1979 (3) TMI 7 - HC - Income Tax

Summary

Issues Involved:
1. Justification of the Tribunal in canceling the penalty imposed by the Income-tax Officer (ITO).
2. Interpretation of Section 140A(3) regarding the imposition of penalty for delayed payment of self-assessment tax.
3. Discretion of the ITO in levying penalties under Section 140A(3).
4. Binding nature of CBDT circulars on the ITO.

Summary:

1. Justification of the Tribunal in Canceling the Penalty:
The Tribunal canceled the penalty imposed by the ITO on the grounds that the assessee had reasonable cause for the delay in payment of self-assessment tax. The Tribunal noted that the assessee had paid a substantial portion of the tax within the permissible time and the remaining balance shortly thereafter. The Tribunal also considered the CBDT circular advising ITOs to adopt a helpful attitude towards assessees in difficulties.

2. Interpretation of Section 140A(3):
Section 140A(3) mandates that if an assessee fails to pay the tax or any part thereof within the stipulated time, they are liable to a penalty as directed by the ITO, not exceeding 50% of the unpaid tax. The court clarified that the liability to pay penalty arises if the tax or any part thereof is not paid within the time specified. The Tribunal's interpretation that no penalty could be levied if part of the tax was paid within the time was deemed erroneous by the court.

3. Discretion of the ITO in Levying Penalties:
The court held that the ITO has discretion in levying penalties under Section 140A(3). The use of the term "may direct" indicates that the ITO can decide whether to impose a penalty and, if so, the amount, which can be as low as Re. 1 or even nil. The proviso requiring a reasonable opportunity of being heard supports the view that the penalty is not automatic and must be considered on a case-by-case basis.

4. Binding Nature of CBDT Circulars:
The court affirmed that circulars issued by the CBDT under Section 119 are binding on the ITO. The circular in question, which advised ITOs to avoid imposing penalties where justified, was considered valid and binding. This view was supported by Supreme Court decisions in Navnit Lal C. Javeri v. K. K. Sen, AAC and Ellerman Lines Ltd. v. CIT, which held that such circulars, even if deviating from the Act, are binding on the ITO.

Conclusion:
The court concluded that the Tribunal was justified in canceling the penalty, as there was reasonable cause for the delay in payment. The question was answered in the affirmative, in favor of the assessee, and against the department. The department was ordered to pay costs to the respondent-assessee.