1979 (2) TMI 44 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the penalty imposed u/s 273(a) of the I.T. Act, 1961.
2. Whether the assessee knowingly furnished an untrue estimate of income.

Summary:

1. Validity of the penalty imposed u/s 273(a) of the I.T. Act, 1961:
The assessee-company was assessed for the year 1958-59 and was served with a notice u/s 18A(1) of the I.T. Act, 1922, to pay advance tax for the assessment year 1961-62. Instead of paying, the assessee filed an estimate disclosing a loss. The ITO later determined the total income at Rs. 24,617 and issued a show-cause notice for penalty u/s 28(1)(c) read with s. 18A(9) of the I.T. Act, 1922. The ITO, doubting the validity of the notice, issued a fresh notice u/s 274(1) of the I.T. Act, 1961, and subsequently levied a penalty of Rs. 2,242 u/s 273(a) of the I.T. Act, 1961.

2. Whether the assessee knowingly furnished an untrue estimate of income:
The AAC, in an appeal, held that the penalty could only be attracted if the estimate was dishonest and the onus of proving the guilt rested on the department. The AAC found that the estimate was based on the trial balance as on 31st May, 1960, showing a loss, and thus, the estimate was bona fide. The Tribunal, however, allowed the ITO's appeal, stating that there was no material to show that the assessee believed the whole year would result in a loss.

The High Court observed that the term "estimate" implies approximation and cannot be accurate. The Court emphasized that unless there is material to show that the assessee had reason to believe the estimate was untrue, no penalty could be levied. The Court noted that the trial balance showing a loss was produced before the ITO and the previous history of the business was one of losses. The Tribunal's conclusion that the assessee did not honestly believe there could be a loss for the whole year was found to be erroneous.

Conclusion:
The High Court answered the referred question in the negative, ruling in favor of the assessee, and held that the Tribunal erred in setting aside the AAC's order. The assessee was awarded the costs of the reference from the revenue.