Advance-tax estimate penalty cannot survive after partial waiver of interest under the Income-tax Rules

Penalty for an alleged untrue advance-tax estimate could not be sustained where the assessee's interest liability under section 215 was partly waived under rules 40 and 117A of the Income-tax Rules. The Court accepted the Tribunal's view that, once the interest component had been waived on that footing, the authorities lacked competence to uphold penalty under section 273(2)(a) or section 273(2)(aa) on the same basis. The decision was therefore against the Revenue and in favour of the assessee.

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Issues: Whether penalty under section 273(2)(a) or section 273(2)(aa) of the Income-tax Act, 1961 could be sustained where interest under section 215 of the Income-tax Act, 1961 had been partly waived under rules 40 and 117A of the Income-tax Rules, 1962.

Analysis: The assessee had furnished advance tax estimates under section 212, and the penalty imposed for filing an untrue estimate was cancelled by the appellate authority. The Tribunal accepted that once the interest component under section 215 had been waived in part under the Rules, the penalty could not be imposed on the same footing. The Court found no error in the Tribunal's view that the authorities were not competent to sustain the penalty after waiver of interest.

Conclusion: The question was answered against the Revenue and in favour of the assessee. Penalty under section 273(2)(a) or section 273(2)(aa) could not be imposed in the circumstances.

Ratio Decidendi: Where interest liability under section 215 of the Income-tax Act, 1961 is waived under the Income-tax Rules, 1962, penalty for an alleged untrue estimate of advance tax cannot be sustained on the same basis.

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