1979 (2) TMI 44 - HC - Income Tax

Court rules no penalty under Income Tax Act as estimate was deemed bona fide

The High Court ruled in favor of the assessee, holding that no penalty could be imposed under section 273(a) of the Income Tax Act, 1961, as the estimate ... Advance tax estimate - deliberately furnished inaccurate particulars - bona fide estimate - knowledge or reason to believe at time of filing - onus on the revenue to prove dishonest estimate - strict construction of penal provisionAdvance tax estimate - bona fide estimate - knowledge or reason to believe at time of filing - Whether penalty could be levied where the assessee filed an estimate showing a loss based on accounts available at the time and the year later showed a profit - HELD THAT: - The Court held that an estimate filed under the advance-tax provisions must be judged by the material available to the assessee at the time of filing. An estimate is by its nature an approximation and may differ from the final returned income. Where the assessee produced the trial balance up to 31st May, 1960 showing a loss and the estimate was filed on that basis, later profits earned after that date do not, by themselves, establish that the original estimate was known to be untrue. The relevant inquiry is the assessee's state of mind and reasonable expectation at the time of filing; subsequent vicissitudes of business do not automatically convert a bona fide estimate into a dishonest one. Accordingly, the Tribunal's conclusion-based solely on the fact that profit ultimately appeared for the year-was a misapprehension of the record and of the legal standard applicable to advance-tax estimates.Penalty could not be sustained where the estimate was honestly based on the trial balance available when filed and subsequent profits did not prove the estimate to have been knownly untrue at the time of filing.Deliberately furnished inaccurate particulars - onus on the revenue to prove dishonest estimate - strict construction of penal provision - Whether, once the assessee placed on record the material on which the estimate was based, the burden lay on the Revenue to prove that the estimate was untrue or that the assessee had reason to believe it was untrue - HELD THAT: - The Court emphasised that penal provisions must be strictly construed and that s.18A(9) contemplates deliberate conduct. Once the assessee produced the basis of its estimate (the trial balance) before the assessing officer, the burden shifted to the Revenue to show by material that the estimate was untrue or that the assessee had reason to believe it was untrue at the time of filing. The Tribunal failed to consider the trial balance and the explanatory letter detailing the business history, and accordingly erred in upholding penalty without discharging the Revenue's burden.The Revenue could not sustain the penalty in the absence of material showing deliberate or knowing submission of an untrue estimate; the burden to prove such dishonesty was on the department.Final Conclusion: The reference is answered in the negative and in favour of the assessee; the Tribunal erred in upholding the penalty where the estimate was bona fide and based on contemporaneous accounts, and the Revenue failed to prove that the estimate was knowingly untrue. Costs awarded to the assessee. Issues Involved:1. Validity of the penalty imposed u/s 273(a) of the I.T. Act, 1961.2. Whether the assessee knowingly furnished an untrue estimate of income.Summary:1. Validity of the penalty imposed u/s 273(a) of the I.T. Act, 1961:The assessee-company was assessed for the year 1958-59 and was served with a notice u/s 18A(1) of the I.T. Act, 1922, to pay advance tax for the assessment year 1961-62. Instead of paying, the assessee filed an estimate disclosing a loss. The ITO later determined the total income at Rs. 24,617 and issued a show-cause notice for penalty u/s 28(1)(c) read with s. 18A(9) of the I.T. Act, 1922. The ITO, doubting the validity of the notice, issued a fresh notice u/s 274(1) of the I.T. Act, 1961, and subsequently levied a penalty of Rs. 2,242 u/s 273(a) of the I.T. Act, 1961.2. Whether the assessee knowingly furnished an untrue estimate of income:The AAC, in an appeal, held that the penalty could only be attracted if the estimate was dishonest and the onus of proving the guilt rested on the department. The AAC found that the estimate was based on the trial balance as on 31st May, 1960, showing a loss, and thus, the estimate was bona fide. The Tribunal, however, allowed the ITO's appeal, stating that there was no material to show that the assessee believed the whole year would result in a loss.The High Court observed that the term 'estimate' implies approximation and cannot be accurate. The Court emphasized that unless there is material to show that the assessee had reason to believe the estimate was untrue, no penalty could be levied. The Court noted that the trial balance showing a loss was produced before the ITO and the previous history of the business was one of losses. The Tribunal's conclusion that the assessee did not honestly believe there could be a loss for the whole year was found to be erroneous.Conclusion:The High Court answered the referred question in the negative, ruling in favor of the assessee, and held that the Tribunal erred in setting aside the AAC's order. The assessee was awarded the costs of the reference from the revenue.