High Court dismisses tax case petition on penalty cancellation under Income-tax Act.

The High Court of Madras dismissed the tax case petition where the Department sought a reference on penalty cancellation under section 140A(3) of the Income-tax Act, 1961. The Court held that no question of law arose from the Tribunal's order, and the petition was dismissed.

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Issues: Whether the Tribunal was justified in cancelling the penalty imposed for non-payment of self-assessment tax under section 140A(3) of the Income-tax Act, 1961, on the ground of paucity of funds, and whether any referable question of law arose for a reference under section 256(2) of the Income-tax Act, 1961.

Analysis: The assessee had failed to deposit self-assessment tax along with the return, but the appellate authorities found on facts that the default was due to paucity of funds. The Tribunal, as the final fact-finding authority, accepted this factual finding and held that the penalty under section 140A(3) was not leviable. The court noted that the levy of penalty under section 140A(3) was discretionary and that financial difficulty could constitute a valid ground for non-levy. The additional contention relating to section 249(4) was not argued before the Tribunal and no finding had been recorded on it.

Conclusion: No referable question of law arose from the Tribunal's factual finding cancelling the penalty, and the petition for reference was dismissed. The assessee succeeded on the penalty issue.

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