Law:

Section:

Section 215 of the Income-tax Act, 1961, read with rule 40(5) of the Income-tax Rules, 1962 - Advance tax - Interest payable by assessee - ITO while giving effect to appellate order of Commissioner, levied interest under section 215, and after referring matter to IAC seeking his instructions under rule 40(5), passed orders waiving certain amount of interest - Whether in absence of notice and denial of opportunity to assessee of being heard by IAC while rendering his proceedings, orders by IAC and ITO were liable to be quashed - Held, yes Facts The ITO levied interest under section 217(1A) on the assessee-company, who stated that section 217(1A) was not attracted and that in the alternative, assessment might be revised deleting the interest charged in exercise of the powers under rule 40. On appeal, the Commissioner (Appeals) modified the assessment order. The ITO passed a consequential order giving effect to the appellate order, wherein he levied interest under section 215. He further waived a certain amount under rule 40(1) and rule 40(5) after referring the matter to the IAC for instructions. On appeal, the Commissioner (Appeals) substantially affirmed the ITO's order, giving some marginal relief. On original petition before the High Court, the assessee contended, inter alia, that the IAC did not give any notice to it nor did he hear it before passing the order and, therefore, his order was violative of principles of natural justice. On the other hand, the revenue contended that the plea of the petitioner based on rule 40(5) could not be considered since it had not moved the IAC invoking rule 40(5). Held In exercising the powers under rule 40, the ITO is exercising a quasi-judicial function. So also in cases where the IAC considers the matter under rule 40(5), he is performing a quasi-judicial function. The powers so conferred on the ITO and the IAC to reduce or waive the interest conferred by the statute is one coupled with a duty and in any event it should be exercised fairly and reasonably. The order should be a speaking one and it should contain reasons. Further, it is open to an assessee to move the IAC praying for relief under rule 40(5) but in the…

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