1991 (12) TMI 93 - AT - Income Tax

Summary

Issues Involved:
1. Sustaining of penalty under section 273(2)(a) of the Income-tax Act, 1961.
2. Validity of the assessee's estimates of advance tax.
3. Justification for the penalty imposed by the Income Tax Officer (ITO).

Issue-wise Detailed Analysis:

1. Sustaining of Penalty under Section 273(2)(a) of the Income-tax Act, 1961:

The appeal concerns the penalty of Rs. 2,25,544 levied under section 273(2)(a) of the Income-tax Act, 1961, for the assessment year 1976-77. The penalty was imposed due to the assessee's submission of a wrong estimate of advance tax. The Income Tax Officer (ITO) initiated penal action under section 273(2)(a) against the assessee for filing an incorrect estimate of advance tax under sections 212(1) and (2). The Commissioner of Income Tax (Appeals) upheld the penalty, leading to the present appeal.

2. Validity of the Assessee's Estimates of Advance Tax:

The assessee, engaged in the manufacture and sale of paper, filed its income return for the year ending 31-3-1976, initially declaring a total income of Rs. 3,45,94,013, which was later revised to Rs. 3,40,91,560. The final assessed income was Rs. 3,53,25,310. The ITO noted that the assessee's first estimate filed on 12-10-1975 showed an income of Rs. 1,60,00,000, and a revised estimate on 5-3-1976 showed an income of Rs. 2,25,00,000. The Commissioner observed that the assessee did not provide any facts or figures to justify these estimates and failed to explain the basis for these estimates, especially given the upward trend in production as mentioned in the Director's reports for the accounting years ending 31-3-1975 and 31-3-1976.

The learned counsel for the appellant argued that the estimates were based on the income returned for the previous assessment year 1975-76, considering the rise in production and the fall in the price of paper. However, the Departmental Representative pointed out that this explanation was being stated for the first time before the Tribunal and lacked substantiation. The Tribunal noted that the assessee had filed its return for the previous year showing an income of Rs. 2,69,41,790 and received a revised demand notice for advance tax of Rs. 1,54,86,623. The Tribunal found no basis for the assessee's estimate of Rs. 1,60,00,000 and noted the lack of explanation for the lower estimate despite the increase in production.

3. Justification for the Penalty Imposed by the Income Tax Officer (ITO):

The Tribunal examined the provisions of section 273(2)(a) of the Income-tax Act, 1961, which penalizes an assessee for furnishing an estimate of advance tax that they knew or had reason to believe to be untrue. The Tribunal referred to judicial interpretations, including the decisions of the Madras High Court in P. Arunachala Mudaliar v. CIT and Appavoo Pillai v. CIT, and the Calcutta High Court in CIT v. Birla Cotton Spg. & Wvg. Mills Ltd. The Tribunal found that the assessee's estimates lacked basis and were not justified by the state of accounts as they stood on the date of the estimates. The Tribunal also noted that the assessee's explanation regarding the fall in the price of paper was unsubstantiated and vague.

The Tribunal concluded that the assessee's estimates were not honest, prudent, fair, or reasonable and that the assessee had been postponing the payment of advance tax. The penalty levied was the minimum amount of 10% of the tax as specified in section 273(2)(a) of the Act. The Tribunal upheld the penalty, confirming the order of the CIT (Appeals) and dismissing the appeal.

Conclusion:

The appeal was dismissed, and the penalty of Rs. 2,25,544 levied under section 273(2)(a) of the Income-tax Act, 1961, was upheld. The Tribunal found that the assessee's estimates of advance tax were unsubstantiated and not justified, and the penalty was deemed fully justified.