1. The assessee in this case was under an obligation to file advance tax estimate under s. 212 of the I.T. Act, 1961, for the assessment year 1971-72. The assessee, however, failed to file an estimate of the advance tax. For failure to make an estimate, the ITO had to levy penal interest at a particular rate for a particular period of time, as set out in s. 217(1A) of the Act. Levy of this penal interest had to be done at the time of the regular assessment. In this case, however, the ITO, somehow, had omitted to levy penal interest. The Commissioner of Income-tax afterwards took proceedings under s. 263 of the Act to repair this omission on the part of the ITO to levy penal interest under s. 217(1A) of the Act. Section 263 was invoked on the score that nonlevy of penal interest in the assessment was prejudicial to the Revenue Ultimately, after hearing the assessee, the Commissioner passed an order directing the ITO to apply the provisions of s. 217(1A) of the Act and consider the question of levy of penal interest thereunder, for the assessment in question. The assessee took the Commissioner's order in appeal before the Tribunal. The assessee contended before the Tribunal that the non-levy of penal interest in the assessment order must be construed as a waiver on the part of the ITO to levy penal interest. Reference was made, in their connection, to the power of the ITO to levy panel interest. Reference was made, in this connection, to the power of the power of the ITO to waive inter under the express provisions of r. 40 of the I.T. Rules, 1962. This contention was not accepted by the Tribunal, and the order of the Commissioner was confirmed.
2. In this reference, at the instance of the assessee, the order of the Tribunal is challenged on the following question of law :
'Whether, on the facts and in the circumstances of the case, the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961, was justified in law ?'
3. The only case which was put forward by the assessee before the Tribunal was that the mere omission to levy penal interest is tantamount to a waiver of interest, since the ITO has undoubtedly a power to waive interest under r. 40 of the I.T. Rules, 1962. This contention, however cannot be accepted because the act of waiver is a conscious overt act on the part of the ITO and a mere omission or inaction on his part of levy penal interest cannot be construed, under any circumstances, as an act of waiver. For an authority for this position, we may refer to a judgment of a Division Bench of this court in CIT v. City Palayacot Co. : 122ITR430(Mad) . It was pointed out in that judgment that waiver was not a matter of course, but it was subject to a finding by the ITO that special circumstances existed in the case which justified either the waiver or, in the alternative, the reduction of the interest chargeable under s. 217(1A) of the Act. In this view it was held that a mere omission of the ITO to charge penal interest cannot ipso jure be regarded as a conscious waiver on his part.
4. Following the above decision, we answer the question of law in the negative and against the assessee. There will, however, be no order as to costs.
5. We may, however, observe that our answering the question against the assessee in the manner aforesaid does not detract from the observation in the order of the Commissioner to the effect that 'The Income-tax Officer is not barred from considering any relief that could be extended to the assessee under rule 40.' This rider still holds good.