by the petitioner was distinguished because, on its facts, the proviso introducing discretion had already come into force, whereas in the present case the levy remained mandatory.

Conclusion: The omission was properly rectified under section 35, and the revised demand for penal interest was valid.

Final Conclusion: The writ petition failed, and the challenge to recovery of the revised penal interest demand was rejected.

Ratio Decidendi: Where levy of penal interest is mandatory under the Act, its computation and entry in the assessment record is sufficient to constitute an order, and omission to levy it in the original assessment may be corrected under the rectification provision.

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