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 should be levied if tax was paid before the penalty hearing. The court ruled in favor of the assessee, citing the binding nature of CBDT Circulars on tax officers. The judgment was unanimous, and a copy was to be sent to the Income-tax Appellate Tribunal under section 260 of the Income-tax Act, 1961.

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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.

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