1986 (3) TMI 118 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the penalty imposed under section 273(a) of the Income-tax Act, 1961.
2. Validity of the assessee's estimate of advance tax.
3. Impact of the raid and subsequent circumstances on the assessee's ability to estimate income accurately.
4. Requirement of mens rea for imposing penalty under section 273(a).

Issue-wise Detailed Analysis:

1. Legitimacy of the penalty imposed under section 273(a) of the Income-tax Act, 1961:
The appeal by the revenue is directed against the order of the Commissioner (Appeals) which cancelled the penalty imposed by the ITO under section 273(a). The ITO noted that the assessee filed an estimate of income which was significantly lower than the income returned and assessed, leading to the initiation of penalty proceedings. The Commissioner (Appeals) cancelled the penalty, stating that the ITO did not provide material evidence to show that the assessee knowingly filed an untrue estimate. The Tribunal, however, found that the ITO had brought sufficient materials and facts on record to justify the penalty and reversed the order of the Commissioner (Appeals), restoring the ITO's penalty order.

2. Validity of the assessee's estimate of advance tax:
The ITO noted that the assessee filed an estimate on 15-12-1977, showing an estimated income of Rs. 82 lakhs, which was much lower than the returned income of Rs. 1,35,66,110 and the assessed income of Rs. 1,44,00,100. The Commissioner (Appeals) opined that the mere difference between the estimated and returned income was insufficient to invoke section 273. However, the Tribunal found that the ITO had validly pointed out the significant disparity between the estimate and the actual income, indicating that the estimate was not made in good faith.

3. Impact of the raid and subsequent circumstances on the assessee's ability to estimate income accurately:
The assessee argued that the raid conducted on 27-10-1976 and the subsequent seizure of books of account, which were returned only on 19-6-1980, along with labor unrest and the preparation of a settlement petition, affected their ability to accurately estimate the income. The Tribunal, however, noted that the raid took place a year before the estimate was filed and that the settlement petition was filed five months before the estimate. It was concluded that these circumstances did not justify the significant underestimation of income.

4. Requirement of mens rea for imposing penalty under section 273(a):
The assessee contended that mens rea must be proved for imposing a penalty under section 273(a), relying on the Supreme Court decision in CIT v. Anwar Ali. The Commissioner (Appeals) accepted this argument, stating that the ITO did not bring material evidence to show the assessee's state of mind. However, the Tribunal found that the ITO had provided sufficient evidence to indicate that the assessee knowingly filed an untrue estimate, and the burden of proof was met.

Conclusion:
The Tribunal concluded that the ITO had validly imposed the penalty under section 273(a) and that the Commissioner (Appeals) erred in cancelling it. The appeal by the revenue was allowed, and the penalty order of the ITO was restored.