Reasonable cause defeats compulsory deposit penalty where current share income was unavailable by the due date.

Penalty under section 10 of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 is not automatic for a shortfall in compulsory deposit, because section 10(3) requires consideration of the assessee's explanation and a reasonable opportunity of being heard. The Tribunal further noted that compulsory deposit is to be based on the assessee's estimated current income under sections 3(2) and 4(3)(c). Where the assessee's principal income was share income from firms and that income was not available by the due date, estimating the deposit on the basis of the last returned income was supported by reasonable cause. Penalty was therefore not exigible.

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Issues: Whether penalty under section 10 of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 was automatic for shortfall in compulsory deposit, and whether the assessee had reasonable cause for estimating income on the basis of the earlier returned income.

Analysis: The compulsory deposit was required to be made on the basis of the assessee's estimated current income under sections 3(2) and 4(3)(c) of the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974. The Tribunal held that section 10 did not create an automatic penalty, since section 10(3) contemplates consideration of the assessee's explanation and a reasonable opportunity of being heard. On the facts, the assessee's principal income came from shares in firms, and the relevant share income was not available by the due date for making the deposit. In that situation, the assessee was justified in basing the estimate on the last returned income, and the shortfall was supported by reasonable cause.

Conclusion: Penalty under section 10 was not exigible, and the deletion of penalty was warranted in favour of the assessee.

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