1. This reference, made at the instance of the Revenue, poses this question :
'Whether, on the facts and in the circumstances of the case, the order of the Additional Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, directing the ITO to levy interest under proviso (iii) to section 139(1) is valid in law ?'
2. The assessee is a firm whose return of income for the assessment year 1967-68 ought to have been filed on or before September 30, 1967. It was actually filed on March 16, 1969. No application for extension of time therefore had been submitted. The ITO completed the assessment on August 14, 1969. In this order, he made no mention regarding interest to be paid by the assessee under s. 139. Upon a perusal of the assessment records of the assessee, the Addl. CIT noted that the action of the ITO in not levying statutory interest under s. 139(1)(iii) of the Act while passing the assessment order was erroneous in so far as it was prejudicial to the interest of the Revenue within the meaning of that expression under s. 263. He, therefore, directed the ITO to levy interest as aforesaid. Aggrieved by the Additional Commissioner's order, the assessee appealed to the Tribunal. Before the Tribunal, counsel for the assessee did not justify the delay in submission of the return but contended that there was no order of the ITO which could be held to be erroneous within the meaning of s. 263 and, hence, s. 263 did not become operative. It was also contended, though that contention has not been raised before us, that the proviso to s. 139(1) came into play only when a an application for extension of time had been made and time had been granted. The Tribunal concluded that in the absence of a specific order by the ITO either to charge or not to charge interest under s. 139(1)(iii), the provisions of s. 263 were not applicable and that the order made under that provision was made without jurisdiction. Upon this finding, the Revenue sought a reference to this court. Section 139(8) says that where the return for an assessment year is furnished after the specified date, or if not furnished, then the assessee shall be liable to pay simple interest at twelve per cent. per annum on the amount of the tax payable on the total income as determined on regular assessment. The proviso thereto states that the ITO may, in such cases and under such circumstances as may be prescribed, reduce or waive the interest payable by any assessee under this sub-section. Rule 117A of the I.T. Rules, 1962, provides the circumstances in which the ITO may reduce or waive such interest.
3. Section 263 empowers the Commissioner to call for and examine the record of any proceeding under this Act, if he consider that any order passed therein by the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue.
4. Mr. Joshi, learned counsel for the Revenue, refereed to a Division Bench judgment of the Allahabad High Court in Addl. CIT v. Saraya Distillery  115 ITR 34. In that case, the amounts of advance tax estimated and paid by the assessee were less than 75 per cent. of the tax determined on completion of the regular assessment. As such, interest was payable by the assessee under s. 215 of the Act upon the amount by which the advance tax fell short of the assessed tax. The ITO omitted to include interest in the notices of demand for tax. The Addl. CIT, acting under s. 263, directed the ITO to charge interest and recover the same from the assessee. On appeal, the Tribunal set aside the order of the Addl. CIT. Upon a reference to the Allahabad High Court, it was held that a reading of s. 142 with s. 215 indicated that at the time of regular assessment interest had to be charged from persons who had paid advance tax on their own estimate in an amount which fell short of the assessed tax by more than 25 per cent. thereof. An order could be said to be erroneous when either it did not decide a point and record a finding on an issue which ought to have been done or decided it wrongly. In the case before them, the court held that interest ought to have been charged by the ITO. As this was not done, his order was erroneous and prejudicial to the interests of the Revenue.
5. In Premchand Sitanath Roy v. Addl. CIT : 109ITR751(Cal) , the fact were substantially similar to those with which we are concerned. The assessee submitted his return late. He was liable to pay interest under s. 139(1)(iii). The ITO had discretion to reduce or waive the interest payable in accordance with law and under the conditions mentioned under r. 117A. The ITO did not charge any interest. The Addl. CIT issued a notice under s. 263 to show cause why the order of assessment should not be revised, as it did not disclose any reasons for waiver of interest. The petitioner filed a writ petition challenging the notice. It was held by a learned single The Judgment of the the Calcutta High Court that where the state gave an authority jurisdiction to exercise discretion on certain objective factors, the exercise of such discretion has to be manifest, so that it can be a gathered whether the discretion had been properly exercised or not. The question was not of the validity of the exercise of the discretion by the ITO but of non-application of law to the facts of the case. If the interest that was liable to be charged had not been charged, then the order of the ITO was certainly prejudicial to the interest of the Revenue and as such the Commissioner could exercise his jurisdiction under s. 263.
6. We are entirely in agreement with the reasoning of the learned single judge of the Calcutta High Court. The ITO was bound to charge interest under s. 139(8). He had, however, the power to waive or reduce it. He did not consider the question of interest as he was obliged to do. His order is silent on the point of interest. The order could, therefore, be said to be erroneous and prejudicial to the interests of the Revenue. The Commissioner had, therefore, jurisdiction under s. 263 or revise it.
7. Mr. Pandit, learned counsel for the respondent, submitted that the imposition of the liability to pay interest must be made by a separate order. He relied in this regard on a Division Bench judgment of the Delhi High Court in Addl. CIT v. Achal Kumar Jain : 142ITR606(Delhi) . This judgment was delivered in the context of penalty proceedings and was based upon the conclusion of the Supreme Court and several other courts that proceedings for levy of penalty are independent and separate form assessment proceedings. The judgment, in our view, carries the assessee's case no further.
8. Having regard to the above discussion, we answer the question in the affirmative, i.e., in favour of the Revenue.
9. The assessee shall pay to the Revenue the costs of the reference.