1979 (11) TMI 63 - HC - Income Tax

High Court upholds Tribunal decision, partners not penalized for firm's errors under Income-tax Act

The High Court ruled in favor of the assessees, upholding the Tribunal's decisions. It held that the assessee did not file an untrue estimate of income ... Advance Tax, Burden Of Proof Issues Involved:1. Whether the assessee filed an estimate of income u/s 212 of the Income-tax Act, 1961, which he knew or had reason to believe to be untrue.2. Whether penalty can be imposed on partners when a firm has been penalized u/s 273(a) of the Income-tax Act, 1961.3. Whether a wrong estimate of income filed by a firm u/s 212 constitutes a reasonable cause for the partner regarding penalty u/s 273(a).4. Whether non-filing of an estimate u/s 212(3A) by the firm constitutes a reasonable cause for the partner under section 273(c).5. Whether the Tribunal was correct in deleting the penalty imposed u/s 273(a).Summary:Issue 1: Assessee's Estimate of Income u/s 212The Tribunal held that the assessee cannot be said to have filed an estimate of his income u/s 212 of the Income-tax Act, 1961, which he knew or had reason to believe to be untrue. The assessee's main source of income was the share from the firm, and he filed his estimate based on the firm's estimate. The Tribunal found no evidence of dishonest intention or mens rea on the part of the assessee.Issue 2: Penalty on Partners when Firm Penalized u/s 273(a)The Tribunal held that when a firm has been penalized u/s 273(a) of the Income-tax Act, 1961, no penalty can be imposed on its partners for the same default. This is to avoid double punishment for the same offense, as a firm is not a legal person but an assessable unit for tax purposes.Issue 3: Wrong Estimate by Firm as Reasonable Cause for PartnerThe Tribunal found that a wrong estimate of income filed by a firm u/s 212 would constitute a reasonable cause for the partner regarding the levy of penalty u/s 273(a). The partner's estimate was based on the firm's estimate, and there was no evidence of deliberate inaccuracy.Issue 4: Non-filing of Estimate u/s 212(3A) by Firm as Reasonable Cause for PartnerThe Tribunal held that non-filing of an estimate u/s 212(3A) by the firm constitutes a reasonable cause for the partner under section 273(c). The partner depended on the firm's estimate, and the firm's accounts were not finalized by the due date.Issue 5: Deletion of Penalty u/s 273(a)The Tribunal was correct in deleting the penalty imposed u/s 273(a) of the Income-tax Act, 1961. The Tribunal relied on the decisions in Venkateswara Power Rolling Mills v. CIT and Addl. CIT v. Smt. Triveni Devi, which supported the view that the partner's reliance on the firm's estimate was reasonable.Conclusion:The High Court answered all the questions in favor of the assessees and against the department, upholding the Tribunal's decisions. The parties were left to bear their own costs.