Thakar, J.:— Does the I.T Act of 1.961 as it stood in 1970-71 oblige an assessee to be gifted with Extra Sensory Perception (E.S.P) and to have a provision that (1) his books of accounts are likely to be rejected by the ITO, that (2) the ITO is likely to estimate his gross profits under the proviso to s. 145(1) of the Act, and that (3) he is likely to make such an estimate at a particular rate (say 18%) of his total sales? If it does, this reference at the instance of revenue must be answered in its favour. Not otherwise. And, the questions of law referred to this court which have provoked the aforesaid remarks are:

“1. Whether, the Tribunal was right in holding that, since section 212(3A) postulates that the current income is to be estimated by the assessee and since the difference between the returned income and the assessed income had arisen due to the addition made by the Income-tax Officer by estimate of gross profits under proviso to section 145(1) of the Act, no interest under section 217(1A) could, be charged?

2. Whether, the Tribunal was right in holding that, since the tax payable by the assessee on the basis of the returned income was much less than that the assessee was required to pay, in pursuance of s. 212(3A) of the Act, the provisions of s. 212(3A) of the Act were not applicable and consequently, no interest u/s. 217(1A) could be charged?

3. Whether, the Tribunal was right in holding that the Income-tax Officer had misapplied the law in levying interest u/s. 217(1A) of the Act, and it was a clear case of error of law committed by the Income-tax Officer, capable of rectification under section 154 of the Act?”

2. The facts which emerge from the statement of case dated December 5, 1975, and which are no more in dispute, are as under:

1. There was a discrepancy between the income returned by the assessee in the return filed by him for the assessment year 1970-71 and the income as assessed by the ITO.

2. The tax payable on the income assessed by the ITO exceeded the advance tax paid by the assessee by more than 33-⅓ per cent.

3. The discrepancy arose by reason of the fact that the assessee had submitted his return on the basis of the income as disclosed by the books of account maintained by him.

4. The ITO, however, did not accept the correctness of the books of account and made an estimate of the gross profits (in exercise of the powers under the proviso to s. 145(1) of the Act) on the basis of 18 per cent. of the total sales. It is essential to mention that it is not disclosed by the record in the present case that in the previous years also the department had refused to accept the correctness of the books of account of the assessee and had made an assessment by estimating the gross profits under proviso to s. 145(1) of the Act. In other words, it was not shown that in the previous years the assessment was made by an estimate of the gross profits at 18 per cent. of the total sales as was done in respect of the assessment year in question.

3. In the backdrop of these facts and in the backdrop of the relevant provisions of the Act as reproduced in the “schedule” to this judgment*, the Income-tax Appellate Tribunal came to the conclusion that there was no justification for the levy of interest under s. 217(1A) of the Act.

4. The reasoning of the Tribunal is articulated in these terms:

“Now the scheme of section 212(3A) is this. The assessee is required to pay advance tax u/s. 210 of the Act. Now, if the amount of advance tax on the current income, to be computed in accordance with the provisions of s. 209 of the Act, exceeded the amount of advance tax demanded from him u/s. 210 by more than 33-⅓% of the latter amount such an assessee is required to send the estimate of current income as well as the advance tax payable by him on the said current income and also required to pay such amount of advance tax on the basis of estimate under s. 212(3A) of the Act. Now, if an assessee fails to comply with the provisions contained in s. 212(3A), the Income-tax Officer is empowered to levy interest in accordance with the provisions contained in s. 217(1A) of the Act. Now what s. 212(3A) postulates is that, the current income is to be estimated by the assessee. In the instant case, it is seen that the difference between the returned income and the assessed income has arisen due to the addition made by the Income-tax Officer by estimate of gross profit by applying the proviso to section 145(1) of the Act. The proviso to section 145 empowered the Income-tax Officer to estimate the income of the assessee. The exercise of such a power, therefore, cannot be equated to the estimate of an income by the assessee, which is sine qua non for applying the provisions of section 212(3A) of the Act. As is clear from the foregoing facts, the tax payable by the assessee on the basis of the returned income of the assessee was much less than what the assessee was required to pay in pusuance of notice u/s. 210 of the Act. It is, therefore, clear in the light of this discussion that provisions of s. 212(3A) were not at all applicable in the case of the assessee. As a corollary, the provisions of s. 217(1A) would not come into play at all.”

5. It is this view point which is challenged by the revenue. Be it realised that the assessee concerned could not have anticipated, (1) that the ITO would not accept the correctness of his books of account, and (2) that the ITO would make the estimate of the gross profits on the basis of 18 per cent. of the total sales. Under the circumstances, the Income-tax Appellate Tribunal rightly came to the conclusion that interest could not be charged under s. 217(1A) of the Act as it stood at the material time. Unless there was some compulsion on the assessee (there cannot be, and there is none) to make an estimate on the basis of the apprehension that the ITO may not accept the correctness of his books of account and he could have had a provision of the percentage of gross profits on total sales which the ITO would have applied for making an estimate of his gross profits, no fault could have been found with the assessee concerned. There is no provision in the Act (could there be one?) which requires him to anticipate or foresee what in fact could not be anticipated or foreseen except possibly by one possessing an E.S.P Of course, it would be wrong to dogmatically assert that this can never be done and we should not be understood as making any such assertion. In a given set of facts an assessee may be expected to anticipate on his own even in regard to the estimate which the ITO might make in exercise of the powers under the proviso to s. 145(1) of the Act in the light of past experience. For instance, if in the previous years the ITO had been rejecting the correctness of the books of account maintained by the assessee and if in the preceding year a particular rate of gross profit linked to the total volume of sales had been applied by the ITO under the proviso to s. 145(1) of the Act, the assessee concerned could have been expected to proceed on the assumption that the assessment was likely to be made on that basis. In such a case, a different view may be warranted, for the life aim of this set of provisions is to ensure that the assessee does not deliberately pay as advance tax an amount less than the sum legitimately payable, in order to secure an undue advantage. A different view may also be warranted in a case where it is established that some false entries were made or the accounts were declared in order to show a lesser profit and that was the reason why a best judgment assessment on percentage basis had to be resorted to. The present is, however, not a case which falls under this category. The question of the assessee being required to make the estimate on his own could arise only provided he could reasonably be attributed with the knowledge that the current income was likely to be greater than the income on which advance tax was payable by him under s. 210. To take another illustration, in a given year the assessee might have acquired or inherited some property or won a prize in a lottery and might have earned some income which was liable to be assessed, to his knowledge. In such a case, he would certainly be required to make his own estimate as enjoined by s. 212(3A). There may be innumerable situations such as the one illustrated by us in which the assessee may be required to make an estimate as enjoined by s. 212(3A). We do not propose to undertake the exercise of anticipating and enumerating them exhaustively. Suffice it to say the present case does not fall under that category. So far as the present matter is concerned, the view taken by the Income-tax Appellate Tribunal on the fact situation of the case and on the basis of the record which was placed before it is unexceptionable. We, therefore, answer the questions referred by the Tribunal in the following manner in the light of the observations made hereinabove and in the light of the fact situation obtaining in the case under consideration.

Questions Answers 1. Whether, the Tribunal was right in holding that since s. 212(3A) postulates that the current income is to be estimated by the assessee and since the difference between the returned income and the assessed income had arisen due to the addition made by the Income-tax Officer by estimate of gross profits under proviso to s. 145(1) of the Act, no interest u/s. 217(1A) could be charged? In the affirmative (against the revenue). 2. Whether, the Tribunal was right in holding that since the tax payable by the assesssee on the basis of the returned income was much less than what the assessee was required to pay, in pursuance of section 210(3A) In the affirmative (against the revenue).

of the Act, the provisions of section 212(3A) of the Act were not applicable and consequently, no interest u/s. 217(1A) could be charged? 3. Whether, the Tribunal was right in holding that the ITO had misapplied the law in levying interest u/s. 217(1A) of the Act, and it was a clear case of error of law committed by the ITO, capable of rectification under s. 154 of the Act? In the affirmative (against the revenue).

6. Reference answered in the aforesaid terms with no order as to costs.

SCHEDULE

The relevant provisions as they stood then: (1970-71)

“212. Estimate by assessee.—…

(3A) In the case of any assessee who is required to pay advance tax by an order under section 210, if, by reason of the current income being likely to be greater than the income on which the advance tax payable by him under section 210 has been computed or for any other reason, the amount of advance tax computed in the manner laid down in section 209 on the current income (which shall be estimated by the assessee) exceeds the amount of advance tax demanded from him under section 210, by more than 33-⅓ per cent. of the latter amount, he shall, at any time before the date on which the last instalment of advance tax is due from him, send to the Income-tax Officer an estimate of—

(i) the current income, and

(ii) the advance tax payable by him on the current income calculated in the manner laid down in section 209,

and shall pay such amount of advance tax as accords with his estimate on such of the dates applicable in his case under section 211 as have not expired, by instalments which may be revised according to sub section (2)……”

(Proviso not necessary for our purpose).

Section 217(1A) reads thus:

“217. Interest payable by assessee, when no estimate made.—…

(1A) Where, on making the regular assessment, the Income-tax Officer finds that any such person as is referred to in sub-section (3A) of section 212 has not sent the estimate referred to therein, simple interest at the rate of nine per cent. per annum from the 1st day of April next following the financial year in which the advance tax was payable in accordance with the said sub-section up to the date of the regular assessment shall be payable by the assessee upon the amount by which the advance tax paid by him falls short of the assessed tax as defined in sub-section (5) of section 215.”