1986 (4) TMI 43 - HC - Income Tax

Tribunal cancels penalty for late tax payment based on CBDT Circular, assessee wins case

The Tribunal was justified in canceling the penalty imposed under section 221 for non-payment of advance tax, as the CBDT Circular indicated no penalty ... Penalty under section 221 - advance tax under section 212(3A) - Circulars of the Central Board of Direct Taxes binding on officers executing the Act - declaratory/explanatory statute retrospective effectPenalty under section 221 - advance tax under section 212(3A) - Circulars of the Central Board of Direct Taxes binding on officers executing the Act - Cancellation of penalty imposed under section 221 for non-payment of advance tax assessed on the basis of an estimate filed under section 212(3A) after the tax was subsequently paid on filing of the regular return. - HELD THAT: - The assessee had failed to pay the advance tax by the due date under section 212(3A) but paid the entire tax when filing the regular return before imposition of penalty. Although the Explanation introduced by Parliament in 1975 declares that payment of tax before levy of penalty does not absolve liability to penalty, the Central Board of Direct Taxes' Circular No. 18-D (dated 15-7-1963) directs that no penalty should be levied if, at the time of the hearing under the proviso to section 221(1), the assessee proves that the tax has already been paid. The Court recognised the binding character of such Board circulars on officers executing the Act as settled by the decisions of the Supreme Court in Navnit Lal C. Javeri and subsequent authorities. Applying that principle, the Court held that the Income-tax authorities were bound to give effect to the Board's circular and, since the tax had been paid before the hearing, imposition of penalty was not proper. While the Court examined the retrospective/declaratory character of the later Explanation, it concluded that the earlier Board circular, being binding on officers, justified the Tribunal's cancellation of the penalty in the facts of this case.Tribunal rightly cancelled the penalty imposed under section 221; cancellation upheld.Final Conclusion: The reference is answered in the affirmative in favour of the assessee for assessment year 1971-72: the Tribunal was justified in cancelling the penalty under section 221 because the CBDT circular, binding on officers executing the Act, precluded levy of penalty where tax had been paid before the hearing. Issues Involved:1. Justification of the Tribunal in cancelling the penalty imposed u/s 221 for failure to pay tax based on the estimate filed u/s 212(3A) after the tax had been paid on the basis of the regular return.Summary:1. Justification of the Tribunal in Cancelling the Penalty:The core issue was whether the Tribunal was justified in cancelling the penalty imposed u/s 221 for non-payment of advance tax as per the estimate filed u/s 212(3A) after the tax had been paid based on the regular return. The assessee filed an estimate u/s 212(3A) and was obligated to pay advance tax by March 15, 1971, which was not paid. However, the entire tax was paid on February 16, 1972, upon filing the regular return. The Income-tax Officer imposed a penalty of Rs. 1,500 for non-payment of advance tax, which was confirmed by the Appellate Assistant Commissioner but cancelled by the Tribunal.2. Default and Penalty u/s 221:Section 221 states that an assessee in default in making payment of tax shall be liable to a penalty. The Explanation added in 1975 clarified that an assessee does not cease to be liable to any penalty merely because the tax was paid before the levy of such penalty. This Explanation was deemed to apply retrospectively, affirming that the assessee was in default for not paying the advance tax by the due date, despite paying the tax before the penalty was imposed.3. CBDT Circular and Its Binding Nature:The assessee relied on a CBDT Circular from 1963, which stated that no penalty should be levied if the tax was paid before the hearing for the penalty. The court acknowledged that circulars issued by the CBDT are binding on the officers executing the Act, even if they deviate from the provisions of the Act. This principle was supported by precedents from the Supreme Court, including Navnit Lal C. Javeri v. K. K. Sen and Ellerman Lines Ltd. v. CIT.4. Conclusion:The Tribunal was justified in cancelling the penalty imposed u/s 221, as the CBDT Circular, which was binding on the officers, indicated that no penalty should be levied if the tax was paid before the hearing. The question referred to the court was answered in the affirmative, in favor of the assessee and against the Revenue. Order:The judgment was agreed upon by both judges, and a copy was ordered to be transmitted to the Income-tax Appellate Tribunal u/s 260 of the Income-tax Act, 1961.