Per Shri George Cheriyan, Accountant Member - This appeal by the revenue relates to the assessment year 1979-80. The assessee is an individual. The short point at issue is whether the commissioner (Appeals) was justified in cancelling interest levied under section 217(1A) of the Income-tax Act, 1961 (the Act) of Rs. 31,708 in its entirety. According to the revenue which is in appeal, the commissioner (Appeals) should have only directed reduction of interest levied under the aforesaid provision in proportion to the relief in quantum allowed by him. According to the assessee, the decision of the Commissioner is unexceptionable.
2. Certain basic facts have to be set out before adverting to the statutory provision. In the financial year 1978-80 which is relevant to the assessment year 1979-80, now under consideration, a demand of advance tax of Rs. 19,039 was first raised on 6-6-1978. This demand was revised on 27-11-1978 to Rs. 24,731 based on total income of Rs. 67,610 which was assessed for the assessment year 1978-80. On 13-3-1978, the assessee filed an estimate apparently under section 212(3A) of the Act estimating the advance tax payable at Rs. 25,249, on a total income of Rs. 68,510. Eventually, the return of income was filed. The income returned was Rs. 73,860. This return was filed on 16-8-1979. The assessee by then had paid self-assessment tax of Rs. 3,360. the assessment came to be completed nearly three years later on 24-5-1982 on a total income of Rs. 1,99,960. The ITO levied interest under section 217(1A) of Rs. 31,708. This interest was levied because the tax payable under section 212(3A) fell short of the assessed tax.
3. The assessee appealed to the Commissioner (Appeals) and various additions were contested. The levy of interest under section 217(1A) was also contested. The commissioner (Appeals) set out the facts to which we have adverted. He stated that the difference between the income returned and the income assessed was primarily due only to the addition of Rs. 1,26,000 towards unexplained cash and jewellery. According to the Commissioner, the assessee cold not be expected too have been in a position to anticipate the aforesaid addition. He further found that the records of the case revealed that the assessee had co-operated with the department and had provided all the necessary information whenever called for and the delay in completing the assessment could not be attributed to the assessee. These findings of fact of the Commissioner (Appeals) are not disputed by the revenue. But the contention of the revenue before us is that the Commissioner (Appeals) should have directed that the interest should be reduced in proportion to the additions deleted and the entire amount of interest should not have been cancelled. We may, to complete the records, state that the total income assessed was reduced by Rs. 21,000 by the commissioner (Appeals). The learned departmental representative sought to amplify the grounds taken in appeal by submitting that the question of the commissioner remitting the interest levied did not arise. According to him, no plea for waiver had been made prior to completion of the assessment and the question of waiver could be gone into only by the ITO and by none else.
4. The learned counsel for the assessee, on the other hand, submitted that the ITO should be deemed to have considered whether interest was to be levied or waived and the decision of the ITO levying interest could be subject-matter of appeal, and was the subject-matter of appeal in the present case, since other contentions had also been taken in the appeal before the Commissioner (Appeals). On the point that where other grounds are taken, an appeal would lie relating to the levy of penal interest, the learned counsel submitted that the matter stood concluded by the decision of the Madras High Court in the case of Rajyam Pictures v. Addl. CIT : 114ITR847(Mad) .
5. We have considered the rival submissions. The provisions of section 217(1A) reads as under :
'(1A) Where, on, making the regular assessment, the Income-tax Officer finds that any person who is required to send an estimate under sub-section (4) of section 209A or any such person as is referred to in sub-section (3A) of section 212 has not sent the estimate referred to therein, simple interest at the rate of twelve per cent per annum from the 1st day of April next following the financial year in which the advance tax was payable; in accordance with the said sub-section (4) or, as the may be, sub-section (3A) up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax paid by him falls short of the assessed tax as defined in sub-section (5) of section 215.'
The provisions of section 217(2) further provide as under :
'(2) The provisions of section 215(4) of the Act, therefore, become applicable for considering whether interest is leviable or not under the provisions of section 217(1A) by virtue of the provisions of section 217(2). Section 215(4) provides that in such cases and in such circumstances as may be prescribed the ITO, may reduce or waive the interest payable by an assessee. The relevant rule for waiver of interest is rule 40 of the Income-tax Rules, 1962 (the Rules). This reads as under :
'The Income-tax Officer may reduce or waive the interest payable under section 215 or section 217 in the cases and under the circumstances mentioned below, namely :-
(1) When the relevant assessment is completed more than one year after the submissions of the return, the delay in assessment; not being attributable to the assessee.
(2) Where a person is under section 163 treated as an agent of another person and is assessed upon the latters income.
(3) Where the assessee has income from an unregistered firm assessed under the provisions of clauses (b) of section 183.
(4) Where the previous year is the financial year is the financial year or any year ending about the close of the financial year and large profits are made after the 1st March (or the 15th March in cases where the proviso to section 211 applies), in circumstances which could not be foreseen.
(5) Any case, in which the Inspecting Assistance commissioner considers that the circumstances are such that a reduction or waiver of the interest payable under section 215 or section 217 is justified.'
It could be seen that under the first four clauses of rule 40, reduction or waiver of interest can be made in the circumstances specified in each of the sub-rules by the ITO himself without reference to any other authority. It is only where the circumstances do not fit into any of the specific sub-clauses of rule 40, that the matter has to be referred to the IAC under clauses (5) of rule 40. Thus, where an assessment is completed more than one year submission of the return and the delay in completing the assessment is not attributable to the assessee, the ITO himself is competent to waive the interest. The next question that arises for consideration is whether waiver of interest in such a case can be made where an application is not made by the assessee. In other words, the point for decision is whether the existence of an application making a request for waiver is a condition precedent to the ITO exercising his discretion within the terms of rule 40(1). In the present case, admittedly, there was no application for waiver of interest prior to the computation of the assessment which was on 24-5-1982. An application for waiver was submitted to the ITO dated 10-6-1982 which speaks of receipt of order of assessment whereby interest was levied under section 217(1A) of Rs. 31,708. In S. A. L. Narayan Row v. Ishwarlal Bhagwandas : 57ITR149(SC) , the Supreme Court having regard to the provisions of rule 48(1) of the Rules framed under the Income-tax Act, 1922 which had restrospective operation and which relates to the waiver of interest observed as under :
'The Attorney General contended that in any event there was nothing to show that the Income-tax Officer had purported to exercise his discretion when he passed the order of assessment and did not impose any liability for payment of interest under section 18A (6). That may be so. But the case of the assessee did fall within the terms of rule 48(1) and the Income-tax Office must in law be bound to consider whether he was entitled to reduction or waiver of interest under the fifth proviso. The amendment and the Rules which came into operation later must in view of the retrospective operation be deemed to be then extant, and the fact that the Income-tax Officer could not in making the assessment have adjusted his approach to the problem before him in the light of those provisions is irrelevant in considering the legality of his order. The order of the Income-tax Officer which did not take note of the law deemed to be in force must be regarded as defective. The matter was brought before the Commissioner of Income-tax and it is unfortunate that the Commissioner in considering the matter under section 33A assumed that the amending Act 25 of 1953 had no retrospective operation and rejected the claim of the assessee on the ground that at the date when the order of assessment was made Act 25 of 1953 had not come into operation, and that the Act became effective as from December 1953, when the rule were framed. In so holding, the Commissioner committed an error of law apparent on the face of the record. The High Court was, therefore, right in setting aside the order which was passed by the Commissioner without considering the proviso to section 18A (6) which ws clearly applicable to the case of assessee and in the light of rule 48 which was enacted in pursuance of that proviso.'
The Supreme court held that the amendment to the Rules which came into operation in later years in view of the retrospective operation be deemed to be then extant and the ITO must be bond in law to consider whether the assessee was entitled to reduction or waiver of interest as provided under rule 48(1) read with fifth proviso to section 18A (6) of the Indian Income-tax Act. Therefore, it is clear that for considering waiver, the existence of an application from the assessee was not a prerequisite. In the resent case, when the ITO made the assessment the provisions of rule 217(2) and the provisions of section 215(4) were factually in existence and also the provisions of rule 40(1) which laid down certain conditions under which interest could be waived. Since the existence of an application for waiver is not a prerequisite for the aforesaid provisions being attracted, the ITO must in law, therefore, considered to have examined whether the assessee was entitled to reduction or waiver of interest under the aforesaid provisions. The ITO levied interest. No doubt, reasons for such levy have not been set forth, but the inference has to be drawn that the ITO did not consider it necessary that interest should be waived. The assessee contested several findings of the ITO in the order of assessment and the levy of interest was only one of such findings. Therefore, the appeal to the Commissioner (Appeals) on the point of levy of interest was competent having regard to the judgment of the Madras High Court in the case of Rajyam Pictures (supra). The appeal having been competent, all that the commissioner (Appeals) did so to examine whether the requirements of rule 40(1) were satisfied. He found factually that the assessment was completed more than one year after the returns was filed, the assessment having been made on 24-5-1982 and the return having been filed on 16-8-179. He further found that on an examination of the records the assessee had throughout co-operation with the department providing all necessary information whenever called and the delay in completing the assessment could not be attributed to the assessee. the requirements of rule 40(1) were, therefore, fully satisfied and in such circumstances, in the absence of any other reason being given, the ITO necessarily should have waived the interest. This, not having been done, and the case being a fit and proper one for waiver of interest, the commissioner (Appeals) in exercise of his appellate functions rendered appropriate justice by cancelling the interest levied. There has been no excess exercise of powers by the Commissioner (Appeals) in cancelling the interest levied in the circumstances of the present case. The order of the Commissioner (Appeals) is upheld and the appeal of the department dismissed.