ADDITIONAL COMMISSIONER OF INCOME TAX Vs. SARAYA DISTILLERY

JUDGEMENT

(1.) THIS reference relates to the assessment years 1968-69 and 1969-70. The assessee, a registered firm, runs a distillery at Gorakhpur. It was served with a notice under Section 210 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), for payment of advance tax for two years in question. The assessee paid advance tax in accordance with its own estimate. On completion of regular assessment, the tax determined to be payable worked out to be much more than the advance tax paid by the assessee on the basis of its estimate. Since the advance tax paid by the assessee on the basis of its own estimate was less than 75 per cent, of the tax determined on completion of the regular assessment, interest was payable under Section 215 of the Act by the assessee. THIS interest was, however, not charged and included in the notice of demand. As in the opinion of the Additional Commissioner of Income-tax the assessment order, determining the liability, was erroneous and prejudicial to the interest of the revenue, notice was issued under Section 263(1) for the assessment years 1968-69 and 1969-70, requiring the assessee to show cause why interest under Section 215 of the Act be not charged.

(2.) IN response to the notice, the assessee appeared before the Additional Commissioner of INcome-tax. It was contended on its behalf that as there was no order of the INcome-tax Officer on the point under reference, the question of charging interest under Section 215 did not arise. The assessee further contended that since no interest had been charged at the assess-ment stage, it should be presumed that the same had been waived by the INcome-tax Officer under Sub-section (4) of Section 215 read with rule 46(1) of the INcome-tax Rules. The Additional Commissioner repelled the contentions raised on behalf of the assessee and on being satisfied that the INcome-tax Officer had not acted in accordance with the provisions of law, while determining the assessee's liability, directed him to charge interest and to recover the same from the assessee. Similar order was passed by the Additional Commissioner in respect of the assessment year 1969-70.

(3.) UNDER section 263 of the Act the Commissioner of Income-tax can modify the assessment or cancel it by directing the Income-tax Officer to make a fresh assessment order if he considers that any order passed by the Income-tax Officer is erroneous in so far as it is prejudicial to the interest of the revenue. The determination whether or not a particular error is prejudicial raises many complex problems. The test appears to be whether upon a review of the record, it sufficiently appears that the rights of the complaining party have been injuriously affected by the error or that he has suffered a miscarriage of justice. In such an event the complaining party is required to show that there is a fair likelihood that but for the error there would have been a different result. What is meant by the expression "prejudicial to the interest of the revenue", the High Court of Calcutta has explained as under in Dawjee Dadabhoy and Co. v. S. P. Jain [1957] 31 ITR 872 at page 881 :