S.K Chander, A.M:— This appeal by the assessee is directed against the order of the CIT (Administration), Uttar Pradesh, made under s. 263 of the IT Act, 1961 (hereinafter referred to as “the Act”) on 29th Jan., 1986 for the asst. yr. 1975–76. Before we record the submissions of the rival parties before us, we bring into focus the background from which the appeal arises.

2. The assessee had not been, hitherto, assessed to income-tax. For the assessment year under appeal no return under s. 139 of the Act had been filed. Finding that the assessee alongwith others had made investment in the construction of a building of M/s Om Rice Mills, the ITO issued notice under s. 148 calling for a return from the assessee. This notice was issued on 7th Feb., 1980. The assessee filed a return declaring ‘nil’ income on 28th Feb., 1980. However, after taking into consideration, the report of the Valuation Officer, regarding the cost of construction for the period Diwali, 1974 to Diwali, 1975 and for the period for Diwali, 1976 to Diwali, 1977, the ITO compared the cost of construction declared as recorded in the books of accounts and the cost of construction estimated by the assessee's valuer. Finally, he concluded, as recorded in his impugned order dt. 29th Feb., 1984, apparently made under s. 143(3) read with s. 147(a), that the assessee had made investment of Rs. 1,51,550 in the construction of the building as against the amount debited in the books of accounts at Rs. 1,00,743. According to the ITO, the balance of Rs. 50,807 remained unexplained. He rounded it off to Rs. 50,800 and brought it to tax under s. 69B of the IT Act, 1961. While completing the assessment, the ITO also issued show cause notices for imposition of penalties under ss. 271(1)(c) and 273(b) of the Act.

3. After the assessment had been so completed, it appears, it was found by the ITO that interest under s. 217 and 139(8) had not been charged and penalty action under s. 271(1)(a) had not been initiated. He, therefore, made a reference to the Commissioner under s. 263 of the Act. The CIT called for the record and issued a notice under s. 263 of the Act to the assessee to show cause why an order under s. 263 need not be made, the order of the ITO being erroneous and prejudicial on account of non-initiation of penalty and non-charging of interest. In response to this show cause notice, the learned counsel for the assessee, Shri B.S Vaish, Advocate appeared before the Commissioner and contended that the impugned assessment had been completed under s. 147(a) of the Act and this being, thus, not a regular assessment, interest under s. 139(8) etc. could not be charged because explanation to s. 139(8) had been introduced w.e.f 1st April, 1985 and it was applicable for and from the asst. yr. 1985–86 onwards. “It was also contended that failure of the ITO to initiate penalty proceedings under s. 271(1)(a) did not empower the Commissioner to assume jurisdiction under s. 263 of the Act. It was projected to the Commissioner that an assessment made by the ITO could not be held to be erroneous and prejudicial to the interest of Revenue merely because of the failure of the ITO to record his opinion about the penalty, if any, leviable upon the assessee. In any case, it was argued that such a minor omission or mistake could not justify the action the Commissioner under s. 263.

4. The Commissioner considered the submissions made on behalf of the assessee before him. According to him, though the assessment had been made under s. 143(3) read with s. 147 yet, it was the first assessment for the asst. yr. 1975–76 because the assessee had not submitted a return under s. 139(1) of the Act. The Commissioner pointed out that it was, thus, not a case of re-assessment and as such, he was not debarred under s. 263 from reviewing such an assessment. Thereafter, the learned Commissioner observed that it is mandatory on the part of the ITO to charge interest under s. 139(8) and s. 217 of the Act. According to him, the ITO committed an error in not charging interest under s. 217 and s. 139(8) and since, the ITO had not left any note as to why such interest was not charged or was not chargeable, there was no application of mind by the ITO. Hence, according to the Commissioner, non-charging of interest under s. 139(8) and s. 217 was erroneous and prejudicial to the interests of Revenue. He, therefore, directed the ITO to verify whether interest in accordance with the law under the above sections was chargeable or not. In support of his view, the Commissioner cited some authorities as recorded in his impugned order.

5. From the order of the Commissioner, it appears, that whereas he proceeded to examine the possibility of action under s. 263 taking into consideration non-charging of interest under s. 139(8) and s. 217 of the Act and non-initiation of penalty proceedings under s. 271(1)(a) but in final terms while making the impugned order, he did not mention anything about initiation of penalty proceedings under s. 271(1)(a). Thus, it would be seen that the order of the ITO was held to be erroneous and prejudicial to the interest of the Revenue because, the ITO neither recorded his opinion anywhere in his record of the proceedings about charging of interest under s. 139(8)/217, nor he actually levied any interest under these sections.

6. The learned counsel for the assessee submitted before us that under the provisions of s. 263, as applicable to the assessment year under appeal, there is prohibition provided in sub-s. (2) ibid that no order shall be made under sub-s. (1)(a) either to revise an order of reassessment made under s. 147 or (b) after the expiry of two years from the date of the order sought to be levied. Since, the impugned order made by the ITO was not a regular assessment order as defined under s. 2(40) of the Act, the CIT was barred from assuming jurisdiction to review or revise the same. It was further contended that the Commissioner had proceeded to assume jurisdiction, inter alia, on the basis that the ITO had not initiated penalty proceedings under s. 271(1)(a), but it is apparent from the impugned order that he had given up that as the basis for assumption of jurisdiction. With regard to charging of interest under s. 139(8)/217, the learned counsel submitted that the ITO had applied his mind and had in his judicial discretion decided not to levy interest as conspicuous absence of any mention of it in the assessment order indicates. On such facts, it was submitted, the Commissioner could not invoke s. 263 to issue directions to the ITO to charge interest under these sections.

7. The learned counsel, nevertheless, argued that in case all the points on which the Commissioner started proceedings under s. 263 were to be considered as to whether he had lawful assumption of jurisdiction, then lack of initiation of penalty proceedings could not be considered by the Commissioner as one of the reasons making the order of assessment] erroneous as well as prejudicial to the interest of Revenue in the light of Hon'ble Delhi High Court case of Addl. Commissioner Of Income-Tax, Delhi-I v. J.K D'Costa., (1981) 25 CTR (Del) 224 : (1982) 133 ITR 7 (Del). He emphasised that against the judgement of the Delhi High Court, even Special Leave Petition filed before the Supreme Court was dismissed by their Lordships as reported in (1984) 147 ITR 1 (Stat).

8. Regarding the other points, on which the Commissioner projected to the assessee that action under s. 263 was required, the learned counsel reiterated that the assessment made by the ITO not being a regular assessment and having been made under s. 147(1), the jurisdiction of the CIT under s. 263 was statutorily ousted. For this proposition he relied upon the following authorities:

1. CIT v. Smt. Jagjit Kaur, (1980) 126 ITR 540 (All);

2. P. C. Puri…Applicant v. The Commissioner Of Income-Tax, New Delhi…, (1985) 151 ITR 584 (Del);

3. T. Khemchand Tajoomal v. CIT, (1986) 51 CTR (Bom) 81 : (1986) 161 ITR 492 (Bom);

4. CIT v. Mukand Family Tst., (1987) 29 TTJ (Del) (TM) 549 : (1987) 23 ITD 12 (Del) (TM).

5. Third ITO v. T.R.A Arunathavaselvan, (1988) 24 ITD 121 (Mad).

He also reiterated the arguments made on behalf of the assessee before the Commissioner with regard to explanation to s. 139(8) introduced w.e.f 1st April, 1985. He also relied upon the explanatory notes contained in circular No. 397 dt. 16th Oct., 1984 issued by the C.B.D.T, appearing at page 1.070 of III Volume of 1988 Direct Taxes Circular by Taxman.

9. Replying to the above submissions, the learned Departmental Representative, on the other hand, submitted that the assessment made by the ITO was an original assessment and not a reassessment. The bar under sub-s. (2) of s. 263 upon the powers of the Commissioner is in relation to a reassessment and not regarding an original assessment made under s. 147. The arguments advanced by the learned counsel for the assessee are therefore, not relevant and may not be accepted. It was contended by the learned Departmental Representative that it is now well settled that charging of interest under s. 139(8) is a part of the process of assessment as laid down by the Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. CIT, (1986) 58 CTR (SC) 112 : (1986) 160 ITR 961 (SC) and the ratio decidendi of the Mysore High Court judgement in the case of Indian Telephone Industries Co-operative Society Ltd. v. ITO, (1972) 86 ITR 566 (Mys) clearly supports the action of the Commissioner.

10. We have carefully considered the rival submissions. We find that the Commissioner proceeded to assume jurisdiction on the grounds as projected in the narration of facts above. Out of the three points he took up for consideration he appears to have himself given up the point regarding the failure of the ITO to initiate proceedings under s. 271(1)(a) of the Act. Therefore, for all intents and purposes, we have to consider whether non-charging of interest under s. 139(8) and s. 217 by the assessing officer and his failure to indicate his mind about it anywhere on the record of the proceedings could render his order as erroneous as well as pre-judicial to the interest of Revenue so as to clothe the Commissioner with lawful jurisdiction under s. 263 of the Act. In determining this issue, we have not only considered the facts of the case but have also very carefully gone through all the authorities cited from both the sides.

11. We are of the opinion that in view of the abovementioned judgement of the Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Company Ltd. (supra) the law is now well settled that levy of interest under s. 139(8) is part of the process of assessment. In fact, Supreme Court laid down this law in a case where the issue for consideration was of waiver or reduction in the levy of interest. In view of this development in law, the judgements of various High Courts, which preceded this judgement, regarding the levy of interest oil the assessee being a part of the process of assessment or not, no longer can be said to hold the field. Therefore, we have to proceed on the premise that charging of interest under s. 139(8) and under s. 217is part of the process of assessment proceedings and anything done about that will form part of the assessment, which if otherwise open for review to the Commissioner under s. 263 would come in for consideration for lawful assumption of jurisdiction. Therefore, in this case, since, the ITO neither recorded that he was satisfied that interest under s. 139(8) and s. 217 was not chargeable nor he issued any directions for charging of interest, there was no deliberated application of his mind to the issue. In fact, the statute provides for waiver or reduction of interest. The discretion vested in the ITO ranges between a right to waive interest or to reduce it. His order being quasi-judicial in nature, it must state some reason for the waiver or reduction of interest. Interest cannot altogether be waived by inaction.

12. However, the question is whether, when the ITO makes an original assessment under s. 147(a) there is any bar provided under the law to prohibit the Commissioner from assuming lawful jurisdiction within the meaning of s. 263(2)(a) of the Act. In this context, we do not find any difficulty in determining the issue because the language of s. 263(2)(a) is very clear that the Commissioner is debarred from assuming powers of review or revision only in a case, where an order of reassessment (emphasis italicised in print added) has been made under s. 147. An order of re-assessment under s. 147 is different from an order of original assessment under s. 147. Therefore, it is clear that the legislature in its wisdom has specifically used the word reassessment to debar the Commissioner from reviewing or revising such an assessment.

13. In our considered opinion, the law applicable as on the statute book for the assessment year in appeal did not debar the Commissioner from calling for and examining the record of any proceedings under the Act in a case, where proceedings had been taken for an original assessment under s. 147(a) if he considers that any order passed thereon by the assessing officer is erroneous, in so far as it is prejudicial to the interest of Revenue. However, it will be a matter entirely different if the Commissioner were to proceed to decide the issue himself on merits also. Thus, we find that in this case, the ITO had made an order, which was open for revision or review by the Commissioner. We also find that in the process of assessment, the ITO was to consider the levy of interest under s. 139(8) and under s. 217 of the Act. In the absence of any evidence, whatsoever, on record to show that the ITO had made deliberated application of his mind to these aspects of assessment, the Commissioner had jurisdictional facts to assume lawful jurisdiction to make the impugned order. We uphold his order as having been made after assumption of lawful jurisdiction on the basis of jurisdictional facts. We also find that the Commissioner did not direct the ITO to charge interest under the above sections. He merely directed the ITO to verify about the leviability of the interest and charge the same as per law. If interest is not leviable as per law the ITO will not be able to do so. The assessee is at liberty to project any legal or factual situation before the ITO including amendment in relevant law. Hence with the directions of the learned Commissioner the assessee cannot find any fault, as these are reasonable and fair directions issued in accordance with law. We, therefore, confirm the order of the Commissioner and dismiss the appeal of the assessee.