1994 (2) TMI 100 - AT - Income Tax

Summary

Issues:
Appeal against cancellation of penalty under section 273(2)(a) of the I.T. Act for assessment year 1985-86 based on filing of untrue estimate for advance-tax.

Analysis:
The appeal before the Appellate Tribunal ITAT CALCUTTA-E involved the cancellation of a penalty imposed on the assessee under section 273(2)(a) of the I.T. Act for the assessment year 1985-86. The penalty of Rs. 2,10,533 was initially imposed by the Income Tax Officer (ITO) on the grounds that the assessee filed an estimate of advance-tax which was considered untrue. The CIT(A) later cancelled this penalty, leading to the department's appeal.

The primary issue revolved around the justification of the assessee's filing of a nil income estimate for advance-tax. The CIT(A) noted that at the time of filing the estimate, the assessee had declared losses in the preceding assessment years, leading them to believe that no income would be subject to advance-tax. The assessments for these years were completed after the estimate filing date, affecting the assessee's knowledge of potential income for the year under appeal.

The department argued that the disparity between the estimate and the actual income was not adequately explained by the assessee. Reference was made to a judgment by the Calcutta High Court emphasizing the duty of the assessee to clarify such discrepancies. The department contended that the assessee should have anticipated the accrual basis assessment of interest income despite a change in accounting method.

In defense, the assessee maintained that the estimate was filed in good faith based on the information available at the time. They highlighted the substantial losses claimed in the previous years and the ongoing dispute regarding bad debt/trading loss, which if allowed, would have resulted in an overall loss for the year under appeal. The assessee also pointed to a subsequent tribunal decision supporting their method of accounting for interest income.

The Tribunal upheld the CIT(A)'s decision to cancel the penalty, emphasizing the importance of assessing the mental state of the assessee at the time of filing the estimate. It was concluded that the assessee's belief in filing a nil estimate was reasonable and supported by the available data and circumstances. The Tribunal found no evidence of mala fide intentions on the part of the assessee, citing relevant judgments to support the decision.

In summary, the Tribunal upheld the cancellation of the penalty, agreeing with the CIT(A) that the estimate was not knowingly false or untrue. The decision was based on a thorough analysis of the facts, the assessee's justifications, and applicable legal principles, ultimately dismissing the department's appeal.