1979 (1) TMI 154 - AT - Income Tax

Summary

Issues Involved:
1. Imposition of penalty under Section 10 of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974.
2. Adequacy of reasons for delay in making compulsory deposit.
3. Interpretation of statutory provisions regarding penalty imposition.

Detailed Analysis:

1. Imposition of Penalty under Section 10 of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974:
The primary issue was whether the Income Tax Officer (ITO) was correct in imposing a penalty on the assessee for failing to make a compulsory deposit within the stipulated time. The assessee was required to make a deposit of Rs. 2,430 by March 15 but made the payment on March 29. The ITO levied a penalty of Rs. 607, stating that the explanation provided by the assessee was not convincing and there was a clear default. The Appellate Assistant Commissioner (AAC) upheld this penalty, stating there was no reasonable cause for the delay.

2. Adequacy of Reasons for Delay in Making Compulsory Deposit:
The assessee argued that there was a real paucity of funds due to the need to pay a substantial amount as the last installment of advance tax for family members. This drained the liquid resources, causing a delay in making the compulsory deposit. The assessee contended that the delay was only a fortnight and the payment was made within the financial year. The Tribunal had to consider whether this explanation constituted a "reasonable cause" under the law.

3. Interpretation of Statutory Provisions Regarding Penalty Imposition:
The learned Departmental Representative argued that Section 10 of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, mandated the imposition of a penalty without discretion. However, the Tribunal referred to the decision of the Calcutta High Court in CIT, West Bengal vs. Wesman Engineering Co. (P) Ltd., which emphasized that the opportunity of being heard would be illusory if the penalty was automatic. The Tribunal also considered the Kerala High Court's judgment in E.K. Varghese vs. ITO, which highlighted that the imposition of penalty should consider whether the default was deliberate or due to honest and genuine belief.

Conclusion:
The Tribunal concluded that Section 10 of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974, did not exclude the requirement of mens rea (guilty mind) for imposing a penalty. The Tribunal emphasized that penalties should not be imposed merely because it is lawful to do so, especially when the default was technical or venial, or due to a bona fide belief. The Tribunal referenced the Supreme Court's decisions in Hindustan Steel Ltd. vs. State of Orissa and C.W.T. vs. Kripashanker Dayashanker Worah, which supported a reasonable and just interpretation of tax laws.

The Tribunal held that in the present case, the delay was minor and caused by genuine financial difficulties, thus constituting a reasonable cause. Therefore, the penalty imposed was not justified. The appeal was allowed, and the penalty was cancelled.