Income Tax Appellate Tribunal - Jaipur
Assistant Commissioner Of Income-Tax vs Ganganagar Sugar Mills Ltd. on 18 August, 1993
Equivalent citations: [1994]48ITD171(JP)
ORDER
J.K. Verma, Accountant Member
1. The Revenue has filed this appeal against the order of the learned CIT (A) whereby he has cancelled the penalty of Rs. 60,000 imposed by the Assessing Officer under Section 273(2)(a) of the Income-tax Act, 1961.
2. The brief facts of the case are that the assessee is a public limited company which had filed an estimate of advance tax at nil for this assessment year on 8-6-1982. The income of the assessee was assessed by the Assessing Officer at Rs. 23,12,923. He initiated proceedings under Section 273(2)(a) and issued a show-cause notice on 22-11-1985 to the assessee under Section 274 of the Income-tax Act in this regard. The assessee did not furnish any explanation but vide its letter dated 20-12-1985 it requested the Assessing Officer to keep the action in abeyance till decision of the appeal. After giving appeal effect the net income of the assessee was determined at Rs. 12,49,383 vide order under Section 250 dated 12-5-1987. Although the Department went in appeal against that order to the Tribunal the assessee did not challenge the order of the learned CIT (A). The Assessing Officer again issued a show-cause notice on 19-8-1988. The assessee vide its letter dated 6-9-1988 stated that since the appeal before the Tribunal was pending, the proceedings may be kept pending or alternatively an opportunity for personal hearing may be given. Accordingly the Assessing Officer issued another notice dated 9-9-1988 for giving personal hearing as desired. The case was fixed for hearing on 20-9-1988. The assessee sought adjournment for 5-10-1988 but again on that date no explanation was furnished. The Assessing Officer, therefore, proceeded to impose the penalty assuming that the assessee had nothing to say against the proposed penal action. Since the assessee had filed the estimate at nil and since after giving appeal effect the tax payable worked out to Rs. 7,04,337, the Assessing Officer held that the assessee had committed a default under Section 273(2)(a) and since no reasonable cause could be explained by the assessee for furnishing the wrong estimate, he imposed a penalty of Rs. 60,000 which is a little more than 10% of the amount on which penalty under Section 273(2)(a) is computed.
3. When the assessee went in appeal before the CIT (A), it explained that its nil estimate was based on the income for the assessment year 1982-83 and on the basis of claim of the appellant with regard to set off of unabsorbed investment allowance. It was stated that the assessee-company had claimed investment allowance of Rs. 21,32,961 for the assessment year 1982-83 but due to inadequacy of business profits, it could claim investment allowance of Rs. 8,64,456 and the balance amount of Rs. 12,68,505 was carried forward for being set off in the assessment year 1983-84 i.e., the year Under consideration. It was explained that the appellant was, therefore, under a bona fide belief that its income for the year under consideration would be nil and hence the nil estimate was filed. It was further explained that the income declared by the assessee at Rs. 12,05,915 had been increased to Rs. 23,31,424 because of disallowance of sales-tax of Rs. 8,49,395 and other inadmissible items. The learned CIT (A) took the view that in the absence of any concrete material to the contrary indicating that the appellant had intentionally filed an estimate of income which he knew or had reason to believe it to be untrue or incorrect, it appeared that the adverse inference drawn by the Assessing Officer merely on the basis of the assessed income was not justified. He further noted that the assessee by no stretch of imagination could have visualised beforehand that its claim in regard to sales-tax etc., would not be accepted at a later point of time and would result in variation of income. He, therefore, cancelled the penalty.
4. It has been vehemently argued by the learned Departmental Representative before us that the assessee is a very large industrial undertaking and a limited company. He pointed out that the variation in the returned and the assessed income in the case of was not merely on the asis of routine additions by disallowing items of disputed nature or on estimate basis; he submitted that in the case of the company the assessee had made a wrong claim of an amount of Rs. 8,49,395 by way of sales-tax, which it admitted before the learned CIT (A) as per his order dated 25-3-1987, that the liability did not pertain to the year under consideration. He submitted that as a result of this the disallowance of claim of liability to the tune of Rs. 8,49,395 was confirmed by the learned CIT (A) and admittedly the assessee did not even challenge that disallowance before the Tribunal. Shri A.S. Choudhary, learned Counsel for the revenue emphasised that it could be gathered from the computation of income given by the learned Assessing Officer and the decision of the learned CIT (A) that even after completely absorbing the earlier investment allowance and depreciation, as per order under Section 154 dated 19-2-1992, a copy of which has been filed by the learned Counsel for the assessee, assessee's finally assessed income stood at Rs. 7,12,724 and hence there appears no basis to justify the stand of the assessee that it had any reasonable basis for estimating its income at Nil when it filed its estimate on 8-6-1982. In these circumstances he requested that penalty cancelled by the learned CIT (A) be restored.
5. The learned Counsel for the assessee on the other hand vehemently emphasised that the conduct of the assessee was bona fide inasmuch as it had a huge amount of unabsorbed investment allowance for the assessment year 1982-83, which it thought, would wipe out whatever profits the assessee might earn in this year and hence its conduct was bona fide. He also submitted that assessee's estimate was based on assessee's income for the assessment year 1982-83. He also drew our attention to the written submissions filed before the learned CIT (A) and claimed that since the sales-tax had been allowed by the revenue, some amount in the assessment year 1982-83 and balance amount in the assessment year 1984-85, it could not be said that assessee's claim for deduction of sales-tax liability was not bona fide and hence argued that the order of the learned CIT (A) be upheld.
6. We have carefully considered the submissions from both the sides. We find that according to Section 273(2)(a), under which the impugned penalty has been imposed on the assessee, the assessee is supposed to have committed a default, if it had furnished an estimate of advance tax payable by him under Sub-section (1) or (2) or (3) or (5) of Section 209A or under Sub-section (1) or (2) of Section 212 of the Income-tax Act, which he knew or had reason to believe it to be untrue. The provisions of Sub-section(1) and (2) of Section 212 (as they stood at the relevant time) applied to those cases where the assessee had been given a notice to pay advance tax or where he had already paid some instalments of advance tax. Admittedly that was not the situation in the present case when the assessee had filed its estimate on 8-6-1982. Sub-section (1) of Section 209A requires that an assessee who has previously been assessed by way of regular assessment should send a statement of advance tax computed in the manner laid down in Clause (a) or Sub-clause (i) of Clause (d) of Sb-sction (1) of Section 209. According to the provisions of Section 209(1)(a), briefly speaking, the amount of advance tax was to be computed on the basis of assessee's total income of the latest previous year in respect of which he had been assessed by way of regularly assessment which was to be adjusted on the basis of the provisions for computation of advance tax payable by the assessee. There is nothing on record to show that the assessee had computed its income at Nil on the basis of its latest previous year in respect of which it had been assessed by way of regular assessment. As regards assessee's arguments that it had filed its estimate on the basis of its income for the assessment year 1982-53. we may mention that in the first instance no copy of the assessment order for the assessment year 1982-83 has been filed before us. Secondly, even if we try to find out from the record, the combined order of the learned CIT (A) for the assessment years 1982-83 and 1983-84 shows that the appeal for the assessment year 1982-83 was filed before the CIT(A) on 16-4-1985 and hence the assessment order for the assessment year 1982-83 could not have been completed on or before 8-6-1982 when the assessee had filed its estimate of advance tax. Another provision under which the assessee could have filed its estimate of advance tax is under Section 209(1)(d)(i). This clause would apply only in cases where tax under Section 140A had been paid at a higher amount than that which was estimated under Section 209(1)(a) referred to earlier in this paragraph. Admittedly this clause is also not applicable. The other provisions under which estimate of advance tax could be filed are given in Sub-sections (2), (3) and (5) of Section 209A. The abovementioned Sub-sections (2) and (3), however, apply where statement of advance tax has been sent or some instalments of advane tax has been paid already and the assessee intends to reduce the amount of advance tax payable during the year as compared to the amount payable on the basis of statement of advance tax sent or advance tax paid in accordance with provisions of Section 209 already dealt with in this order. Admittedly no such statement of advance tax or estimate of advance tax had been sent by the assessee prior to furnishing of this estimate on 8-6-1982. Sub-section (5) of Section 209A for the default of which also penalty under Section 273(2)(a) can be levied is also not applicable in this case because that sub-section also applies where revised estimate of advance tax is sent, and that is admittedly not the situation in the present case. Thus the situation which emerges from the material on record in this case is that the assessee had filed its estimate at Nil on 8-6-1982 without any basis. Coming down to the situation which emerged later also, we find that admittedly, the assessee had made a provision of Rs. 8,49,395 in its books of account with respect to sales-tax which pertained to assessment years 1972-73 and 1974-75 and in respect of which the sales-tax orders have been served on the assessee on 8-6-1981 which is relevant for the assessment year 1982-83 and hence it is not proper for the learned CIT (A) to observe in his order that by no stretch of imagination the assessee could have visualised that this liability will not be allowed to the assessee when assessment is made at a future point of time because the predecessor of the learned CIT (A) who has made these observations has clearly ritten in his order that so far as assessment year 1983-84 is concerned the liability had not arisen and as such the IAC was right to disallow the entire claim. In our view, if an assessee of the category of the appellant before us, namely, a large scale limited company knowingly makes incorrect entries in its books of account, we cannot approve that its action was bona fide. It is not the case of a petty assessee having no books of account and no proper advice who could argue that he did not know the principles of accountancy and hence he had made wrong claims regarding his expenses-or liabilities.
7. From whatever has been mentioned above it is clear that even if all the arguments of the assessee are accepted, so far as the claim of Rs. 8,49,395 in respect of sales-tax liability debited by the assessee in its account is concerned, it could not be said that on 8-6-1982 when it filed its advance tax estimate it could not know that this liability is not relevant to the assessment year under consideration, namely, assessment year 1983-84. On the other hand, it may even suggest that after the assessee had filed its estimate of advance tax at Ml on 8-6-1982, when it realised that its profits were going sufficiently high it passed those entries in this books of account which would reduce its profits, so far as books of accounts are concerned, although they were not allowable according to principles of accountancy nor any case law on the subject. In this category we may also include assessee's claim of Rs. 9,45,617 and Rs. 20,598 which had been disallowed by the Assessing Officer and which had been upheld by the learned CIT (A) in para 10 of his order dated 25-3-1987 in the quantum appeals with the observation that these claims could not be allowed in the assessment year 1983-84 as the obligation to pay had arisen in the subsequent year. As already mentioned by us the assessee had not challenged that order of the learned CIT (A) before the Tribunal and hence so far as the points decided against the assessee are concerned, they had become final by that order. This would indicate that there was no reasonable cause or basis with the assessee for passing those entries in the accounts for the assessment year 1983-84 and the assessee knew it, or at least it failed to give any explanation in this regard before the Assessing Officer who gave the assessee several opportunities to explain its case.
8. We may now deal with the case law cited by the learned Counsel for the assessee, which too, in our opinion, does not help the assessee. The first case cited by him is that of Jaipur Metals & Electricals Ltd. v. CIT [1974] 97 ITR 721 (Raj.). This was a decision with reference to Section 18A(9) of the Income-tax Act, 1922. Their Lordships had laid down that the knowledge or reason to believe that the estimate is untrue must be contemporaneous with the furnishing of the estimate and that the penalty should not be levied if it turns out to be an incorrect estimate due to some Unexpected income later. But on facts it was found in that case that the assessee had filed its estimates at Rs. 50,000 each on 30th September and 14th December and that towards the end of December it received Rs. 40,218 from an unexpected source. It was in that context that the abovementioned observations were made by the Hon'ble High Court and it was held that by subsequent events the originally honest "estimates would not cease to be honest. As we have mentioned earlier in the instant case, there was no such income from unexpected source. On the other hand, the assessee had debited those expenses in its account books for this assessment year which it knew or had reason to believe, were not debitable in the previous year for the assessment year under consideration. Hence, in this case it cannot be said that when the assessee filed its estimate on 8-6-1982, its action could be said to be honest or bona flde.
9. The next case is that of CIT v. Birla Cotton Spg. and Wvg. Mills Ltd. (1985] 155 ITR 448 (Cal.). In this case also the assessee had filed the estimate on the basis of materials of previous year and material available at the time when estimate was filed and the trend in increase in profits in ginning and pressing factories was not available when estimate was filed and hence the penalty imposed under Section 273(a) for default under Section 212 (for the, assessment year 1966-67) was cancelled. Still, while canceling the penalty the Hon'ble Court had observed that where there is disparity and the disparity is enormous, mere self-serving statement of the assessee that he thought that his estimate represented a probable income of the year would not be sufficient to escape the liability under Section 273 of the Act. He has to justify the basis of his estimate. The estimate must be an honest estimate based on the accounts which are available with the assessee on the date of estimate. As mentioned earlier, in the instant case the assessee failed to explain any basis for filing its estimate at Nil in spite of repeated opportunities given by the Assessing Officer and even subsequently no material has been brought on record to establish that the difference in the assessed income as compared to the estimate was on account of some unexpected or unforeseen reason.
10. The third case cited by the learned Counsel is that of Southern Publications (P.) Ltd. v. CIT [1982] 137 ITR 822 (Mad.). This case deals with a situation where there was delay in filing of estimate of advance tax and it was held that mere rejection of explanation would not justify levy of penalty. As we have seen, the case before us does not involve the question of delay in filing of estimate nor has the assessee furnished any explanation before the Assessing Officer which was rejected as unsatisfactory and hence this case is not relevant to the issue before us.
11. The fourth case cited by learned Counsel is that of CIT v. National Insurance Co. Ltd. [1989] 179 ITR 101 (Cal.). In that case the assessee had filed a detailed letter showing that the disparity between the total income estimated and that assessed arose because of disallowance of losses and expenditure and the Tribunal, after examining the letter, considered the reasons given therein as proper and cancelled the penalty. We may mention that in the National Insurance Co.'s case, the ITO had issued a notice under Section 210 of the Act which was based on assessee's assessed income for the assessment year 1963-64 at Rs. 5,88,737 whereas as a result of appellate order the income had been reduced to Rs. 4,38,480 and thus it was held that even the basis on which the ITO had issued the advance tax notice was not correct. On the other hand, the basis given by the assessee for filing its estimate of advance tax was accepted as bonajide inasmuch as whereas the audited profit and-loss account of the assessee showed profit of Rs. 90,889 and the return for the assessment year 1969-70 was filed showing a loss of Rs. 4,25,436, the assessee had filed an estimate of advance tax on an estimated income of Rs. 1,83,000 and had paid advance tax on that basis. In the case before us the situation is that the assessee filed an estimate of income at Nil. Even as per its computation of income for the accountingyear ended on 30-6-1982, which is for the assessment year 1983-84 under consideration before us, the assessee's business income worked out at Rs. 12,05,915. This computation shows that the brought forward investment allowance set off was claimed to the extent of Rs. 12,05,915 when there is no basis given by the assessee how this deduction was claimed because as per the assessment order this brought forward investment allowance was only Rs. 7,09,692, which was increased as per appellate order to only Rs. 10,50,920 (as per copy of order under Section 154 dated 19-2-1992 filed by the assessee in the paper book before us). Moreover, we may repeat that in the instant case no explanation, whatsoever, much less any evidence was filed by the assessee to justify its filing of estimate at Nil in spite of repeated opportunities having been given by the Assessing Officer. The learned Counsel for the assessee had also vehemently argued that there was no mala fide or mens rea on the part of the assessee in filing its estimate at Nil. In this regard we may mention that the Hon'ble Supreme Court in the case of Gujarat Travancore Agency v. OT [1989] 177 ITR 455 had referred to Corpus Juris Secundum to the effect that a penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws. On this basis the Hon'ble Supreme Court laid down that unless there is something in the language of the statute indicating the need to establish the element of metis rea, it is generally sufficient to prove that a default in complying with the statute has occurred. We think that there is nothing in the language of Section 273. (2) (a) which requires that mens rea must be proved before penalty can be levied under that provision. In our opinion, in the penalty proceedings under Section 273(2)(a) if there is a primafacie case to show that there is a default inasmuch as the estimate of advance tax filed by the assessee cannot be justified on the basis of provisions of Sub-section (1), (2), (3) or (5) of Section 209A or under sub-Section (1) or (2) of Section 212 of the Income-tax Act, and the Assessing Officer issues a notice under Section 274 to the assessee to show cause as to why the penalty should not be imposed for filing a wrong estimate of advance tax, it is obligatory on the assessee to show and explain that there was a reasonable cause for filing the estimate of advance tax on the figure as filed by it. If the assessee fails to give any explanation, the Assessing Officer would be justified in presuming that there was no reasonable cause with the assessee for filing the wrong estimate of advance tax. In such circumstances the Assessing Officer would be justified in imposing the penalty Under-Section 3(2)(a) on the assessee by mentioning in the order that since there is a huge discrepancy between the estimate of advance tax filed by the assessee and its assessed income and the difference is on account of those additions or disallowances which were claimed by the assessee without any legal justification, or justification on any principles of accountancy, the assessee could be penalised for having filed a wrong estimate of advance tax which it knew or had reason to believe to be untrue. In addition to that in the instant case the Assessing Officer has pointed out and we agreed with him that the assessee has failed to give any reasonable justification for claiming deductions of sales-tax liability in this assessment year with regard to liability which pertained to either past or future years and hence assessee's conduct could not be said to be bona fide.
12. Taking all these facts into account, we hold that the learned CIT (A) was not justified in cancelling the penalty imposed by the Assessing Officer. We, therefore, reverse his order and restore the penalty imposed by the Assessing Officer. The appeal filed by the revenue is allowed.