Law:

Section:

Section 154, read with section 139 of the Income-tax Act, 1961 - Rectification of mistakes - Apparent from record - Assessment year 1967-68 - At time of original assessment ITO failed to charge interest under section 139 for late filing of return -Whether ITO had power to initiate rectification proceedings and levy penal interest since omission on his part at time of original assessment was an error apparent from record - Held, yes FACTS The assessee could not file its return within the time granted by the ITO but filed it late. The ITO completed the assessment, under section 143(3) but did not charge interest under section 139 for late submission of the return. When this omission was noticed by him, he issued notice under section 154. Assessee's objections against the proposed rectification were rejected by the ITO who rectified his original order under section 154 and levied penal interest. On appeal, it was contended that since levy of interest under section 139(1) was discretionary, the ITO must be deemed to have exercised his discretion in favour of the assessee in not charging penal interest in the original order of assessment. This contention was accepted by the AAC, who cancelled the said order under section 154. On Revenue's further appeal, the Tribunal held that the question, whether or not interest was leviable in the case, was a matter of argument and debate and there was divergence of judicial opinion and, therefore, it could not be said that the provisions of section 154 would be applicable. The Tribunal therefore, confirmed the order of the AAC. On reference : HELD The view taken by the Tribunal could not be accepted for two reasons; firstly, because there was no scope for debate in view of the decision of the same High Court in Dalwadi & Co. v. CIT (Income-tax Reference No. 54 of 1972, decided on 17-12-1973), and, secondly, because on a plain reading of clause (iii) of the proviso to section 139(1)(b), there was no scope for contending, much less upholding, that there could be possibly of some debate on the scope of the said proviso which had enjoined levy of penal interest in the case of an assessee failing to furnish return before the…

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