2002 (9) TMI 89 - HC - Income Tax

Penalty Non-payment Of Advance Tax - levy of penalty of Rs. 70, 000 under section 273 - admittedly on account of the set off of unabsorbed depreciation of earlier years against the total income computed for the relevant assessment year the taxable income would work out to nil and the assessee will not be liable to pay any tax in respect of this year. It is axiomatic that if there is no liability to pay income-tax there is no obligation to pay advance tax and consequently no occasion for levy of penalty for non-payment of advance tax. In that view of the matter we feel that it is unnecessary to go into the question as to whether the assessee had failed to furnish a statement of advance tax without any reasonable cause particularly when the Tribunal has not gone into this aspect of the matter. - the levy of penalty cannot be sustained

Summary

Issues:
Levy of penalty under section 273 of the Income-tax Act, 1961 for failure to pay advance tax, Entitlement to set off unabsorbed depreciation against income, Justification of penalty upheld by the Tribunal.

Analysis:
The High Court of Delhi addressed the issue of the levy of penalty under section 273 of the Income-tax Act, 1961 in this judgment. The case involved an appeal against the order of the Income-tax Appellate Tribunal, which had upheld a penalty of Rs. 70,000 imposed on the assessee for the assessment year 1982-83. The Tribunal's decision was based on the failure of the assessee to pay advance tax, as the total income computed by the Assessing Officer exceeded the declared loss. The Tribunal upheld the penalty on the grounds that the assessee should have filed an estimate and paid advance tax under section 212(3) of the Act. However, the Tribunal did not consider whether the failure to provide the advance tax statement was without any reasonable cause as per section 273(b) of the Act.

The High Court found that the Tribunal's decision to uphold the penalty solely based on the computed total income was erroneous. The Court noted that the assessee claimed a nil total income after setting off unabsorbed depreciation from earlier years against the income assessed under the head "Income from other sources." The issue of entitlement to set off unabsorbed depreciation was separately addressed in another income-tax reference, where the Court opined that the assessee was indeed entitled to the set off. Considering this decision, the Court concluded that if the taxable income amounted to nil due to the set off, there was no obligation to pay advance tax and consequently no basis for imposing a penalty for non-payment of advance tax. The Court emphasized that without an income tax liability, there was no requirement to pay advance tax, rendering the penalty unjustified.

In light of the separate judgment on the entitlement to set off unabsorbed depreciation, the High Court allowed the appeal, ruling in favor of the assessee/appellant. The Court held that the Tribunal's decision to uphold the penalty could not be sustained and disposed of the appeal without any order as to costs.