1980 (1) TMI 139 - AT - Income Tax

Summary

Issues:
Levy of penalty under section 140A(3) of the Income Tax Act, 1961 for the assessment year 1976-77.

Detailed Analysis:

The appeal before the Appellate Tribunal ITAT Madras-B centered on the disputed confirmation of a penalty of Rs. 8,445 imposed by the Income Tax Officer (ITO) under section 140A(3) of the Income Tax Act, 1961 for the assessment year 1976-77. The assessee had filed a return of income admitting Rs. 93,409 on 7th December 1976, but the assessment was completed on 13th July 1977 on a total income of Rs. 97,000. The ITO observed that the assessee did not comply with the provisions of section 140A as the tax due of Rs. 33,936 was not paid at the time of filing the return. A show-cause notice was issued, and the assessee explained that the default was due to lack of funds. The ITO rejected this explanation as unreasonable and levied the penalty, which was confirmed by the Appellate Authority for Advance Rulings (AAC).

During the hearing, it was established that the assessee had no other source of income apart from share income from firms. The assessee should have paid a tax of Rs. 33,936 as per the return filed, but financial constraints prevented compliance. The ITO did not dispute the lack of funds but deemed the explanation unreasonable. The AAC also disregarded the financial difficulty as a valid reason for non-compliance with section 140A. However, the Tribunal found that penalizing the default in the absence of funds was unjustified, especially when the assessee had applied for and been granted permission to pay the tax in installments by the Income Tax Appellate Commissioner (IAC). Compliance with the IAC's directions demonstrated the assessee's inability to pay the tax in a lump sum due to financial constraints, justifying the default.

Given the circumstances, the Tribunal concluded that there was a reasonable cause for the default, and thus, no justification for the penalty under section 140A(3). Consequently, the penalty was canceled, and the appeal was allowed. The Tribunal did not delve into the legal contentions regarding the constitutional validity of section 140A(3) as decided by the Madras High Court in a previous case, as the cancellation of the penalty rendered it unnecessary to address those arguments.