Commissioner of Income Tax vs Jay Engg. Works Ltd.

Arijit Pasayat, C.J.—At the instance of revenue following question has been referred u/s 256(1) of the income tax Act, 1961 (''the Act'') by the Tribunal, Delhi Bench A : Whether, on the facts and in the circumstances of the case, the Tribunal is legally correct in holding that the assessee had a right to appeal against the charging of interest u/s 216 in the course of the reassessment u/s 147 ?

The dispute relate to 1971-72.

Factual position is almost undisputed and is as follows: Originally, assessment was completed on 21-1-1975 and the ITO had charged interest u/s 216 of the Act. Same was not challenged by the assessee, though an appeal had been filed on other grounds. Thereafter, assessment was reopened by the ITO u/s 147, as according to him, income chargeable to tax had escaped assessment. A draft assessment order was prepared by him and sent to the IAC u/s 144B of the Act. A copy of the draft assessment was also sent to the assessee. The assessee filed objections to certain variations in the income. The IAC also gave an opportunity to the assessee of being heard and the reassessment was completed by the ITO on 20-9-1987. In the order of reassessment, the ITO noted about charging of interest under sections 215 and 216 of the Act. The assessee filed an appeal before the AAC where it was alleged that the ITO was wrong in charging interest u/s 216. The assessee pleaded before the AAC that the ITO had not specified the circumstances under which the assessee was held liable u/s 216. It was also pleaded that there was sufficient justification for filing nil estimate. The AAC observed that in the original proceedings the assessee had not raised any objection against the levy of interest u/s 216 of the Act. It was observed that even the estimate filed by the assessee in March 1971 was found to be an underestimate. She referred to certain factual aspects in this regard. It was held that interest u/s 216 which was in the nature of compensatory charge for the loss incurred by the revenue for late payment of advance tax. Matter was carried in appeal by the assessee before the Tribunal. The assessee''s stand was that two grounds indicated by the AAC, i.e., non-challenge of interest in the first instance and absence of proper reasons for filing nil estimate have not been considered in the proper perspective. The Tribunal held that without establishing that the estimate of advance tax was non bona fide, interest u/s 216 could not be charged. With reference to section 147 of the Act, it was held that the assessee cannot re-agitate questions which have been decided in the original assessment and in case income has escaped assessment same can be subsequently charged and it is not open to an assessee when charged in that way to reopen the whole assessment. It is, however, open to assessee to plead that there was bona fide belief so far as the estimate filed is concerned and merely because at the time of original assessment levy was not challenged that cannot be a ground to close the door on assessee so far as challenge is concerned during re-assessment proceedings. It was also held that merely because at the time of original assessment certain view had been entertained by the ITO regarding charging of interest, it does not necessary to follow that he should not apply his mind again to the question at the time of reassessment and an opportunity should be given to the assessee as to why such an interest should not be levied. Accordingly, the levy of interest u/s 216 was cancelled.

On being moved for reference, the question set out above has been referred for opinion of this Court.

We have heard the learned counsels for the parties. According to the learned counsel for revenue, assessee cannot be at better footing than that which existed at the time of original assessment. The Tribunal has erred in holding that no opportunity was granted to the assessee when re-assessment proceedings were done as regards charging of interest and in fact it was given. The learned counsel for assessee, on the other hand, contended that merely because challenge had not been made originally, that cannot be a ground to deny the right of appeal against levy during re-assessment. As the factual scenario would go to show, when original assessment was done, there was no challenge to the levy of interest. In fact, an appeal had been preferred wherein there was no challenge to the levy of interest. The scope of proceedings u/s 147 of the Act relates to under-assessment or escaped assessment of income. As has been rightly submitted by the learned counsel for revenue, assessee cannot be put in a better position than what existed at the time of original assessment, because he had not chosen to challenge the levy at the first stage. Additionally, from the documents filed before us, we find that in the order passed u/s 143(3), read with section 144B, the ITO had noted as follows :

In the draft assessment order I had proposed to charge interest under sections 216 and 215, the assessee has raised an objection before the IAC that interest u/s 215 is chargeable only up to the date of regular assessment and not up to the date of re-assessment u/s 147. It was my intention and also it is the position of law that interest can be charged only up to the date of regular assessment and interest will be charged accordingly.

The quoted portion would go to show that there was no challenge by the assessee to the charging of interest u/s 216 even when draft assessment order u/s 144B was served on him and, accordingly, interest was charged. Levy of interest u/s 216 of the Act was appealable in terms of section 246(m). At the relevant point of time, the assessee did not avail of that remedy and accepted the levy, thereby making it final. It is settled that reassessment proceedings are for the benefit of revenue and do not result in wiping out the first order, as it is only the under-assessment which is set aside and not the whole order of assessment. Assessment concluded earlier against the assessee does not get reopened. A somewhat similar situation arose in Commissioner of Income Tax Vs. Khodey Brewing and Distilling Industries Ltd., In that case, the Assessing Officer had directed levy of interest under sections 139(9) and 215 but in reality interest was computed for the first time when reassessment order under sections 147 and 148 of the Act was passed. The High Court held that levy of interest could not be questioned in appeal against the order in the reassessment proceedings. If the assessee wanted to question the levy of interest, appeal should have been filed against the regular assessment.

In our view, the legal position has been laid down in the proper perspective in the said case. The case of revenue stands on a better footing in the case at hand, since no appeal was filed earlier in terms of section 246(m) challenging the levy of interest u/s 216, though an appeal had been filed on some other grounds. These aspects have not been taken note of by the Tribunal. Answer to the question referred is in the negative in favour of the revenue and against the assessee.