The right to prefer an appeal against the levy of penal interest under section 139 or section 215 is conferred by the first part of clause (c) of section 246. The levy of penal interest under section 139 or section 215 is not automatic but vests in the discretion of the Income-tax Officer and the discretion to waive or reduce the interest has to be exercised in accordance with the Rules referred to above.

Govinda Bhat, C.J.

1. The Income-tax Appellate Tribunal, Bangalore Bench, has stated a case and referred under section 256(1) of the Income-tax Act, 1961, the following question of law for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, it was, for the Tribunal, an error in law to hold that the order levying interest either under section 139(4) or under section 215(1), Income-tax Act, was not appealable to the Appellate Assistant Commissioner of Income-tax ?"

2. The assessee is a registered firm. Its previous year relevant to the assessment year 1970-71 ended on March 31, 1970. Its income-tax return was due by September 30, 1970, but the same was filed only on February 25, 1971. The assessment was completed by an order of assessment made on March 19, 1971, determining the total income at Rs. 1,42,090 on which a sum of Rs. 21,084 was assessed as the amount of tax. A sum of Rs. 1,146 was charged as interest under sub-section 4(a) read with clause (iii)(a) of the proviso to sub-section (1) of section 139, Income-tax Act, 1961 (which will be hereinafter referred to as the "Act"), and a further sum of Rs. 848 was charged as penal interest under section 215(1) of the Act. Against the assessment order, the assessee preferred an appeal (I.T.A. No. 205 of 1971-72), before the Appellate Assistant Commissioner of Income-tax objecting to the disallowance of one-fourth of the car expenses and the levy of interest under section 139 and section 215. The Appellate Assistant Commissioner upheld the disallowance of car expenses made by the Income-tax Officer; in regard to the objection to the levy of interest, he held that the appeal was incompetent because section 246 of the Act does not provide for such an appeal. In the result, the assessment was confirmed and the appeal was dismissed. The assessee took up the matter in appeal before the Income-tax Appellate Tribunal, Bangalore Bench, urging that penal interest ought not to have been charged. The Tribunal agreed with the view of the Appellate Assistant Commissioner that against the levy of interest under section 139 or section 215, appeal was not maintainable under section 246 of the Act.

3. The submission of Sri K. Srinivasan, learned counsel for the assessee, was that a charge of penal interest under section 139 or section 215 is appealable to the Appellate Assistant Commissioner or Income-tax under the first part of clause (c) of section 246. The learned counsel argued that the word "assessment" has a comprehensive meaning comprehending the whole procedure for ascertaining and imposing liability on taxpayers and that the levy of penal interest in the assessment order is comprehended within the meaning of the word "assessment"; that when the assessee challenges in appeal the levy of interest, he denies his liability to be assessed under the Act.

4. Sri Rajasekhara Murthy, learned counsel for the department, contended that the first part of clause (c) of section 246 applies only where the assessee denies his liability to be assessed under the Act, as in the case of a person treated as a partner in the assessment of a firm denying his liability to be assessed as a partner. He invited our attention to the fact that an order made under section 216 levying interest has been made expressly appealable under clause (m) of section 246 while no such right of appeal against levy of interest under section 139, section 215 and section 217 has been provided in the section. The question as formulated by the Tribunal is not happily worded. With the consent of the learned counsel on both sides, we recast the question as follows :

"Whether, on the facts and circumstances of the case, the Appellate Assistant Commissioner was right in declining to consider the objections of the assessee to the levy of penal interest under sub-section (4)(a) read with clause (iii)(a) of the proviso to sub-section (1) of section 139 and to the levy of penal interest under section 21