1987 (8) TMI 144 - AT - Income Tax

Summary

Issues Involved:
1. Legitimacy of the penalty levied under Section 273(a) of the Income-tax Act, 1961.
2. Calculation and quantum of the penalty.
3. Bona fides of the estimates filed by the assessee.
4. Applicability of legal precedents and provisions.

Detailed Analysis:

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

The revenue argued that the Income-tax Officer (ITO) issued a notice under Section 210 to the assessee, which was based on the previously assessed total income. The assessee, instead of paying the tax as per the notice, filed an estimate of its total income and the tax payable under Section 212, showing nil income initially and later revising it multiple times. The ITO contended that the final estimate filed on 13-12-1974 was knowingly untrue, as evidenced by the significant discrepancy between the estimated and the assessed income. The ITO levied a penalty of Rs. 12,90,800, which was later reduced by the Commissioner of Income Tax (Appeals) [CIT(A)] to Rs. 7,74,470. The Tribunal upheld the legitimacy of the penalty, agreeing that the estimate filed on 13-12-1974 was such that the assessee had the knowledge or reason to believe it to be untrue.

2. Calculation and Quantum of the Penalty:

The CIT(A) reduced the penalty from 25% of the shortfall to 15%, which aggrieved both the revenue and the assessee. The revenue argued that the CIT(A) erred in reducing the penalty, emphasizing that the assessee's substantial payments under Section 140A indicated that the estimate filed was mala fide. The assessee argued that if a penalty were to be levied, it should be calculated in accordance with Section 273(1)(a)(i)(2), which was not considered by the ITO. The Tribunal, however, rejected the assessee's contention for recalculating the penalty under Section 273(1)(a)(i)(2) due to the necessity of factual investigation and upheld the penalty at 15% of the shortfall, as determined by the CIT(A).

3. Bona Fides of the Estimates Filed by the Assessee:

The Tribunal examined the bona fides of the estimates filed by the assessee on 13-6-1974, 7-9-1974, and 13-12-1974. The first two estimates were accepted as bona fide by the ITO. However, the estimate filed on 13-12-1974 was scrutinized for discrepancies, particularly the retention of Rs. 43 lakhs as capital expenditure for scientific research, which was significantly higher than the actual expenditure. The Tribunal found no convincing justification for this figure and other projections made for the last two months of the accounting period, concluding that the estimate was not bona fide.

4. Applicability of Legal Precedents and Provisions:

The revenue cited the Supreme Court's decision in Gursahai Seigal v. CIT and the Allahabad High Court's judgment in CIT v. U.P. Tannery Co. (P.) Ltd. to argue that the wide variation between the assessed income and the estimated income should raise an assumption of the estimate being untrue. The assessee, on the other hand, argued that the penalty should not be levied with reference to the total income assessed and the tax thereon, but rather in accordance with Section 273(1)(a)(i)(2). The Tribunal, however, upheld the penalty based on the merits of the case and the evidence presented, rejecting the need for recalculating the penalty under the cited provision due to the lack of prior consideration of this issue.

Conclusion:

The Tribunal concluded that the penalty under Section 273(a) was justified and upheld the quantum of penalty at 15% of the shortfall, as determined by the CIT(A). Both the revenue's and the assessee's appeals were dismissed.