The Judgment of the Court was delivered by

Ajit K. Sengupta, J.:— At the instance of the Commissioner of Income-tax, Central, the following questions of law have been referred to this court under section 256(1) of the Income-tax Act, 1961, for the assessment years 1969-70 and 1971-72:

“(1) Whether, on the facts and in the circumstances of the case and on a correct interpretation of section 216 of the Income-tax Act, 196.1, the Tribunal is right in holding that charging of interest under that section is discretionary and there must, therefore, be material on record to show that, before charging the interest, the Income-tax Officer had applied his mind to the facts and circumstances of the case and satisfied himself that it was a fit case for charging interest under that statutory provision?

(2) Whether, on the facts and in the circumstances of the case, and on a correct interpretation of section 216 of the Income-tax Act, 1961, the Tribunal is right in holding that, before exercising the power of directing the assessee to pay interest under the said section, the Income-tax Officer has to give a finding that the assessee has underestimated the advance tax payable by him and thereby reduced the amount payable in either of the first two instalments of advance tax?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the levy of interest under section 216 of the Income-tax Act, 1961, is bad in law and in that view setting aside the order of the Income-tax Officer charging interest and in sending back the matter to the Income-tax Officer for fresh consideration?”

2. The facts leading to this reference are briefly stated hereafter. For the assessment year 1969-70, the Income-tax Officer issued a notice under section 210 to the assessee demanding payment of advance tax of Rs. 3,61,000. Thereupon, the assessee filed an estimate on August 21, under section 212, according to which the advance tax payable by the assessee was Rs. 3,85,000. As per that estimate, the assessee paid the first instalment of advance tax (Rs. 1,28,333) on September 1, 1968, and the second instalment of advance tax (Rs. 1,28,333) on December 2, 1968. Both the first and second instalments of advance tax were paid within time. The assessee filed a revised estimate under section 212(2) on March 12, estimating the advance tax payable by it for the year at Rs. 12,10,000. The balance of advance tax payable for the year as per the revised estimate was Rs. 9,53,334 and the assessee paid the same on March 15, 1969. On these facts, the Income-tax Officer charged interest of Rs. 17,531 under section 216, on the deficiency in the payment of the first instalment and the second instalment of advance tax. In identical circumstances, the Income-tax Officer charged interest under section 216 for the assessment year 1971-72 also.

3. The levy of interest under section 216 was challenged by the assessee in the appeals filed before the Appellate Assistant Commissioner for both the assessment years.

4. The Tribunal held that the Income-tax Officer has to come to a finding that the assessee has underestimated the advance tax payable by him and thereby reduced the amount payable in either of the first two instalments. Even if section 216 does not require the recording of such finding by the Income-tax Officer in writing, there must be evidence aliunde to show that the Income-tax Officer applied his mind and found that the assessee underestimated the advance tax payable by him. In the instant case, there is nothing on record to show that the Income-tax Officer found that the assessee has underestimated the advance tax payable by him and thereby reduced the amount payable in either of the first two instalments. In other words, the Tribunal held that there is nothing on record to apply his mind to the facts and circumstances of this case before the interest was levied under section 216. It is also the view of the Tribunal that levy of interest under section 216 is discretionary and not obligatory. The Tribunal held that the levy of interest under section 216 for both the years under appeal is bad in law. The Tribunal, therefore, set aside the decision of the authorities below on this issue and sent back the matter to the Income-tax Officer for fresh consideration.

5. On these facts, the aforesaid questions have been referred to this court.

6. It is contended by Mr. Moitra, the learned advocate appearing for the Commissioner of Income-tax, that charging of interest is not penal in character and for levy of such interest, no formal order is necessary. It is not necessary that a finding has to be recorded regarding default of the assessee before interest can be charged. He has also contended that levy under section 216 is mandatory and not discretionary.

7. It is, however, contended by Mr. Saha, appearing for the assessee, that levy of interest under section 216 is not obligatory. It is discretionary. Unless there is a finding regarding default of the assessee, the Income-tax Officer cannot charge interest under section 216. He also submitted that the Tribunal having found that the levy of interest under section 216 is bad, should not have remanded the matter to the Income-tax Officer for fresh determination.

8. We have considered the rival contentions.

9. Section 216 of the Act provides that where, on making the regular assessment, the Income-tax Officer finds that any assessee has, under subsection (1) or sub-section (2) or sub-section (3) or sub-section (3)(a) of section 212, underestimated the advance tax payable by him and thereby reduced the amount payable in either of the first two instalments, he may direct that the assessee shall pay simple interest at the rate prescribed. Section 216 is attracted only if the advance tax happens to be understated by reason of circumstances other than underestimation of income. When there is underestimation of income and the assessee files too low an estimate and the advance tax so paid is less than the prescribed percentage of the assessed tax, interest under section 215 is chargeable. Interest under section 216 is chargeable when the assessee files wrongly an estimate of advance tax payable by him. It must be remembered that an assessee has to file an estimate and it can never be of the exact income. It depends on the income which can only be determined at the end of the year. An assessee can only file an estimate which is based on well-informed guess work and not on arbitrary calculation which amounts to recklessness. Interest under section 216 is leviable even where the assessee has paid full tax taking the aggregate of all the three instalments paid by him, but, in that process, he had manipulated or miscalculated his estimate so that advance tax payable in the first or second instalment or both the first and second instalments were reduced. There may be circumstances when an assessee may not, in the first or second instalment, pay the ⅓rd of the aggregate amount payable as advance tax, but, in the third instalment, he can make up the deficiency. This may also arise because the actual current income is found to be higher than the estimate of current income submitted long before the close of the accounting year. This fact would undoubtedly go to show that the charging of interest under section 216 is not and cannot be automatic. It is discretionary. It will depend on the facts and circumstances of each case taking into account the nature of the mistake. The Income-tax Officer has to apply his mind and find out whether there was any genuine ground which compelled an assessee to reduce the first or second instalment of advance tax. The Income-tax Officer will have to find out whether an appropriate estimate was made on the materials available on the day when such estimate was filed. If he finds that the estimate was not genuine or bona fide on the prevailing facts and circumstances, he may draw an infer-ance that there was an underestimate. The question whether there was any justification for the estimate or whether it was in fact an underestimate has to be examined by the Income-tax Officer objectively with reference to the time and the materials available when the estimate was filed by the assessee. It may be mentioned that in section 216 the word “may” has been used; in other words, the Income-tax Officer may direct the assessee to pay interest if the conditions prescribed in the Act are satisfied, that is to say, he has to find out whether the assessee has underestimated the advance tax payable by him or not and thereby reduced it in either of the first two instalments. When the Income-tax Officer was satisfied that there was no underestimate, no interest can be charged and, accordingly, the Income-tax Officer has to consider the justification made for reducing the amount of advance tax payable in either of the first two instalments. It appears that section 216 does not make charging of interest mandatory. There is no discretion on the part of the Income-tax Officer not to charge interest. But even in case of interest under section 215, power has been given to the Income-tax Officer to reduce or waive the interest. In our view, the provisions for charging interest under section 216 are discretionary. The mind of the Income-tax Officer cannot be ascertained unless he has come to a finding that there is underestimate of advance tax payable by the assessee. Unless he records any finding at the time of regular assessment, the assessee does not get the opportunity to assail the order if he is aggrieved. At least there must be some material to hold that the assessee has underestimated the advance tax.

10. For the reasons aforesaid, we answer the first and second questions in the affirmative and in favour of the assessee and against the Revenue.

11. The third question also, in our view, has to be answered in favour of the assessee. The present reference is concerned with the questions raised at the instance of the Commissioner. The assessee was also aggrieved by the order of the Tribunal, inasmuch as the Tribunal, after setting aside the order of the Income-tax Officer, directed him to pass an order afresh after taking into account the observations made by the Tribunal. The reference made by the Tribunal under section 256(1) of the Act came up before this court in Hindusthan Sanitary Ware and Industries Ltd. v. CIT, [1978] 114 ITR 85. There, the following question was referred and considered by this court (at p. 88):

“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in merely setting aside the order charging interest under section 216 of the Income-tax Act, 1961, and sending the issue back to the Income-tax Officer for consideration instead of annulling the order altogether after having held that the said order was bad in law?”

12. There, the Division Bench held as follows (at p. 89):

“The Tribunal has held that a finding under section 216 is necessary and has set aside the order. It is not clear as to whether the Tribunal has remanded the matter back to make a fresh finding or whether the Income-tax Officer has jurisdiction to make a finding afresh again, having not made that finding before. In this case, where there were disputes, firstly, whether the provisions of section 216 were at all attracted specially in one of the years, namely, the first year;secondly, whether there was any contumacious conduct on the part of the assessee in filing the estimate; and, thirdly, whether the discretion of imposing penalty had been exercised at all, in our opinion, after holding that the order in question was bad and without indicating the reasons for which the matter was remanded, the Tribunal was not, in the facts and circumstances of the case, justified in making that order. Finality of tax litigations is a cardinal principle to be borne in mind in the exercise of judicial discretion. In this case, the Tribunal had recorded that there was nothing on record to show that before charging interest under section 216, the Income-tax Officer had applied his mind to the facts and circumstances of the case and found that the assessee underestimated the advance tax payable by it and thereby reduced the amount payable in either of the first two instalments. Therefore, a fresh consideration by the Income-tax Officer would involve investigation of fresh facts. There was no prayer for such investigation by either of the parties. In this background, the Tribunal without recording on what ground the matter should be considered afresh by the Income-tax Officer, in our opinion, had not exercised its discretion of remand in a judicial manner. If this is the position, then we must hold that in the facts and circumstances of the case the Tribunal was not justified in sending the matter back to the Income-tax Officer again for consideration.”

13. Accordingly, the said question was answered by the Division Bench in the negative and in favour of the assessee. If, in this reference, we answer the third question in favour of the Revenue, it will be contrary to the decision of this court in the reference made at the instance of the assessee. The Division Bench disapproved the action of the Tribunal in referring the matter back for fresh consideration.

14. It is no doubt true that the Tribunal has the power and jurisdiction to send the matter back to the Assessing Officer after setting aside his order to consider the issue de novo if the order is held to be bad being in contravention of the directory provision of the Act. The Tribunal may also direct the Assessing Officer to ascertain the facts while deciding the issue afresh, but the question is whether, after setting aside the order, the proceeding should be still kept open particularly when the condition precedent for exercise of the power even under the directory provision of the Act is not complied with. The authority who makes an order in exercise of a quasi-judicial function must record his reasons in support of the order it makes. The requirement of a speaking order cannot be dispensed with even when the authority has been vested with discretionary power. As indicated earlier, no interest could be imposed unless the conditions precedent under section 216 are satisfied. The Income-tax Officer did not give any reasons at all while levying interest under section 216. Thus, a non-speaking order, without giving any reasons, is invalid and was rightly quashed. The question is not of merely giving reasons. But the question is more fundamental as to whether the conditions precedent for exercise of power under section 216 had been satisfied or not. In such a case, the Tribunal should not give a further opportunity to the Assessing Officer to make good the lacuna. The Tribunal could have decided the question whether, on the materials on record, there was any underestimate by the assessee within the meaning of section 216. Having not done that, on the facts of this case, the Division Bench was justified in holding that the action on the part of the Tribunal in remanding the matter to the Assessing Officer was not justified.

15. Before we part with this case, we must also record that the Tribunal should, as far as possible, deal with the reference applications made by the Commissioner and the assessee raising questions of law simultaneously. The applications for reference of questions of law arising out of one and the same order of the Tribunal should be disposed of by the Tribunal in one order so that no confusion arises later. In this case, on the assessee's application, the matter was referred to this court in 1976 and the reference was disposed of in 1978 whereas the present reference was made by the Tribunal in 1979. It is desirable to avoid any confusion or contradictory decision. It was incumbent on the Revenue to draw the attention of the court regarding pendency of the present reference in this court when the earlier matter, at the instance of the assessee, was disposed of on March 6, 1978. Even if we were inclined to hold in favour of the Revenue so far as the question of remand is concerned, but after the passage of a decade from the date of the decision in the reference at the instance of the asses see, we shall not be justified in taking any contrary view and destroying the finality of that judgment.

16. For the reasons aforesaid, we answer the third question by saying that the Tribunal was right in holding that the levy of interest under section 216 is bad in law and in that view setting aside the order of the Income-tax Officer charging interest under section 216 but the Tribunal was not right in sending back the matter to the Income-tax Officer for fresh consideration. There will be no order as to costs.

J.N Hore, J.:— I agree.