Gauhati H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the orders of the Addl. CIT under s. 263 of the IT Act, 1961, to the extent of charging of interest under s. 139 and s. 217 of the IT Act, 1961, relating to the assessment years involved in the various appeals ?

Counsel Appeared

Bhattacharjee, M.K. Sharma, U. Barua, R.C. Verma & P.N. Singh, for the Assessee : None, for the Revenue

RAGHUVIR, C.J.:

These references were consolidated in the statement of cases. Therefore, we propose to dispose of all the cases in one order.

2. The following two questions have been referred under sub-s. (1) of s. 256 of the IT Act, 1961 : “(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the orders of the Addl. CIT under s. 263 of the IT Act, 1961, to the extent of charging of interest under s. 139 and s. 217 of the IT Act, 1961, relating to the assessment years involved in the various appeals ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Addl. CIT was not justified in setting aside the assessments in order to restore to the ITO the right to commence the proceedings of penalty under ss. 27)(1)(a), 271(1)(c) and 273 of the IT Act, 1961, which had already become barred by limitation on account of failure of the ITO to commence these proceedings within the prescribed time- limit relating to the assessment years as mentioned in the various consolidated orders of the Tribunal ? “

The assessment orders in all the cases were finalised on March 14, 1972 for the years 1964-65, 1966-67, 1967-68, 1968-69, 1969- 70, 1970-71 and as respects 1965-66, the order was finalised on March 18, 1971. The Addl. CIT, exercising his power of revision, scrutinised the records to find out whether the orders resulted in the detriment of the interests of the Revenue. In the course of the order, the following points were formulated: ” (i) The ITO has erred in not initiating penalty proceedings under s. 271(1)(a) for all the seven assessment years and under s. 271(1)(c) of the IT Act, 1961, for all the years except 1965-66 assessment year. (ii) The ITO has erred in not initiating penalty proceedings under s. 273 for default of payment of advance tax under s. 212 of the IT Act, 1961, for all the seven assessment years. (iii) The ITO has not charged interest under s. 139 for the asst. yrs. 1964-65, 1965-66, 1967-68 and 1968-69 and interest under s. 217 of the IT Act, 1961, for all the seven assessment years; and (iv) Annuity Deposits have not been charged in respect of the asst. yrs. 1964-65 to 1966-67 ” and he held ” Considering all these defects in the assessment orders, I would hold that the assessments have not been proper in the face of non-initiation of penalty proceedings under s. 271(1)(a) and s. 273 for all the seven asst. yrs. 1964-65 to 1970-71, for non-initiation of penalty proceedings under s. 271(1)(c) for the asst. yrs. 1966-67 to 1970-71 and for noncharging of interest leviable under s. 139 for the asst. yrs. 1964-65, 196566, 1967-68 and 1968-69 as also of interest under s. 217 of the IT Act, 1961, for all the seven assessment years. All the assessments are, therefore, set aside with a direction that penalty proceedings should be initiated as directed in respect of the relevant years, proper interest chargeable under s. 139 for the assessment years mentioned and tinder s. 217 for all the above years should be charged. Besides, charging of additional income-tax in lieu of Annuity Deposits payable should also be verified in respect of the asst. yrs. 1964-65 to 1966-67 “.

The assessees assailed the orders in appeal. The Tribunal held—”the order of the Addl. CIT under s. 263 for the asst. yrs. 1965- 66 is cancelled while for the other assessment years, it is upheld only to the extent that directions may be given to the ITO for charge of interest under ss. 139 and 217 in accordance with the provisions of the Act and the rules made thereunder “. Thereafter, two questions are referred to this Court.

We may now take the first question. The assessee in this case urged that a direction to charge interest cannot be ordered to the ITO, as the decision to charge or not to charge depends on the facts of the case. We see the Addl. CIT did not, in emphatic terms, order the ITO to do so. What was held was that the ITO had not waived the interest and ” waiver by the ITO would be clearly erroneous and prejudicial to the interests of the Revenue on the facts and circumstances of the case “.

The Tribunal, however, made such an error and directed that interest be charged by the ITO. The Supreme Court in Central Provinces Manganese Ore Co. Ltd. vs. CIT (1986) 58 CTR (SC) 112 : (1986) 160 ITR 961 (SC) considered this very aspect and held : ” In cases where the jurisdictional fact attracting the levy cannot be disputed, for example, that the return has been furnished under s. 139 with delay, it will be a question merely of satisfying the relevant authority that there are circumstances calling for a reduction or waiver of the interest. If an opportunity to do so has not been made available to the assessee before the order levying interest is made, it will be open to the assessee to apply to the ITO after such order has been made to show that a reduction or waiver of interest is justified. We have been referred to the judgment by one of us (Sabyasachi Mukharji J.) in Premchand Sitanath Roy vs. Addl. CIT (1977) 109 ITR 751 (Cal). In that case, the question was a very different one. The question was whether a right of appeal was available in regard to the improper exercise of discretion under sub-s. (8) of s. 139. We think that in holding that no right of appeal lay in such a case, the High Court was plainly right. As the assessee has made no application to the ITO for reduction or waiver of interest under sub-s. (8) of s. 139 or under s. 215, no question arises of the relevant authority having denied improperly a reduction or waiver of the interest and that being so, no revision petition can be maintained in that regard by the assessee before the CIT. “

Following the above decision, we answer the first question in favour of the Revenue but qualify the answer by saying that the ITO is not to understand that a duty is imposed on him to charge interest under s. 217. It is open to him to consider whether the circumstances warrant charge of interest. Therefore, we answer the first question in favour of the Revenue and against the assessee with the above qualification.

The next question is regarding levy of penalty under ss. 271(1)(a) and 273 of the IT Act. The order of the Addl. CIT shows that the ITO has not initiated penalty proceedings under ss. 271(1)(a) and 273 and, therefore, assessments are held vitiated. We experience no hesitation in not sustaining the order. We may add that to pass an order in such terms may, in a given case, be an abuse of power or in the parlance of administrative law, a colourable exercise of power. Such an unqualified direction to the ITO to initiate proceedings to levy penalty cannot be justified.

The Delhi High Court in CIT vs. J. K. D’Costa (1981) 25 CTR (Del) 224 : (1982) 133 ITR 7 (Del) held and we quote the long passage which explains itself : ” Here, we find overselves in complete agreement with the view taken by the Tribunal. It is well established that proceedings for the levy of a penalty, whether under s. 27)(1)(a) or under s. 273(b), are proceedings independent of and separate from the assessment proceedings. Though the expression assessment is used in the Act with different meanings in different contexts, so far as s. 263 is concerned, it refers to a particular proceeding that is being considered by the CIT and it is not possible, when the CIT is dealing with the assessment proceedings and the assessment order, to expand the scope of these proceedings and to view the penalty proceedings also as part of the proceedings which are being sought to be revised by the CIT. There is no identity between the assessment proceedings and the penalty proceedings ; the latter are separate proceedings that may, in some cases, follow as a consequence of the assessment proceedings. As the Tribunal has pointed out, though it is usual for the ITO to record in the assessment order that penalty proceedings are being initiated, this is more a matter of convenience than of legal requirement. All that the law requires, so far as the penalty proceedings are concerned, is that they should be initiated in the course of the proceedings for assessment. it is sufficient if there is some record somewhere, even apart from the assessment order itself, that the ITO has recorded his satisfaction that the assessee is guilty of concealment or other default for which penalty action is called for. Indeed, in certain cases, it is possible for the ITO to issue a, penalty notice or initiate penalty proceedings even long before the assessment is completed though the actual penalty order cannot be passed until the assessment is finalised. We, therefore, agree with the view taken by the Tribunal that the penalty proceedings do not form part of the assessment proceedings and that the failure of the ITO to record in the assessment order his satisfaction or the lack of it in regard to the leviability of penalty cannot be said to be a factor vitiating the assessment order in any respect. An assessment cannot be said to be erroneous or prejudicial to the interests of the Revenue because of the failure of the ITO to record his opinion about the leviability of penalty in the case. We, therefore, answer the first question referred to us in the affirmative and in favour of the assessee. “

We are in respectful agreement with the reasoning and conclusion reached by the Delhi High Court. We may add that when S.L.P. (Civil) Nos. 11391-11392 of 1981 were filed against the order in CIT vs. J. K. D’Costa (supra), leave was rejected on March 2, 1984—See (1984) 147 ITR (St.) 1.

We thus answer the second question in the affirmative and hold that the Addl. CIT was not justified in setting aside the assessment order. The answer is recorded in favour of the assessee and against the Revenue.

No costs.

[Citation : 173 ITR 510]