An assessee can contest the levy of interest under sections 139 and 217 of the Income-tax Act, 1961, in an appeal against the assessment order if the assessee denies his liability to be assessed under the Act.

1. - The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, has referred the following question of law for being answered by this court, vide its order dated January 30, 1978

"Whether, on the facts and in the circumstances of the case, the Tribunal as right in holding that in respect of the interest charged under section 139 and under section 217 of the Income-tax Act, 1961, an appeal did not lie to the Appellate Assistant Commissioner under section 246 of the said Act and, therefore, the Appellate Assistant Commissioner acted beyond his jurisdiction in entertaining the assessee's appeal on these points ?"

2. The aforesaid reference has arisen in the following circumstances.

3. For the assessment year 1969-70, the assessee was assessed by the Income-tax Officer, vide assessment order dated March 12, 1975. The Income-tax Officer ordered charging of interest as per rules regarding late filing of the return and for making late payment of advance tax. The assessee went in appeal before the Appellate Assistant Commissioner against the assessment order. The appeal was also preferred against charging of interest on both the counts. The Appellate Assistant Commissioner entertained the appeal regarding the charging of interest under sections 139 and 217 of the Income-tax Act, 1961. The Department went in appeal before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, and one of the contentions raised was that the appeal regarding levy of interest under sections 139 and 217 was not maintainable. The Tribunal upheld the contention of the Department and found that the appeal against the levy of penal interest on both the counts, did not lie before the Appellate Assistant Commissioner. On an application moved by the assessee under section 256(1) of the Income-tax Act, 1961, the Tribunal referred the aforesaid question for the opinion of this court. We may state that to us it appears that the question has not been properly framed. Taking into consideration the fact that the appeal against the levy of penal interest as such was not filed before the Appellate Assistant Commissioner of Income-tax, but the levy of penal interest has been contested by the assessee in an appeal against the assessment order, as the question is to be answered with reference to the facts and circumstances of the case, we can take it that the question is, whether in an appeal against the assessment order, the levy of interest under sections 139 and 217 of the Income-tax Act can be contested by the assessee.

4. This court had occasion to consider this question in CIT v. Associated Stone Industries (Kotah) Ltd. [1981] 130 ITR 868. In that case, the appeal was against the order of penal interest under section 18A of the Income-tax Act for the assessment years 1957-58 to 1960-61. This question was answered in the negative and it was held that an appeal does not lie against the order levying interest under section 18A of the Act. The Division Bench of this court, however, at page 891 observed that "if the assessee denied his liability to be assessed in respect of advance tax and thereby denied altogether his liability to pay tax, then in an appeal filed against the order of assessment, the assessee could also challenge the imposition of penal interest because in that event the assessee would be 'denying his liability to be assessed under this Act', occurring in section 30 of the Act." It was further observed that "in substance, penal interest calculated and charged under sub-section (6) or sub-section (8) of section 18A could only be challenged in an appeal filed against the order of assessment to tax and the assessee would be entitled to deny his liability to payment of penal interest also while denying his liability to be assessed to tax under section 18A of the Act."

5. Such a question again came up before this court in D.B. Income-tax Reference No. 16 of 1979-CIT v. Devichand Panmal [1986] 160 ITR 545. The question was, "whether, on the facts and in the