Court rules penalty not automatic for failure to pay tax on self-assessment within time

The High Court of Punjab and Haryana ruled in favor of the assessee in a case involving the failure to pay tax on self-assessment within the prescribed period. The court held that the levy of penalty under section 140A(3) is not automatic and that the Income-tax Officer has discretion in imposing it. The Income-tax Appellate Tribunal deleted the penalty as the assessee had paid the entire tax, leading to the court concluding that the penalty was not justified.

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Issues: Whether penalty under section 140A(3) of the Income-tax Act, 1961 is automatic on default in payment of self-assessment tax, and whether the Tribunal was justified in deleting the penalty.

Analysis: The provision contains a proviso requiring reasonable opportunity before levy of penalty, which is inconsistent with the contention that penalty follows automatically on every default. The words that the assessee "shall be liable to pay" indicate only that the Income-tax Officer is empowered to direct payment of such penalty as may be considered proper, and not that penalty must invariably be imposed in every case. The statutory scheme therefore leaves room for discretion in deciding whether penalty should be levied at all.

Conclusion: Penalty under section 140A(3) is not automatic, and the question was answered against the Revenue.

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