Advance tax and penalty under section 273(a): revised estimate payment accepted in assessment cannot support penalty without proof of false estimate.

Advance tax paid on a revised estimate before the end of the relevant financial year, and accepted as advance tax in assessment proceedings, must be treated as tax actually paid when applying section 273(a) of the Income-tax Act, 1961. Penalty under that provision depends on a shortfall in the prescribed tax payment and on a finding that the assessee's estimate was knowingly untrue or believed to be untrue. In the absence of such a finding, and where the Department had accepted the payment as advance tax in assessment, penalty could not be sustained. Ambiguity in a penal provision was resolved in favour of the assessee.

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Issues: Whether advance tax paid pursuant to a revised estimate filed belatedly but within the relevant financial year could be treated as tax actually paid for computing penalty under section 273(a) of the Income-tax Act, 1961, and whether penalty could be imposed in the absence of a finding that the original estimate was knowingly untrue.

Analysis: Penalty under section 273(a) is attracted only where the tax actually paid during the financial year falls short of the prescribed percentage of the assessed tax and the assessee furnished an estimate which he knew or had reason to believe to be untrue. The amount paid on the revised estimate was accepted by the Department as advance tax in the assessment proceedings and was paid before the end of the financial year. The Court held that the Department could not take one view of the payment in assessment proceedings and another in penalty proceedings. It further held that there was no finding by the Income-tax Officer that the original estimate was untrue to the knowledge or reasonable belief of the assessee. In a penal provision, any ambiguity must be resolved in favour of the assessee.

Conclusion: The payment made on the revised estimate had to be taken into account as advance tax for the purpose of section 273(a), and the penalty was not exigible. The reference was answered in favour of the assessee and against the Revenue.

Ratio Decidendi: Advance tax paid before the end of the relevant financial year and accepted as such in assessment proceedings must also be treated as advance tax for penalty proceedings under section 273(a), and penalty cannot be imposed absent a finding that the original estimate was furnished knowingly untruly.

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