Law:

Section:

Section 216, read with section 256, of the Income-tax Act, 1961 - Advance tax - Interest payable by assessee in case of underestimate - Whether where ITO, while charging interest under section 216, had not recorded a specific finding that assessee had underestimated advance tax payable by it, charging of such interest was not justified - Held, yes Facts The ITO made an assessment for the relevant assessment year and directed the charge of interest under section 216. While giving the direction to charge interest under section 216, the ITO did not record any finding that the assessee had underestimated the advance tax payable by it. On appeal, the Tribunal held that the ITO had not recorded the specific findings which he was required to do under section 216 before levying interest and that he had only mechanically mentioned in the order to charge interest under section 216. The Tribunal, therefore, directed the ITO to delete the interest levied under the said section. The Tribunal further rejected the revenue's application for reference under section 256(1). On application for reference under section 256(2): Held On a plain reading of section 216 it is clear that the interest cannot be levied under that section unless the ITO finds that the assessee had underestimated the advance tax payable by it. The finding that there is underestimate of the advance tax payable by the assessee is a pre-condition for levy of interest. And unless such a finding is recorded, no interest can be levied. Further, the abovementioned section is appealable under section 246(m) and for the proper determination of the appellate authority, the recording of the finding is necessary. What the ITO is required to find is that the assessee had underestimated the advance tax payable by it. The term 'underestimate' indicates that he must find that the assessee had made too low an estimate. The estimate can be said to be an 'underestimate' if it is deliberate or intentional. There has to be lack of bona fides on the part of the assessee. The finding of underestimation, therefore, cannot be made without appreciation of the facts which are pleaded or which are on record. It is on appreciation of…

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