Compulsory deposit penalty fails where nil income estimate shows no statutory liability and no deposit direction was issued.

Penalty under the Compulsory Deposit Scheme could not be sustained where the assessee filed a nil estimate of current income and no direction was issued by the Assessing Officer requiring compulsory deposit on the basis of returned or assessed income. On those facts, the statutory liability to make a deposit did not arise, so the foundation for penalty under section 10 was absent. The filing of a nil estimate also constituted reasonable cause against penal action. The penalty was therefore deleted, and the issue was answered in favour of the assessee.

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Issues: Whether penalty under section 10 of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 was leviable when the assessee had filed a nil estimate and no direction had been issued for compulsory deposit.

Analysis: Liability to make a compulsory deposit under section 4 of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 depends on the assessee's current income. Where the assessee had filed an estimate under section 209A(2) of the Income-tax Act, 1961 showing nil income, the current income, as considered by the Tribunal, was nil for the purpose of section 4(3)(b). In the absence of any direction by the Assessing Officer under section 6 of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 requiring a deposit on the basis of the returned or assessed income, the foundation for invoking section 10 did not exist. The filing of a nil estimate also furnished reasonable cause against penal action.

Conclusion: The penalty was not exigible and its cancellation was ; the answer to the referred question is in favour of the assessee and against the Revenue.

Final Conclusion: The reference was answered by upholding deletion of the penalty, as the statutory precondition for penal liability under the compulsory deposit scheme was not satisfied.

Ratio Decidendi: Penalty for non-payment of compulsory deposit cannot be imposed unless the assessee is liable to make such deposit under the scheme, and a nil estimate filed under the income-tax return mechanism may negate that liability absent a further statutory direction.

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