1982 (12) TMI 104 - AT - Income Tax

Summary

Issues Involved:
1. Levy of penalty under section 140A(3) of the Income-tax Act, 1961.
2. Applicability of the Madras High Court decision in A.M. Sali Maricar v. ITO to the amended provisions of section 140A(3).
3. Justification of penalty with reference to the assessee's plea of sufficient cause.

Detailed Analysis:

1. Levy of penalty under section 140A(3) of the Income-tax Act, 1961:
The primary issue in the appeal concerns the levy of penalty under section 140A(3) for the assessee's failure to pay the tax due based on the income admitted in the return filed. The assessee submitted a return on 29-9-1978 disclosing an income of Rs. 89,560, with a tax payable of Rs. 24,900. The IAC found that this tax amount was not paid by the due date and imposed a penalty calculated at 2% per month for the period of default, amounting to Rs. 6,972. The Commissioner (Appeals) canceled the penalty, holding that the amendment did not affect the applicability of the Madras High Court decision in A.M. Sali Maricar's case, which declared the previous provisions unconstitutional.

2. Applicability of the Madras High Court decision in A.M. Sali Maricar v. ITO to the amended provisions of section 140A(3):
The Tribunal examined whether the amended provisions of section 140A(3) by the Taxation Laws (Amendment) Act, 1975, effective from 1-4-1976, were still affected by the Madras High Court's decision. The Tribunal noted that the High Court had declared the original provisions unconstitutional because they were not compensatory, had no relation to the duration of the delay, and imposed automatic liability without considering the taxpayer's circumstances. The amended provisions introduced significant changes: the tax must be paid before filing the return, the penalty is not automatic but at the discretion of the ITO, and the penalty is related to the unpaid tax and the duration of the default. The Tribunal concluded that these changes meant the new provisions were not the same as the original ones struck down by the High Court. Therefore, the Tribunal held that it did not have the power to declare the new provisions unconstitutional and set aside the Commissioner (Appeals)'s order on this point.

3. Justification of penalty with reference to the assessee's plea of sufficient cause:
The Commissioner (Appeals) had not examined whether the assessee's explanation of lack of liquid resources and non-availability of funds constituted sufficient cause for the default in tax payment. The Tribunal found it necessary to restore the appeal to the Commissioner (Appeals) for fresh disposal, specifically to consider the assessee's plea of sufficient cause. Consequently, the appeal was restored to the Commissioner (Appeals) for a new decision on this matter.

Conclusion:
The appeal was treated as allowed, with the Tribunal setting aside the Commissioner (Appeals)'s order regarding the applicability of the Madras High Court decision to the amended provisions of section 140A(3). The case was remanded to the Commissioner (Appeals) for fresh consideration of the assessee's plea of sufficient cause for non-payment of tax.