1992 (6) TMI 94 - AT - Income Tax

Tribunal directs reexamination of interest levy, assess waiver under Rule 40

Trustees Of The Govind Trust. Versus Income-Tax Officer.

The Tribunal upheld the Dy. CIT(A)'s decision to set aside the rectificatory order and directed the ITO to reexamine the issue of interest levy under ... Interest Payable By Assessee, Penal Interest, Waiver Of Interest Issues Involved:1. Levy of interest under section 217 in rectificatory proceedings under section 154.2. Violation of the principle of natural justice.3. Applicability of Rule 40 for waiver of interest.4. Consideration of specific grounds of appeal by the assessee.Detailed Analysis:1. Levy of Interest under Section 217 in Rectificatory Proceedings under Section 154:The assessee contested the levy of interest under section 217, arguing that it was charged for the first time in the rectificatory proceedings under section 154 without being mentioned in the original assessment order or the notice under section 154. The assessee cited the case of CIT v. Maninder Singh, arguing that the levy of interest without a prior opportunity to object was incorrect. The Dy. CIT(A) concluded that the judgment did not support the assessee's case as it did not declare the interest charged as unlawful but highlighted that the applicability of section 154 depended on various facts. The Tribunal upheld the view that the levy of interest in rectificatory proceedings without prior indication was not justified.2. Violation of the Principle of Natural Justice:The Dy. CIT(A) observed that no opportunity was given to the assessee before levying interest under section 217 for the assessment year 1985-86, unlike the previous year 1984-85. This was seen as a violation of the principle of natural justice. Consequently, the rectificatory order was set aside with a direction to reexamine the issue after providing the assessee an opportunity to be heard and considering all relevant facts, including the possibility of waiver under Rule 40.3. Applicability of Rule 40 for Waiver of Interest:The assessee argued that the omission to charge interest in the original assessment implied a discretionary waiver by the ITO. The Tribunal noted that the Karnataka High Court in CIT v. Bangalore Animal Food Corpn. Ltd. held that rectification proceedings cannot recompute interest under section 139(8) if advance tax payment was accepted. Although this case pertained to section 139(8), the principle was considered relevant. The Tribunal emphasized that the ITO should consider the provisions of Rule 40(1) while passing a fresh order, as one of the conditions for waiver (assessment completed after more than one year from the return filing) was satisfied.4. Consideration of Specific Grounds of Appeal by the Assessee:The assessee specifically denied liability to interest under section 217 and requested its cancellation. The Tribunal noted that the Dy. CIT(A) did not specifically address this ground. The Tribunal directed that the ITO should consider this contention while passing a fresh order, ensuring adherence to the principles of natural justice and the provisions of Rule 40(1).Conclusion:The Tribunal upheld the Dy. CIT(A)'s decision to set aside the rectificatory order and directed the ITO to reexamine the issue of interest levy under section 217 after giving the assessee an opportunity to be heard and considering all relevant facts, including the possibility of waiver under Rule 40. The appeal succeeded with further directions for the ITO to address the specific ground of appeal regarding the denial of liability to interest under section 217.