Self-assessment tax penalty was cancelled where non-payment was only a technical default linked to a firm refund share.

Penalty for failure to pay full self-assessment tax was held unjustified where the unpaid tax was linked to a refund due to a partnership firm in which the assessee held a share. The assessee's share of that refund substantially covered the tax liability, so the non-remittance was treated as a technical default causing no loss of interest to the revenue and no intent to withhold lawful dues. Applying the principle that penalty should not be imposed merely because it is legally possible, the breach was treated as venial and the penalty under section 140A(3) was cancelled.

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Issues: Whether penalty under section 140A(3) of the Income-tax Act, 1961 was exigible where the assessee did not pay the full self-assessment tax on the footing that refund was due to a partnership firm in which he held a share.

Analysis: The unpaid amount was linked to a refund due from the revenue to the firm, and the assessee's share of that refund substantially covered the tax payable. The default in not separately remitting the self-assessment tax was treated as technical, with no attempt to deprive the revenue of its lawful dues and no loss of interest. Applying the principle that penalty should not be imposed merely because it is lawful to do so, the conduct was held to fall within the category of a venial breach.

Conclusion: Penalty under section 140A(3) was not justified and was cancelled in favour of the assessee.

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