Punjab & Haryana H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the interest charged under s. 216 levied in this case for underestimating the advance tax thereby reducing the amount payable in the first two instalments ?

Counsel Appeared

R.P. Sawhney with Rajesh Bindal, for the Revenue : J.C. Nagpal, for the Assessee

JUDGMENT

G.S. SINGHVI, J. :

This is a petition under s. 256(2) of the IT Act, 1961 (for short, “the Act”), for directing the Tribunal, Amritsar Bench, Amritsar (for short, “the Tribunal”), to draw up the statement of case and refer the following questions to this Court for its opinion : “(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the interest charged under s. 216 levied in this case for underestimating the advance tax thereby reducing the amount payable in the first two instalments ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that in cases where assessments are framed under s. 143(1) and not under s. 143(3) interest under s. 216 is not chargeable for deficient payment in the first two instalments?”

2. The facts of the case are that for the accounting period ending on 31st Dec., 1987 (relevant to the asst. yr. 1988- 89), the petitioner filed a return on 28th June, 1988, declaring an income of Rs. 73,79,650. While framing the assessment under s. 143(1) of the Act, the AO noticed that the assessee had paid total advance tax of Rs. 38,75,000 during the year out of which the first two instalments were only of Rs. 5,00,000 each. He felt that the assessee had estimated the advance tax by reducing the amount payable in the first two instalments and, therefore, charged interest amounting to Rs. 80,832 under s. 216 of the Act. The Commissioner of Income-tax (Appeals), Jalandhar [for short, “the CIT(A)”], partly accepted the appeal of respondent No. 1 and directed that interest under s. 216 be charged in respect of the shortfall with reference to the assessed tax. The assessee as well as the Revenue preferred appeals against the order dt. 11th Sept., 1989, passed by the CIT(A). The Tribunal disposed of both the appeals by a common order dt. 11th Nov., 1994. It dismissed the appeal of the Revenue, but allowed the one filed by the assessee resulting in quashing of the levy of interest under s. 216. Paras 5 and 6 of the Tribunal’s order, which contain the reasons for quashing the levy of interest, read as under : “We have considered the rival submissions. A plain reading of s. 216 of the IT Act, 1961, makes it clear that interest cannot be levied under that section unless the ITO finds that the assessee had underestimated the advance tax payable by him. Payment of interest is mandatory under the provisions of ss. 215 and 217 of the IT Act, 1961. On the other hand, the levy of interest under s. 216 is discretionary. The question of exercising discretion would arise only when the ITO finds that the assessee had underestimated the advance tax payable by it. The term ‘underestimate’ indicates that the ITO must find that the assessee had made too low an estimate. The estimate can be said to be an ‘underestimate’ if it is deliberate or intentional. Such a finding of an ‘underestimate’ cannot be made without appreciation of the facts, which are pleaded or which are available on record and such a finding can be given only when an order is passed under s. 143(3) and not in an order passed under s. 143(1). Accordingly, we will hold that no interest was chargeable under s. 216 because the AO had failed to record a finding that there had been an ‘underestimate’ of advance tax by the assessee. We may point out that considering the fact that order passed under s. 216 is appealable and also that penalty is imposable for an intentional false estimate, the word ‘may’ used in s. 216 cannot be construed as ‘shall’ “

3. The Revenue filed a reference application under s. 256(1) of the Act. The same was dismissed by the Tribunal vide order dt. 5th June, 1995, with the following observations : “The proposed question No. 1 presumes that the interest under s. 216 has been levied for underestimating the advance tax and thereby reducing the amount payable in the first two instalments in this connection, it is relevant to note the findings of the Tribunal recorded in para. 6 as under : ‘6. Accordingly, we will hold that no interest was chargeable under s. 216 because the AO had failed to record a finding that there had been an underestimate of advance tax by the assessee . . .’. Thus the proposed question No. 1 does not arise out of the order of the Tribunal.

The proposed question No. 2 is merely academic in view of the clear finding of fact recorded by the Tribunal in para. 6 reproduced above. Even otherwise, the answer to the second question is self-evident as there could be possibly no debate on the proposition that no judicial finding based on enquiry and application of mind can possibly be recorded in an order passed under s. 143(1), which is made on the basis of the assessee’s return without any enquiry or discussion with the assessee, wherein the income returned can never be altered except by making prima facie adjustments of an arithmetical nature. Accordingly, we are of the opinion that both the questions as prayed for by the learned CIT, are not referable to the High Court. Accordingly, the reference application filed by the Revenue is dismissed.”

Shri R. P. Sawhney, senior advocate appearing for the Revenue, argued that even though the order passed by the AO does not contain a finding that the assessee had underestimated income for the purpose of advance tax, he was justified in charging interest under s. 216 because the assessee had deliberately filed an incorrect return of estimated income. Learned counsel submitted that the assessee was aware of the income of the previous year and, therefore, the estimate of income for the purpose of advance tax should have been filed on that basis which it had failed to do. He further argued that the plea raised by the assessee before the Tribunal was contrary to the one raised before the CIT(A) and, therefore, the former had committed a serious illegality by deleting the interest. Shri Sawhney also submitted that the decision of the Gujarat High Court in CIT vs. Nagri Mills Ltd. (1986) 57 CTR (Guj) 304 : (1987) 166 ITR 292 (Guj) : TC 43R.563 relied upon by the Tribunal does not lay down the correct law and, therefore, the reference sought by the Revenue may be granted.

Shri S.C. Nagpal referred to s. 216 of the Act and argued that without recording a finding of underestimation of income, the AO cannot levy interest under that section. He then referred to the order of assessment dt. 7th Nov., 1988, to show that the AO did not even make a mention of underestimation of income and submitted that without doing so, he could not have levied interest under s. 216. Shri Nagpal submitted that the judgment of the Gujarat High Court in the case of Nagri Mills Ltd. (supra) lays down the correct law.

6. We have considered the respective submissions. In our opinion, the Tribunal has correctly interpreted s. 216 and the orders passed by it do not give rise to any question of law requiring determination by this Court. A reading of s. 216 shows that recording of a finding that the assessee had underestimated the income is sine qua non for levy of interest. The question as to whether such underestimation should be actuated by ulterior motive need not detain us because a bare perusal of the order passed by the AO shows that instead of directing his attention to the requirement of s. 216, the AO proceeded to levy interest by assuming that it was a case of underestimation of income. In our opinion, the power under s. 216 of the Act cannot be exercised by the AO on pure imagination and conjecture as was done in the present case. Therefore, we have no hesitation to hold that the levy of interest was totally unwarranted and unjustified and the order passed by the Tribunal quashing the levy of interest does not suffer from any legal infirmity giving rise to a question of law.

For the reasons mentioned above, we hold that neither of the questions of law sought by the Revenue arise in this case and the petition is liable to be dismissed. Ordered accordingly.

[Citation : 252 ITR 613]