1987 (7) TMI 162 - AT - Income Tax

Summary

Issues:
1. Whether penalty under section 140A (3) for non-payment of self-assessment tax is justified when the assessee claims lack of funds as a reasonable cause for non-payment.
2. Whether the discretion to levy penalty under section 140A (3) should be exercised fairly and reasonably by the Income Tax Officer.
3. Comparison of similar cases where penalties under section 140A (3) were cancelled due to financial difficulties faced by the assessee.

Detailed Analysis:
1. The judgment involves a case where the assessee failed to pay self-assessment tax amounting to Rs. 9,172 at the time of filing the return, leading to a penalty of Rs. 4,914 under section 140A (3) of the Income Tax Act. The Appellate Assistant Commissioner upheld the penalty, stating that it was the assessee's obligation to pay income tax first before other liabilities. The assessee contended that lack of funds prevented the payment of self-assessment tax, presenting a balance sheet showing minimal cash and bank balances. The Tribunal considered the explanation provided by the assessee and found the lack of funds to be a bona fide reason for non-payment, citing precedents where penalties were cancelled for similar reasons.

2. The Tribunal emphasized that the Income Tax Officer's discretion to levy penalties under section 140A (3) must be exercised fairly and reasonably. It noted that lack of sufficient cash balance can constitute a reasonable cause for non-payment of self-assessment tax. Citing the case law of Addl. CIT v. Sarvaraya Textiles Ltd., the Tribunal highlighted that the discretion to levy penalties should only be used in appropriate cases and not as a blanket measure for every instance of tax payment delay. The Tribunal referenced another case, Addl. CIT v. Free Wheels India Ltd., where penalties were cancelled due to financial difficulties faced by the assessee, supporting the notion that lack of liquid funds can be a valid reason for non-payment of self-assessment tax.

3. In comparing similar cases, the Tribunal found that in instances where financial constraints prevented the timely payment of self-assessment tax, penalties under section 140A (3) were cancelled by the Tribunal and upheld by the respective High Courts. The Tribunal concluded that in the present case, the lack of funds was a reasonable cause for non-payment of self-assessment tax, leading to the cancellation of the penalty levied by the Income Tax Officer. Consequently, the Tribunal allowed the appeal, ruling in favor of the assessee based on the principles of fairness and reasonableness in exercising discretion for penalty imposition under section 140A (3).