Mandatory interest omission in assessment can render the order erroneous and prejudicial, justifying revision under section 263.

Where an ITO failed to consider and levy mandatory interest for late filing of a return, the assessment order was treated as silent on a statutory item the law required to be examined. That omission was held to be an error in the order, amounting to non-application of the statutory mandate and rendering the assessment prejudicial to the interests of the Revenue. The absence of a separate express order on interest did not prevent revision, and the Commissioner's exercise of revisional power under section 263 was upheld as valid in law.

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Issues: Whether the Commissioner could revise an assessment order under section 263 of the Income-tax Act, 1961, where the ITO had failed to consider and levy interest under section 139(8) of that Act.

Analysis: Interest under section 139(8) was statutorily payable when the return was filed late, though the ITO retained power under the prescribed rules to reduce or waive such interest. If the assessment order is silent on an item which the law requires the assessing authority to consider, the omission is not a mere matter of form but an error in the order. Such non-consideration amounts to non-application of the statutory mandate and renders the order prejudicial to the interests of the Revenue. The absence of an express separate order on interest did not prevent revision under section 263.

Conclusion: The revisionary order was valid in law and the question was answered in the affirmative, in favour of the Revenue.

Ratio Decidendi: Failure by the assessing authority to consider and deal with mandatory interest liability under the Act, where the order is silent on the point, makes the assessment order erroneous and prejudicial to the interests of the Revenue and attracts revision under section 263.

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