2009 (9) TMI 9 - HC - Income Tax

Advance Tax Penalty u/s 273(2)(aa) - wrong estimate of advance tax - The item on which the issue is to be decided is the sales tax liability of Rs.1,30,65,719/-. It is an admitted fact that this amount was realised by the appellant in the last month of the accounting year and was shown payable in the balance sheet. The assessing authority has held that this item should have been paid accordingly under the provisions Section 43B of the Act and since the appellant had failed to do so, he was liable for penalty under section 273(2)(aa) of the Act. Held that - CIT (Appeals) as well as the Tribunal has took a view that the assessee s claim of bonafide belief about the sales tax liability was genuine and legitimate. - The Tribunal as well as CIT (Appeals) has given satisfactory, cogent and convincing reasons for setting aside the penalty order Order of the tribunal deleting the penalty maintained.

Summary

Issues:
- Interpretation of penalty under section 273(2)(aa) of the Income Tax Act, 1961.
- Whether the appellant had sufficient reason to believe that sales tax liability should not be included in the total income for advance tax estimation.
- Applicability of relevant judgments on the treatment of sales tax liability.

Analysis:
1. The judgment by the Allahabad High Court, delivered by Hon'ble S.K. Gupta, J., pertained to an appeal under section 260A of the Income Tax Act, 1961, concerning the deletion of a penalty of Rs.4,21,230 imposed under section 273(2)(aa) of the Act. The primary issue revolved around whether the appellant had knowingly furnished a wrong estimate of advance tax by excluding sales tax liability from the taxable income.

2. The case related to the assessment year 1987-88, where the appellant revised their income estimates multiple times, leading to discrepancies in the advance tax paid. The appellant included a sales tax liability amount in a second revised return, which was initially disallowed under section 43B of the IT Act, triggering penalty proceedings by the assessing officer.

3. The crux of the matter was whether the appellant had sufficient reason to believe that the sales tax liability should not be considered as part of the total income for advance tax estimation. The assessing authority argued that the appellant was aware of the treatment of sales tax liability based on previous assessments and should have paid tax on it accordingly.

4. The Tribunal and CIT (Appeals) examined the facts and concluded that the appellant's belief regarding the sales tax liability was genuine and legitimate. They considered relevant judgments, including one from the Supreme Court, to support the appellant's claim of bonafide belief. The Tribunal found no illegality in the impugned order and upheld the decision to cancel the penalty.

5. The Court emphasized that it cannot substitute its opinion for that of the Tribunal unless the decision is contrary to the law or based on inadmissible evidence. As the Tribunal's conclusion was deemed appropriate and supported by evidence, the appeal was dismissed, affirming the cancellation of the penalty.