1994 PLP 441 (PTD)

AJIT K. SENGUPTA, J.

This reference relates to the assessment year 1977-78. The only point of dispute relates to the charging of interest under section 216 of the Income-tax Act, 1961. The Income-tax Officer, while completing the assessment, charged interest under section 216 of the Act without passing a speaking order. The assessee appealed before the Commissioner of Income-tax (Appeals) who held that the Income-tax Officer should have passed a speaking order in respect of charging interest under section 216 of the Act. He, therefore, remanded the matter to the Income-tax Officer for passing a speaking order in respect of levying interest under section 216 of the Act. Being aggrieved, the assessee went to the Tribunal. There the contention was that the Income-tax Officer did not pass any speaking order and, accordingly, his order should be vacated. Reliance was placed on the judgment of this Court in the case of Hindusthan Sanitary Ware and Industries Ltd. v. CIT reported in (1978) 114 ITR

85. The Tribunal held that the issue is directly covered by the decision of this Court in Hindusthan Sanitary Ware and Industries Ltd. (1978) 114 ITR 85). The Tribunal also considered the merits of the contentions and found that, if the final order of the appellate authority was taken into consideration, the assessee was not to be charged interest under section 216 of the Act. Accordingly, the Tribunal set aside the order of the Commissioner of Income -tax (Appeals). On these facts the following question of law has been referred to this Court:-- "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting the interest charged under section 216 of the Income-tax Act, 1961, on the plea that no speaking order was passed by the Income-tax Officer?" In our view, on the facts of this case, the Tribunal came to a correct conclusion. The Income-tax Officer, in the assessment order, did not give any reasons as to why interest was being charged under section 216 of the Act but, while computing the income, levied interest under section 216 of the Act. Even the details of such calculation have not been mentioned in the assessment order. This Court in Hindusthan Sanitary Ware and Industries Ltd. (1978) 114 ITR 85), held that a speaking order should be passed while charging interest under section

216. In the subsequent decision in the case of CIT v. Hindusthan Sanitary Ware and Industries Ltd. reported in (1989) 180 ITR 21 this Court held as follows (headnote):-- "The authority who passes an order in exercise of a quasi -judicial function must record his reasons in support of the order he, makes. The requirement of a speaking order cannot be dispensed with even when the authority has been vested with discretionary power. Interest under section 216 of the Income-tax Act, 1961, is chargeable when the assessee files a wrong estimate of advance tax. Interest can be levied under section 216 even where the assessee has paid the entire tax taking the aggregate of all three instalments paid by him but, in that process, he has manipulated or miscalculated his estimate so that the advance tax payable in the first or second instalment or both the first and second instalments is reduced. There may be circumstances when an assessee may not, in the first or second instalment,, pay the one-third of the aggregate amount payable as advance tax, but, in the third instalment, he can make up the deficiency. This may also arise because the actual current income is found to be higher than the estimate of current income submitted long before the close of the accounting year. This fact would undoubtedly go to show that the charging of interest under section 216 of the Act is not and cannot be automatic. It is discretionary it will depend on the facts and circumstances of each case taking into account the nature of the mistake. In this connection, it is significant to note that section 216 uses the word "may", that is, the Income-tax Officer may levy interest. The question whether there was any justification for the estimate or whether it was in fact an understatement has to be examined by the Income-tax Officer objectively with reference to the time and the materials available when the estimate was filed by the assessee. The mind of the Income-tax Officer cannot be ascertained unless he has come to a finding that there has been underestimate of advance tax If he does not record a finding at the time of regular assessment, the assessee will not get the opportunity to assail the order if he is aggrieved by it. A non-speaking order under section 216 is invalid and is liable to be quashed. In such a case, the Tribunal should not give a further opportunity to the Income-tax Officer to make good the lacuna. The Tribunal can decide the question whether, on the materials on record, there was any underestimate by the assessee within the meaning of section

216. But, if it fails to do so, it cannot remand the matter to the Income-tax Officer." The principles laid down in the aforesaid decisions will govern the instant case. For the reasons aforesaid, the question in this reference be answered in the affirmative and in favour of the assessee and against the Revenue. There will be no order as to costs. BHAGABATI PRASAD BANERJEE, J.

I agree. M.B.A./36/T.F. Reference answered.