Revision for failure to consider interest was upheld, but levy could not be directed without fresh merits review under Rule 117A.

The omission to consider levy of interest under section 139(8) made the assessment order prejudicial to the Revenue, so revision under section 263 was justified. Waiver of interest under Rule 117A requires a conscious application of mind to the facts and circumstances, and the record did not show that the Income-tax Officer had exercised that discretion. However, the Commissioner could not direct automatic levy of interest, because the discretion under Rule 117A remained with the Income-tax Officer. The proper course was to remit the matter for fresh consideration on merits and decide whether interest should be levied after examining the relevant facts.

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Issues: Whether the Commissioner could revise the assessment under section 263 on the ground that the Income-tax Officer had not considered levy of interest under section 139(8), and whether the direction should be to levy the interest or only to examine the question on merits in the light of Rule 117A.

Analysis: Waiver of interest is a conscious act requiring application of mind by the Income-tax Officer to the facts and the circumstances in which interest may be waived under Rule 117A. The material on record did not show that the Income-tax Officer had consciously waived the interest; therefore, the omission to consider levy of interest rendered the assessment order prejudicial to the Revenue and justified recourse to section 263. At the same time, the Commissioner could not usurp the Income-tax Officer's discretion under Rule 117A by straightaway commanding levy of interest, and the proper course was to require reconsideration of the issue on merits.

Conclusion: The revision under section 263 was valid, but the direction to charge interest under section 139(8) was modified to a direction to consider levy of interest afresh on merits under Rule 117A.

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