1988 (8) TMI 83 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the revised estimate filed by the petitioner on March 11, 1988.
2. Competence of the Income-tax Officer to demand payment and initiate penalty proceedings based on the revised estimate.
3. Applicability and constitutionality of Section 115J of the Income-tax Act.

Issue-Wise Detailed Analysis:

1. Validity of the Revised Estimate Filed by the Petitioner on March 11, 1988:
The petitioner, J. K. Synthetics Ltd., filed a revised estimate of its income on March 11, 1988, showing "nil" income, which superseded the earlier estimate of Rs. 450 lakhs filed on December 11, 1987. The revised estimate was based on legal advice that Section 115J of the Income-tax Act was not applicable for the purpose of advance tax. The Income-tax Officer contended that the revised estimate was void as it was not in accordance with the provisions of the Act. However, the court held that the revised estimate, filed in Form No. 29 as required under Rule 39 of the Income-tax Rules, 1962, was valid. The court noted that the revised estimate did not cease to be an estimate merely because it was accompanied by a letter and legal opinion explaining the vast difference between the two estimates.

2. Competence of the Income-tax Officer to Demand Payment and Initiate Penalty Proceedings Based on the Revised Estimate:
The court observed that there was no provision in the Act empowering the Income-tax Officer to determine the correctness of the revised estimate at the stage of advance tax payment. The liability of the petitioner was to pay advance tax in accordance with the revised estimate filed on March 11, 1988. The court held that the petitioner could not be deemed to be an assessee in default under Section 218 of the Act as it had complied with the revised estimate. Consequently, the Income-tax Officer was not competent to raise any demand or initiate penalty proceedings based on the earlier estimate filed on December 11, 1987. The impugned order dated March 17, 1988, demanding payment and initiating penalty proceedings, was quashed.

3. Applicability and Constitutionality of Section 115J of the Income-tax Act:
The petitioner argued that the provisions of Section 115J were not applicable and, in any case, were ultra vires the Act and beyond legislative competence. However, the court did not examine this issue in detail. For the purpose of disposing of the petition, the court presumed that the provisions of Section 115J were attracted and that the petitioner had underestimated its income in the revised estimate. The court focused on the procedural aspects and the validity of the revised estimate rather than the substantive applicability of Section 115J.

Conclusion:
The court made the rule absolute, quashing the impugned order dated March 17, 1988, and the show-cause notice issued under Section 221(1) of the Act. The respondents were restrained from taking any action pursuant to the said order and notice. The court clarified that this order would not prevent the respondents from charging interest, initiating penalty proceedings, or taking any other action against the petitioner in accordance with law. The parties were left to bear their own costs. The petition was allowed.