1. By this appeal the assessee challenges the order passed by the Commissioner under Section 263 of the Income-tax Act, 1961 ('the Act') cancelling the assessment for the assessment year 1977-78. The appeal is opposed by the department.
2. The ITO completed the assessment of the assessee for the assessment year 1977-78 on 18-7-1980. The said assessment was rectified on 30-3-1981 when the total income was computed at Rs. 86,34,550. The assessed tax on the total income as assessed under Section 154 of the Act was Rs. 12,24,261. On 28-6-1977, the assessee paid Rs. 7,61,910 under setcion 140A of the Act leaving a balance of Rs. 4,62,351. The ITO charged interest under Section 215 of the Act on the assessed tax from 1-4-1977 to 31-5-1977 and on the balance of the unpaid tax from 1-6-1977 to 30-6-1980. The Commissioner was of the opinion that the interpretation of the ITO of the provisions of Rule 119A of the Income-tax Rules, 1962 ('the Rules') was incorrect and the ITO should have charged interest on the assessed tax from 1-4-1977 to 27-6-1977 and on the balance of unpaid tax from 28-6-1977 to 30-6-1980. According to him, there was a mistake committed by the ITO in charging interest under Section 215 and that such mistake was prejudicial to the interests of the revenue. As a result, he directed the ITO to recalculate the interest in accordance with his discussion in the body of the order.
3. It was contended by the authorised representative for the assessee that the Commissioner's interpretation of Rule 119A is erroneous and that the rule does not contemplate that completed months should be taken only at the beginning of the period and at the end of the period as opined by the Commissioner. This contention was opposed by the departmental representative who relied on the order of the Commissioner. Reliance was placed on CIT v. Lalit Prasad Rohini Kumar  117 ITR 603 (Cal.) on behalf of the assessee and on M.Chockalingam & M. Meyyappan v. CIT  48 ITR 34 (SC) on behalf of the assessee but we are satisfied that these decisions do not help in deciding the actual point in dispute.
4. On a careful consideration of the submissions made by the authorised representatives for the parties, we are of the opinion that the computation of the period for which interest had to be calculated was not correctly done either by the ITO or the Commissioner. Rule 119A runs as follows: In calculating the interest payable by the assessee or the interest payable by the Central Government to the assessee under any provision of the Act,-- (a) the period for which such interest is to be calculated shall be rounded off to a whole month or months and for this purpose any fraction of a month shall be ignored; and the period so rounded off shall be deemed to be the period in respect of which the interest is to be calculated; (b) the amount of tax, penalty or other sum in respect of which such interest is to be calculated shall be rounded off to the nearest multiple of one hundred rupees and for this purpose any fraction of one hundred rupees shall be ignored; and the amount so rounded off shall be deemed to be the amount in respect of which the interest is to be calculated.
Clause (a) of the said rule relates to calculation of interest and is material for deciding this appeal. From the above it is clear that Clause (a) requires that the period for which interest is to be charged has to be rounded off to a whole month or months and for this purpose any fraction of a month has to be ignored. It does not lay down that the broken period of any incomplete calendar month either at the beginning or at the end has to be disregarded as stated by the Commissioner. This rule, therefore, requires determination of the actual period for which interest is to be charged and then rounding off the entire period for which interest has to be charged. It does not require "or empower to disregard the broken part of any month either at the beginning or at the end of the period. Any such practice, if prevalent, is quite contrary to the statutory rule and should be given up immediately.
5. The above interpretation of Rule 119A has now to be applied to the facts of the instant case. The amount of Rs. 7,61,910 was paid as self-assessed tax under Section 140A on 28-6-1977. As such interest under Section 215 was to be charged on the assessed tax of Rs. 12,24,261 for the period from 1-4-1977 to 27-6-1977 and that on the remaining amount of Rs. 4,62,351 for the period from 28-6-1977 to 18-7-1980 to the period for which interest was to be charged on the entire assessed tax was 2 months 27 days and the period for which interest was to be charged on the reduced amount was 3 years 21 days.
Clause (a) of Rule 119A comes into play at this stage only and these periods have to be computed in whole months and will be 2 months and 3 years, respectively. So according to law, the department was entitled to charge interest on the entire assessed tax for 2 months and on the reduced amount of tax for 3 years only. The ITO charged interest for 2 months on the entire assessed tax and for 3 years and 1 month on the reduced amount of tax. So, of course, there was a mistake on the part of the ITO to charge interest on the reduced amount of tax inasmuch as he overcharged the assessee interest for 1 month.
6. But this mistake is not prejudicial to the interest of the revenue.
On the other hand, by the mistake of the ITO, the [revenue obtained interest on the amount of Rs. 4,62,351 for an extra month.
7. It is now settled law that the Commissioner can exercise his powers under Section 263 only when both the conditions regarding the existence of a mistake and such mistake being prejudicial to the interests of the revenue are fulfilled. But we have discussed above that in the instant case though there was a mistake on the part of the ITO, such mistake was not prejudicial to the interests of the revenue. As such, the Commissioner had no powers to set aside the order of the ITO regarding charging of interest and directing him to recalculate the interest.
Accordingly, the impugned order passed by the Commissioner under Section 263 has to be and is hereby set aside.