Calcutta H.C : Whether, on the facts and in the circumstances of the case, the Tribunal had ignored relevant materials and/or had relied on irrelevant materials in holding that the assessee did not know or had no reason to believe that the estimate of the advance tax furnished by it was untrue ?

Counsel Appeared

A.C. Moitra, for the Revenue : R.N. Saha, for the Assessee

AJIT K. SENGUPTA J. :

At the instance of the CIT, West Bengal-IX, the following questions of law have been referred to this Court under s. 256(1) of the IT Act, 1961, for the asst. yr. 1969-70 :

“(1) Whether, on the facts and in the circumstances of the case, the Tribunal had ignored relevant materials and/or had relied on irrelevant materials in holding that the assessee did not know or had no reason to believe that the estimate of the advance tax furnished by it was untrue ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law in holding that no penalty could be imposed on the assessee under s. 273(a) of the IT Act, 1961 ?”

The facts relating to this reference are that the ITO issued notice under s. 210 of the 1961 Act calling upon the assessee to pay advance tax of Rs. 2,55,920. The assessee, however, filed its own estimate on May 24, 1968, as permitted under s. 212 of the 1961 Act, wherein the total income estimated by the assessee was shown at Rs. 1,83,000 and the advance tax payable worked out to Rs. 35,750. The assessee filed its return of income for the year under appeal showing a loss of Rs. 4,25,636. The ITO, however, completed the assessment under s. 143(3) of the 1961 Act on a total income of Rs. 4,52,817 which was subsequently reduced to Rs. 2,02,450 in appeals preferred by the assessee before the AAC as well as before the Tribunal. The tax payable as per the finally assessed income worked out to Rs. 1,11,348. To the notice issued by the ITO to show cause why penalty should not be imposed under s. 273 (a) of the 1961 Act, the assessee stated in its letter dated 15/19 October, 1973, that the demand raised by the ITO under s. 210 of the 1961 Act was based on the total income of Rs. 5,88,737 for the asst. yr. 1963-64 which was reduced in appeal preferred by the assessee before the Appellate Asstt. CIT. It was further stated that as the assessee was anticipating carry forward of losses amounting to Rs. 5,16,325 in respect of the asst. yrs. 1967-68 and 1968-69, it filed its return of income for the year under appeal showing a loss of Rs. 4,25,436. However, since the assessment for the asst. yrs. 1967-68 and 1968-69 were completed after the assessee had filed his estimate on May 24, 1968, discrepancy arose between the estimate submitted by the assessee and the total income finally determined by the ITO for the year under appeal. Relying on the decision of the Supreme Court in the case of Hindustan Steel Ltd. (1972) 83 ITR 26, the assessee urged that the penalty proceedings initiated by the ITO should be dropped. The ITO, however, was not satisfied with the explanation submitted by the assessee and imposed a penalty of Rs. 35,000 under s. 273 (a) of the 1961 Act.

In appeal, the assessee reiterated its submissions which were made before the ITO and urged that the order made by theITO under s. 273(a) of the Act should be cancelled. The AAC accepted the submissions made on behalf of the assessee and cancelled the penalty imposed by the ITO under s. 273(a) of the 1961 Act by his order dated March 11, 1974.

Being aggrieved by the said order, the Revenue filed an appeal before the Tribunal. The Tribunal, on a consideration of the facts and circumstances of the case, dismissed the appeal. Sec. 273(a) provides that if the ITO, in the course of any proceedings in connection with the regular assessment, is satisfied that any assessee has furnished under section. 212 an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue, in that event, he may direct that such person shall pay, in addition to the amount of tax, if any, payable by him, by way of penalty a sum specified in the said section.

7. The question, therefore, is whether the assessee knew that the estimate was false or there were circumstances justifying the conclusion that he had reasonably believed that the estimate which was being filed was not true. The assessee, after the show cause notice was issued by the ITO asking the assessee to explain why penalty should not be imposed under s. 273(a) in his letter dated 15/19th October, 1973, explained the circumstances in which the estimate was filed. In the said letter, it has been, inter alia, stated by the assessee as follows : “By an order dated May 15, 1968, under s. 210 of IT Act, 1961, our liability for advance tax in respect of the asst. yr. 1969- 70 was determined at Rs. 2,55,920. The notice of demand under s. 156 issued on the same date required us to pay the same in four equal instalments during the financial year 1968-69. In an estimate under s. 212, we, however, declared our net total income assessable for 1969-70 at Rs. 1,83,000 and tax payable thereon in advance at Rs.35,750 which was duly paid.

The demand of Rs. 2,55,920 was raised on the basis of the total income of Rs. 5,88,735 assessed for the year 1963-64 but as a result of appeal before the AAC, such total income stands reduced to Rs. 4,38,480 with a resultant demand of Rs. 2,30,266. It will thus be appreciated that the demand under s. 210 raised for the asst. yr. 1969-70 was based on a total income which had not been correctly computed and, as such, the said demand could not also be regarded as correct.

Our audited P&L a/c for the year ended December 31, 1968, disclosed a profit of Rs. 90,889 and in the return furnished for the relevant assessment year, viz., 1969-70, a loss of Rs. 4,25,436 was disclosed. This loss was determined after adjustment of the following losses as reflected in our accounts

The assessments for 196-7-68 and 1968-69 were completed on November 30, 1971, and March 10, 1972, respectively. It is true that we were assessed for 1969-70 on a total income of Rs. 4,52,817 which stands reduced to Rs. 4,38,480 in consequence of the order of the AAC in appeal. Our appeal before the Tribunal is yet pending. There has apparently been a disparity between the estimated total income and the tax payable thereon in advance and that determined on regular assessment. The disparity between the total income estimated and that assessed may be attributed to the following : (i) Non-availability of the benefit of the losses incurred during the year 1966-67. (ii) Disallowance of expenses to the extent of Rs. 3,80,357.

10 .We had furnished the estimate on May 24, 1968, while the assessments for the asst. yrs. 1967-68 and 1968-69 were completed on November 30, 1971, and March 10, 1972, respectively; while submitting the estimate in 1968, we could not, therefore, ignore the losses incurred by us during the relevant previous years 1966 and 1967 as it was not possible for us to anticipate at that time that on completion of the relevant assessments after three or four years, the losses will be converted into profits and that the benefit of losses actually suffered would not be available. Similarly, it could not be foreseen that disallowance would be made out of expenses actually incurred. Further, we had furnished the estimate after expiry of about five months of the relevant previous year from its beginning. It was not possible for us to anticipate the result of business during the remaining seven months precisely.”

The Tribunal considered the reasons given in the said letter. In our view, the facts mentioned by the assessee in the said letter would clearly establish that there was no mala fide intention in not submitting the correct estimate. On an appreciation of the said explanation given by the assessee, the Tribunal came to a finding that in this case no penalty should be imposed. We are of the view that the Tribunal came to a correct conclusion. It has not been brought to our attention by Mr. Moitra, for the Revenue, what relevant materials had been ignored by the Tribunal or what irrelevant materials have been considered by the Tribunal in coming to its finding. The material as we have indicated is the letter dated 15/19th October, 1973.

In that view of the matter, both the questions are answered in the negative and in favour of the assessee. There will be no order as to costs.

It is stated that General Insurance has merged with the NAC. Let the cause title of the paper book, statement of the case and the records be corrected or amended accordingly. Leave is given to file power within two weeks from date.

All parties including the Department to act on the signed copy of the operative portion of this judgment on the usual undertaking.

J. N. HORE J.

I agree.

[Citation : 179 ITR 101]