An assessee can challenge the imposition of interest in appeal where it denies its liability to be assessed at all or denies its liability to pay interest at all.

( 1 ) THE facts and the proceedings leading up to this reference are shortly as follows : In the assessment year 1958-59, the relevant previous year ending on the 31st March, 1958, Messrs. Karam Chand Thapar and Bros. (P.) Ltd , Calcutta, the assessee, filed a return showing an income of Rs. 28,14,601. Subsequently, the assessee filed a revised return showing such income as Rs. 5,42,093. Ultimately, the assessee was assessed on a total income of Rs. 30,08,425. The assessee had paid advance tax under Section 18a of the Indian I. T. Act, 1922, which fell short of 80% of the tax ultimately determined to be payable by the assessee in the regular assessment and the ITO charged a sum of Rs. 50,678. 69 as interest under Section 18a (6) of the said Act.

( 2 ) THE assessee preferred an appeal against the order of assessment on various grounds challenging, inter alia, the following : (a) Disallowance of bad debts. (b) Disallowance of the losses following sale of shares. (c) Addition of amounts as income from undisclosed sources. (d) Disallowance of sums paid as donations and prospecting expenses.

( 3 ) A ground was also taken against imposition of penal interest under Section 18a (6) of the Act as follows : "that the Income-tax Officer went wrong in imposing a penal interest of Rs. 50,678. 69. "

( 4 ) THE AAC allowed the appeal in part allowing deduction of several amounts on account of loss incurred in sales of shares and deleting one amount which was added as the assessee's income from undisclosed sources. Interest paid on the last mentioned amount was allowed. As to the penal interest charged, the AAC held that an appeal did not lie against such imposition and did not entertain the ground.

( 5 ) BEING aggrieved, the assessee went up on further appeal to the Income-tax Appellate Tribunal. The Tribunal granted a further relief to the assessee and allowed deduction of certain expenses incurred on prospecting and remanded the proceedings to the AAC directing the latter to enquire further on the addition of Rs. 1 lakh as income from undisclosed sources, consider the evidence which the assessee wanted to adduce in respect thereof and to decide the point on evidence, if any, adduced by the assessee.

( 6 ) FOLLOWING the decision of the Bombay High Court in Mathuradas B. Mohta v. CIT [1965] 56 ITR 269, the Tribunal held that an appeal lay against the levy of penal interest and restored the appeal on this point to the file of the AAC for being considered on merits.

( 7 ) ON the application of the Commissioner of Income-tax, West Bengal-I, Calcutta, under Section 256 (1) of the I. T. Act, 1961, the Tribunal has drawn up a statement of case and has referred the following question for the opinion of this court as a question of law arising from its order :"whether, on the facts and in the circumstances of the case, an objection to the levy of interest under Section 18a (6) of the Indian Income-tax Act, 1922, could be included in an appeal before the Appellate Assistant Commissioner and consequently before the Tribunal ?"

( 8 ) MR. Debi Pal, learned counsel for the assessee, contended at the hearing that the question sent up in the present reference was covered by an unreported decision of this court in Income-tax Reference No. 132 of 1971 intituled CIT v. Lalit Prasad Rohini Kumar, where it had been laid down that whenever any part of the assessment was challenged it was open to the assessee to challenge also the levy of interest, if any, in such assessment.

( 9 ) MR. Ajit Sengupta, learned counsel for the revenue, contended on the other hand that all that had been laid down in the above decision was that imposition of penal interest could only be challenged where the assessee contended that it was not liable to be assessed at all or that it was not in any way liable to pay any interest. Where the assessee admitted its liability to be assessed and also its liability to be charged some interest, he would not be entitled to appeal aga