2003 (9) TMI 70 - HC - Income Tax

Penalty levied under section 273(2)(a) - estimate of advance tax - bona fide belief - Tribunal has rightly held that merely because an assessee is assessed at a higher figure that by itself is not sufficient to hold that the estimate filed by the assessee was untrue resulting in the assessee being penalised for filing an incorrect estimate. The provision requires that the estimate must be false, viz., that the assessee knew or had reason to believe that the estimate of advance tax was untrue. - In the present case, the assessee has pleaded a bona fide belief as regards the applicable provisions to the facts of the case - Tribunal is right in law and on facts in cancelling the penalty

Summary

Issues involved:
1. Interpretation of penalty levied under section 273(2)(a) of the Income-tax Act, 1961.

Analysis:
The judgment of the High Court of Gujarat involved a reference made by the Commissioner of Income-tax regarding the cancellation of a penalty under section 273(2)(a) of the Income-tax Act, 1961. The case revolved around an assessee, a private limited company, for the assessment year 1980-81. The assessee had initially shown a total income of Rs. 8,50,000 and paid advance tax amounting to Rs. 5,95,000. However, the income was ultimately assessed at Rs. 12,65,210, with a significant addition related to the disallowance of a specific expense under section 37(3A) of the Act. The Income-tax Officer imposed a penalty of Rs. 15,000, which was upheld by the Commissioner of Income-tax (Appeals).

Subsequently, the assessee appealed to the Income-tax Appellate Tribunal, contending that they believed their case fell under a different provision of the Act. The Tribunal accepted the assessee's submissions and canceled the penalty. The Revenue, represented by Mrs. M. M Bhatt, argued that the Tribunal erred in considering the assessment order for the preceding year, which had been revised under section 263 of the Act. It was contended that the assessee's bona fide belief was not proven, and the penalty was rightly imposed by the Income-tax Officer.

The Tribunal, however, found that the assessee's belief was bona fide as it was supported by the assessment order of the previous year when the advance tax estimate was filed. The Tribunal emphasized that the correctness of the estimate should be based on the income at the time of estimation, not the final assessed income. Merely being assessed at a higher figure later does not automatically warrant a penalty for shortfall in advance tax payment. The High Court upheld the Tribunal's decision, stating that the assessee's belief was genuine, supported by previous assessments, and there was no evidence to suggest a deliberate false estimate.

In conclusion, the High Court ruled in favor of the assessee, emphasizing the importance of a genuine belief in estimating advance tax and dismissing the penalty imposed by the Income-tax Officer. The judgment highlighted the significance of assessing the accuracy of estimates based on the information available at the time of filing, rather than retrospective evaluations.