Court upholds cancellation of penalty for tax default, emphasizes assessing authority's discretion

The High Court of Rajasthan upheld the decision of the Commissioner of Income-tax (Appeals) to cancel the penalty imposed under section 140A(3) of the Income Tax Act, 1961, on an assessee for tax payment default. The court rejected the reference application under section 256(2), emphasizing the assessing authority's discretion in penalty imposition based on case-specific considerations, supported by precedent.

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Issues: Whether penalty under section 140A(3) of the Income-tax Act, 1961 was mandatory on default in payment of self-assessment tax, and whether any referable question of law arose from the Tribunal's affirmation of deletion of the penalty.

Analysis: Section 140A(3), as it stood, used the expression "may", which conferred discretion on the Assessing Officer to impose or not to impose penalty depending on the facts and circumstances. The Tribunal had upheld the deletion of penalty on the basis of the material on record and the assessee's inability to pay. The controversy was covered by the earlier decision of the Court recognising that the power under the provision was discretionary and not automatic.

Conclusion: The levy of penalty under section 140A(3) was not mandatory, and no referable question of law arose. The reference application was rejected.

Ratio Decidendi: Where a tax penalty provision employs the word "may", the authority has discretion to impose penalty on consideration of the relevant facts, and a finding deleting such penalty on the evidence does not necessarily give rise to a referable question of law.

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