1992 (2) TMI 116 - AT - Income Tax

Bona Fide, Carry Forward, Failure To Pay Advance Tax, False Estimate, Losses And Depreciation, Reasonable Cause

Issues Involved:
1. Levy of penalty under section 273(1)(b) of the IT Act, 1961.
2. Reasonable cause for failure to furnish a statement of advance tax.
3. Bona fide belief regarding tax liability.
4. Burden of proof for absence of reasonable cause.
5. Deletion of interest under section 215.

Detailed Analysis:

1. Levy of Penalty under Section 273(1)(b):
The appeal concerns the confirmation of a penalty of Rs. 2,12,450 under section 273(1)(b) of the IT Act, 1961. The penalty was imposed for the appellant-company's failure to furnish a statement of advance tax payable, as required by section 209A(1)(a) of the Act. The CIT(Appeals) upheld the penalty, which led to the present appeal.

2. Reasonable Cause for Failure to Furnish Statement of Advance Tax:
The appellant argued that their failure to submit the statement of advance tax was due to a bona fide belief regarding the carry forward of unabsorbed business loss and depreciation of EIMC under section 72A. The belief was based on the amalgamation order passed after the original return filing. The revised returns for subsequent years were submitted after the amalgamation was finalized, reflecting the correct taxable income.

3. Bona Fide Belief Regarding Tax Liability:
The appellant-company believed that the carry forward of losses and depreciation from EIMC would be allowed from the assessment year 1981-82. Additionally, the company had a claim for deduction of royalty payable to NIKEX, which was initially allowed in previous assessment years but later disallowed. These factors led the company to believe that their taxable income would be nil or negative, justifying their failure to submit the advance tax statement.

4. Burden of Proof for Absence of Reasonable Cause:
The learned counsel argued that the burden of proving the absence of reasonable cause lies with the department. The mere default of non-submission does not automatically justify the penalty. The ITO did not provide any material evidence to prove the absence of reasonable cause. The counsel cited several judgments supporting this contention, emphasizing that the penalty cannot be levied if there was a reasonable cause for the failure.

5. Deletion of Interest under Section 215:
The interest charged under section 215 for the same year was deleted by the CIT(Appeals), and the department did not appeal against this deletion. This supports the appellant's contention that no penalty should be levied under section 273(1)(b). The learned Sr. D.R. argued that the penalty was justified based on the ITO and CIT(Appeals) orders, but the tribunal found that the appellant had a reasonable cause for their belief regarding tax liability.

Conclusion:
The tribunal concluded that the penalty under section 273(1)(b) could not be sustained. The provisions required the revenue to prove the absence of reasonable cause for the default. The appellant's bona fide belief regarding the carry forward of losses and the royalty deduction constituted a reasonable cause. The deletion of interest under section 215 further supported the appellant's case. The tribunal allowed the appeal and cancelled the penalty levied under section 273(1)(b).

Observations:
The tribunal noted that proper care by the concerned officers could have prevented the loss of revenue related to interest under sections 214 and 215. The tribunal emphasized the need for timely adjustments and appeals to safeguard the revenue's interests. However, these observations did not affect the decision regarding the penalty under section 273(1)(b).

Result:
The appeal was allowed, and the penalty levied under section 273(1)(b) was cancelled.

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