1980 (9) TMI 114 - AT - Income Tax

Summary

Issues Involved:
1. Whether the CIT (Appeals) erred in cancelling the penalty of Rs. 37,000 levied by the ITO under Section 273(a) of the IT Act, 1961.
2. Whether the assessee filed an estimate of advance-tax which it knew or had reason to believe to be untrue.

Detailed Analysis:

Issue 1: Cancellation of Penalty by CIT (Appeals)

The Revenue contended that the CIT (Appeals) erred in law and facts by cancelling the penalty of Rs. 37,000 levied by the ITO under Section 273(a) of the IT Act, 1961. The penalty was initially imposed because the assessee, a limited company, filed a wrong estimate of advance-tax for the assessment year 1972-73.

The CIT(A) had considered the past history of the case and noted that the penalty proceedings under Section 273(a) are quasi-judicial in nature, and the onus to prove that the assessee knew or had reason to believe that the estimate was untrue lies on the Department. The CIT(A) referred to a previous order in the assessee's own case for the assessment year 1971-72, where a similar penalty was deleted and accepted by the Revenue. The CIT(A) emphasized that the ITO's decision was influenced by irrelevant factors, which vitiated the order.

Issue 2: Validity of the Estimate Filed by the Assessee

The assessee filed an initial estimate of advance-tax at 'Nil' and later revised it to Rs. 1,12,750, which was paid. The return of income eventually declared a total income of Rs. 4,45,433, and the assessment was completed on a total income of Rs. 5,02,890. The ITO initiated penalty proceedings under Section 273(a) for filing a wrong estimate.

The assessee provided multiple explanations, stating that the estimate of Rs. 2,00,000 was based on the following figures: income from various units and losses from the export wing and Unit 5. The assessee contended that simply because the income returned was more than the estimated income, it could not be inferred that the estimate was knowingly untrue. The explanation highlighted that the onus in penalty proceedings lies on the Revenue to establish mens rea.

The CIT(A) noted that the ITO failed to appreciate the facts regarding the trading activities of Unit No. 4. The ITO observed that the revised estimate was filed when only fifteen days were left for the close of the financial year, and there was no justification for not making a fair estimate. However, the CIT(A) emphasized that the ITO misread the section by not finding evidence that the assessee knew or had reason to believe the estimate was untrue.

The CIT(A) further analyzed the sales, receipts, and expenses of Unit No. 4, highlighting that the assessee's estimate was based on a comparative study of higher sales and receipts. The CIT(A) concluded that the ITO's decision was influenced by irrelevant material, and the penalty was not justified.

Conclusion:

The appellate tribunal upheld the CIT(A)'s order on the following grounds:
1. The assessee justified its estimate of income from Unit No. 4 at Rs. 50,000.
2. The assessee did not furnish an estimate of advance-tax which it knew or had reason to believe to be untrue.

In the result, the Revenue's appeal was dismissed.