1982 (3) TMI 55 - HC - Income Tax

Madras High Court nullifies Income Tax penalty, stresses evidence evaluation and procedural due process

The Madras High Court quashed a penalty imposed under section 273(b) of the Income Tax Act, 1961 on a petitioner for failing to file an advance tax ... Advance Tax, Penalty Issues:1. Quashing of penalty under section 273(b) of the Income Tax Act, 1961 for failure to file an advance tax estimate in time.Analysis:The judgment delivered by Justice Balasubrahmanyan of the Madras High Court pertains to a writ petition seeking to quash a penalty imposed under section 273(b) of the Income Tax Act, 1961. The petitioner failed to file the advance tax estimate by the specified deadline of 15th December of the relevant year, and instead submitted it six days later. The court highlighted that section 212 lays down the time-limit for filing the estimate without any provision for grace days or condonation of delay. The Income Tax Officer (ITO) levied a penalty of Rs. 7,675 on the petitioner, which was upheld by the Commissioner in revision.The petitioner argued that the penalty action under section 273 is a power coupled with a duty, citing the case of Julius v. Bishop of Oxford. However, the court emphasized that the focus should be on the manner of exercising the power rather than the nature of the power itself. Section 273(b) empowers the ITO to levy a penalty on an assessee who fails to furnish an advance tax estimate without reasonable cause. The court noted that the ITO's understanding of the offense was flawed, as the default must be without reasonable cause, and the burden of proof lies on the officer, not the assessee.The petitioner provided an explanation during the penalty proceedings for the delay in filing the estimate, which the ITO and Commissioner deemed unsatisfactory. The court highlighted the importance of procedural due process under section 274, emphasizing that penalty cannot be levied without hearing the assessee and ensuring natural justice. It clarified that the ITO cannot impose a penalty under section 273 solely based on procedural formalities without complying with the substantive provisions.The court scrutinized the petitioner's explanation, which detailed unforeseen circumstances leading to the delay in filing the estimate. Despite the rise in sales and organizational strain, the petitioner managed to file the estimate within a short period and pay a substantial advance tax. The Commissioner's failure to consider these factors in the penalty decision was deemed a crucial oversight. The court emphasized the need to evaluate evidence in light of section 273, considering whether the default was truly without reasonable cause.Ultimately, the court quashed the penalty imposed on the petitioner, highlighting the inadequacy of the ITO and Commissioner's approach to the penalty action. The judgment underscored the importance of assessing evidence and circumstances to determine the presence of a reasonable cause for the default, rather than adopting a defensive stance towards the assessee.In conclusion, the court's decision to annul the penalty of Rs. 7,675 was based on the failure of the tax authorities to properly evaluate the petitioner's explanation and adhere to the substantive provisions of section 273 of the Income Tax Act, 1961.