The expression "denies his liability to be assessed under this Act" in section 246(c) of the Income-tax Act, 1961, includes a partial denial of liability to be assessed, which includes the question of whether penal interest is leviable on the assessee.

Headnote:
INCOME TAX - APPEAL - LEVY OF PENAL INTEREST - JURISDICTION OF APPELLATE ASSISTANT COMMISSIONER - WAIVER OF INTEREST - POWERS OF APPELLATE ASSISTANT COMMISSIONER.
Fact of the Case:

The assessee, a partnership firm, filed its return of income for the assessment year 1971-72 on March 23, 1972, declaring an income of Rs. 1,12,370. A revised return was filed on January 19, 1974, claiming deduction under section 80J of the Income-tax Act, 1961. The Income-tax Officer (ITO) refused registration and made the assessment in the status of an unregistered firm on January 9, 1975, determining the income at Rs. 94,535. The Appellate Assistant Commissioner (AAC) assessed the income at Rs. 81,020. The ITO charged interest of Rs. 16,970 under section 215 of the Act. The assessee appealed against the assessment order, challenging the levy of interest. The AAC held that the interest was correctly charged but directed that the amount be re-calculated on the basis of the reduced income. He also observed that the interest should be waived for the period from April 1973 to the date of assessment.
Finding of the Court:

1. The Appellate Assistant Commissioner (AAC) was justified in entertaining the appeal on the question of levy of penal interest under section 215 of the Income-tax Act, 1961, as the expression "denies his liability to be assessed under this Act" in section 246(c) of the Act includes a partial denial of liability to be assessed, which includes the question of whether penal interest is leviable on the assessee. 2. The AAC had the jurisdiction to give a direction in the appeal for waiving interest for the period from April 1973 to the date of assessment, as the Income-tax Officer could have given such a direction under section 215(4) of the Act read with rule 40 of the Income-tax Rules, 1962. 3. The AAC did not exceed his jurisdiction when he entertained the appeal on the question of levy of penal interest and gave a direction for waiving of interest from April 1973 to the date of assessment.
Issues: 1. Whether the Appellate Assistant Commissioner was justified in entertaining the appeal on the question of levy of penal interest under section 215 of the Income-tax Act, 1961? 2. Whether the Appellate Assistant Commissioner had exceeded his jurisdiction in giving a direction for waiving of interest from April 1973 to the date of assessment? 3. Whether the Tribunal was justified in sustaining the order passed by the Appellate Assistant Commissioner waiving interest for the period from April 1973 to the date of assessment?
Ratio Decidendi: 1. The expression "denies his liability to be assessed under this Act" in section 246(c) of the Income-tax Act, 1961, includes a partial denial of liability to be assessed, which includes the question of whether penal interest is leviable on the assessee. Therefore, the Appellate Assistant Commissioner was justified in entertaining the appeal on the question of levy of penal interest. 2. The Appellate Assistant Commissioner has plenary powers in disposing of an appeal, including the power to do what the Income-tax Officer can do and to direct the Income-tax Officer to do what he has failed to do. Therefore, the Appellate Assistant Commissioner had the jurisdiction to give a direction in the appeal for waiving interest for the period from April 1973 to the date of assessment. 3. The Appellate Assistant Commissioner did not exceed his jurisdiction when he entertained the appeal on the question of levy of penal interest and gave a direction for waiving of interest from April 1973 to the date of assessment, as he was competent to do so under section 251 of the Income-tax Act, 1961.
Final Decision: Questions Nos. (1) to (3) are, therefore, answered in the affirmative. i.e., in favour of the assessee and against the Revenue.

JUDGMENT

1. - At the instance of the Commissioner of Income-tax, jodhpur, the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur ("the Tribunal" herein), has referred the following questions for our opinion, which arise out of its order dated June 30, 1978, passed in Income-tax Application No. 375/JP/76-77:

"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the Appellate Assistant Commissioner of Income-tax has rightly entertained the appeal on the point of levy of penal interest under section 215 of the Income-tax Act, 1961 ?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the learned Appellate Assistant Commissioner bad not travelled outside his jurisdiction in this case ?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the order passed by the learned Appellate Assistant Commissioner waiving interest for the period from April, 1973, to the date of assessment ?"

2. The assessee is a partnership concern. The assessment year under consideration is 1971-72. For this assessment year, the return of income was filed initially on March 23, 1972. In this return, the income declared was Rs. 1,12,370. A revised return was filed on January 19, 1974 claiming deduction under section 80J of the Income-tax Act, 1961 (Act No. XLIII of 1961) (for short "the Act"). The assessee had claimed registration. The Income-tax Officer, however, refused the registration by a separate order passed under section 185 of the Act. He made the assessment of the assessee in the status of an unregistered firm by an assessment order dated January 9, 1975. The income determined was Rs. 94,535. In the appeal, the Appellate Assistant Commissioner (AAC) assessed the income at Rs. 81,020. The tax payable on this amount as a registered firm was Rs. 7,685. The assessee-firm had already paid advance tax of Rs. 10,000 on October 9, 1970, being a person not hitherto assessed in terms of section 212(3) of the Act. The Income-tax Officer (ITO), however, stated in the assessment order "charge interest as per the Rules". Interest to the tune of Rs. 16,970 was charged. An appeal was lodged by the assessee against the assessment order passed under section 143(3) of the Act. One of the grounds taken was that the Income-tax Officer erred in levying interest amounting to Rs. 16,970 under section 215 of the Act. The Appellate Assistant Commissioner in his order dated March 18, 1976, held that the interest was correctly charged; however, the amount of interest chargeable may be re-calculated on the basis of the reduced income. While dealing with the question of interest, the Appellate Assistant Commissioner observed as under:

"Therefore, it is a case where the interest under section 215 should be waived for the period beginning from April, 1973, to the date of the assessment."

3. Repelling the contention that an appeal did not lay before him on the question of interest, the Appellate Assistant Commissioner has expressed himself in the following words:

"Though this ground is not separately appealable, I derive the power to decide the issue because the entire assessment has been challenged in appeal."

4. Being dissatisfied, the Department went in appeal. Two contentions were raised before the Tribunal:

(1) That the Act does not provide specifically for appeal against the levy of penal interest under section 215 of the Act, and, therefore, the Appellate Assistant Commissioner should not have entertained the appeal.

(2) That the Appellate Assistant Commissioner had erred in directing that the interest charged under section 215 should be waived.

5. The Tribunal, after noticing the authorities that were cited before it, in which diverse views have been expressed, dismissed the appeal.

6. The Commissioner of Income-tax submitted an application under section 256(1) of the Act. The Tribunal has referred the aforesa

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1985 Supreme(Raj) 547

RAJASTHAN HIGH COURTS.K.Mal Lodha, Farooq Hassan, JJ.Commissioner of Income - AppellantVersusDevichand Pan Mal - RespondentD.B. Income-tax Reference No. 16 of 1979.Decided On : 25-07-1985

The expression "denies his liability to be assessed under this Act" in section 246(c) of the Income-tax Act, 1961, includes a partial denial of liability to be assessed, which includes the question of whether penal interest is leviable on the assessee.

Cases Referred (10)

RAJASTHAN HIGH COURT
S.K.Mal Lodha, Farooq Hassan, JJ.
Commissioner of Income - Appellant
Versus
Devichand Pan Mal - Respondent
D.B. Income-tax Reference No. 16 of 1979.
Decided On : 25-07-1985