1982 (11) TMI 15 - HC - Income Tax

Tax Penalty Discretion Emphasized: Assessee's Right to be Heard

Commissioner Of Income-Tax, Tamil Nadu I Versus Mysore Fertiliser Company

The High Court held that the penalty under section 140A(3) of the Income Tax Act is not automatic but subject to the Income Tax Officer's discretion. The ... Penalty, Self-Assessment Issues involved: Assessment of penalty u/s 140A(3) of the Income Tax Act, 1961 for failure to pay self-assessed tax within the prescribed time period.Summary:For the assessment year 1965-66, the Mysore Fertiliser Company was found liable for a tax amount after giving credit to advance tax paid. The company did not pay the self-assessed tax within the specified time, leading to a penalty imposition by the Income Tax Officer (ITO). The penalty was later canceled by the Appellate Assistant Commissioner (AAC) citing financial difficulties faced by the company. The Department appealed to the Tribunal, which upheld the AAC's decision based on the company's financial position and lack of liquid resources. The matter was then brought before the High Court on questions of law regarding the Tribunal's findings.The High Court analyzed the provisions of section 140A(3) and emphasized that the penalty imposition is not automatic but subject to the discretion of the ITO. The court highlighted that the assessee must be given a reasonable opportunity to be heard before any penalty is levied. Referring to previous High Court judgments, the court rejected the argument that the penalty is mandatory in case of default, emphasizing the importance of considering the assessee's explanation. The court concluded that the ITO has the discretion to decide on the penalty amount and whether a penalty should be imposed at all.Regarding the Tribunal's finding on the company's reasonable cause for the tax payment delay, the court respected the Tribunal's decision as the highest fact-finding body. The court held that unless the Tribunal's decision is based on no evidence or is non-judicial, it should be considered final. In this case, the court found the Tribunal's conclusion reasonable based on the company's financial circumstances, leading to a ruling in favor of the assessee and against the Revenue.In conclusion, the High Court answered the questions of law against the Revenue, affirming the Tribunal's decision and emphasizing the importance of considering the assessee's explanation before imposing penalties. The assessee was awarded costs, including counsel's fee.