1998 (8) TMI 104 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the penalty levied under Section 273(2)(a) of the IT Act, 1961.
2. Evaluation of the assessee's estimate of advance tax.
3. Assessment of the assessee's bona fide belief and knowledge at the time of filing the estimate.

Detailed Analysis:

1. Legitimacy of the penalty levied under Section 273(2)(a) of the IT Act, 1961:
The appeal concerns the penalty of Rs. 1,50,000 confirmed by the CIT(A) under Section 273(2)(a) of the IT Act, 1961. The AO had initially levied a penalty of Rs. 10 lakhs, which was subsequently reduced by the CIT(A). The penalty was imposed because the advance tax payable based on the assessee's estimate was less than 75% of the assessed tax.

2. Evaluation of the assessee's estimate of advance tax:
The assessee filed an estimate under Section 209A(1) in Form No. 29 on 15th June 1983, estimating its income subject to advance tax at Rs. 3,38,000 and advance tax payable at Rs. 2,25,192. The AO completed the assessment on 27th March 1987, determining total income at Rs. 26,86,310, which was later reduced to Rs. 26,85,130 by the CIT(A). The AO initiated penalty proceedings under Section 273(2)(a) because the advance tax estimate was significantly lower than the assessed tax.

3. Assessment of the assessee's bona fide belief and knowledge at the time of filing the estimate:
The assessee argued that the accounts were not completed at the time of furnishing the estimate, and thus, the correct income could not be estimated. The AO rejected this contention, stating that the actual figures for the previous year were available, implying that the estimate should have been more accurate. The CIT(A) observed that the assessee should have been aware of the profitability for the period relevant to the assessment year 1983-84 and should have filed a higher estimate. The CIT(A) concluded that there was no reasonable cause for the low estimate but acknowledged a possible margin of error due to the incomplete accounts for the previous year.

Judgment:
The Tribunal noted that the penalty under Section 273(2)(a) is applicable only when the assessee knowingly furnishes an untrue estimate. The Tribunal found that the assessee's estimate was based on the accounts available at the time and that the assessee had a bona fide belief in the accuracy of the estimate. The Tribunal also highlighted that the Revenue failed to prove that the estimate was untrue or that the assessee had reason to believe it was untrue. Consequently, the Tribunal concluded that the penalty was unjustified and ordered its deletion.

Conclusion:
The appeal was allowed, and the penalty under Section 273(2)(a) was deleted, as the assessee's estimate was deemed to be made in good faith based on the available information, and the Revenue failed to prove otherwise.