1992 (5) TMI 4 - HC - Income Tax

Advance Tax Bona Fide Business Loss Levy Of Penalty Penalty Proceedings Question Of Law Reference To High Court Set Off Subject Matter

Summary

Issues Involved:
1. Whether the Tribunal's finding that the assessee had bona fide reasons to believe it had no taxable income and thus was not liable to file an estimate of advance tax under section 209A(1)(b) of the Income-tax Act, 1961, is based on any relevant material or perverse.
2. Whether the Tribunal was justified in law in cancelling the penalty imposed under section 273(2)(b) of the Income-tax Act, 1961.

Issue-wise Detailed Analysis:

Issue 1: Bona Fide Reasons for Not Filing Estimate of Advance Tax

The Tribunal found that the assessee did not file an estimate of income under section 209A(1)(b) of the Income-tax Act, 1961, because it believed that after setting off business losses against income from other heads, there would be no taxable income. The Tribunal noted that the Income-tax Officer assessed the assessee's income at a positive figure by denying the benefit of set-off claimed by the assessee. This denial was not conclusive of the matter.

The Tribunal accepted the assessee's counsel's submission that the issue of set-off of loss under "share dealing" against other income was already a subject-matter of reference to the court under section 256(2) of the Act, indicating a question of law. Therefore, the Tribunal concluded that the assessee's bona fides could not be doubted. The Tribunal's view was supported by precedents such as Cement Marketing Co. of India Ltd. v. Asst. CST, where the Supreme Court held that a return cannot be said to be 'false' unless there is an element of deliberateness in it, and bona fide belief precludes such a finding.

Issue 2: Justification in Cancelling the Penalty

The Tribunal canceled the penalty imposed under section 273(2)(b) of the Income-tax Act, 1961, by the Income-tax Officer and upheld by the Commissioner of Income-tax (Appeals). It was argued on behalf of the Revenue that the assessee became liable for tax due to the application of the Explanation to section 72, and there was no plausible explanation for not filing an estimate under section 209A(1)(b). However, the Tribunal found that the assessee had bona fide reasons to believe it had no taxable income and thus was not liable to file an estimate of advance tax.

The Tribunal's decision was consistent with the principles established in cases like Jeewanlal (1929) Ltd. v. ITO and ITO v. Burmah Shell Oil Storage and Distribution Co. of India Ltd., where it was held that bona fide belief in the non-applicability of a provision precludes the initiation of penal proceedings. The Tribunal concluded that the conditions for imposing such a penalty were not met, as the assessee's belief was genuine and not frivolous.

Conclusion

Both questions were answered in the affirmative and in favor of the assessee. The Tribunal's finding that the assessee had bona fide reasons for not filing an estimate of advance tax was based on relevant material and was not perverse. Consequently, the Tribunal was justified in canceling the penalty imposed under section 273(2)(b) of the Income-tax Act, 1961. There was no order as to costs.