Income-tax---

----Advance tax---Penalty---Failure to revise estimate of advance tax---Demand for payment of advance tax under S.210, Indian Income Tax Act, 1961---ITO not demanding advance tax on the basis of self-assessment for a later assessment year ---ITO erroneously demanding lesser amount than was due on the basis of latest assessed income---Order of ITO valid---Penalty proceedings could be initiated---Indian Income Tax Act, 1961, Ss.209, 210, 212, 273.

Section 209 of the Income Tax Act, 1961, lays down the rule for computing the advance tax payable by a certain definite method and to a definite measure in the interest of the assessee so that the assessee may not be subjected to any high-handed demand. Section 209 indicates the mode of computing the advance tax payable by the assessee in respect of any advance tax year, i.e. the financial year immediately preceding the assessment year. The first step for the Income Tax Officer is to compute advance tax on the basis of the assessee's total income of the latest previous year in respect of which he has been assessed by way of regular assessment. The second step is to ascertain whether the assessee has filed any return for any later assessment year on payment of the self-assessment tax under section 140A and whether such returned income exceeds the total income for which the assessee was last assessed, i.e. the income referred to in the first step herein. Thus, in the second step, the Income Tax Officer has been given the opportunity of raising a higher advance tax than would be payable by the assessee going by his latest assessed income. If the Income Tax Officer acts in oversight of the second situation which would entitle him to demand a higher amount of advance tax from the assessee and demands a lesser amount, his demand remains valid and effective. The Income Tax Officer, by .not having demanded the higher amount of advance tax, cannot be said to have stripped himself of his jurisdiction to initiate penal proceedings.

The Income Tax Officer on completion of the assessment of income for the assessment year 1971-72, initiated penal proceedings under section 273(c) on the ground of the assessee's failure to revise the estimate of advance tax suo motu in terms of section 212(3A). The assessee contested the penal proceedings on the ground that such proceedings could not be validly initiated as there was no valid order under section 210. The assessee's case was that the original demand of advance tax under section 210 was bad in law on the ground that, at the time when the original demand had been raised on the basis of the assessment for the assessment year 1967-68, the assessee had already filed returns for the assessment years 1968-69 and 1969-70 and the tax under section 140A had been paid. The amount of income assessed in the assessment year 1967-68 was less than that assessed in 1969-70. The Income Tax Officer rejected the assessee's contention and levied penalty under section 273 and this was upheld by the Tribunal. On a reference:

Held, that, in the present case, the assessee was asked by the officer to pay a lesser amount than what he would have been required to pay. There was no illegality in the action of the Income Tax Officer as might reduce the demand under section 210 into a nullity and render the provisions of section 212(3A) read with section 209(1)(c) ineffectual. The levy of penalty under section 273(c) was valid.

Chitra Cinema v. ITO (1968) 68 ITR 877 (All.) and Jaipur Udyog Ltd. v. CIT (1969) 71 ITR 799 (SC) ref.

S.K. Mitra for the Commissioner.

JUDGMENT

AJIT K. SENGUPTA, J: --In this reference under section 256(1) of the Income Tax Act, 1961, the Tribunal has referred the following question of law for the assessment year 1971-72:

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that there was no invalidity in the imposition of penalty under section 273(c) of the Income Tax Act, 1961, on the ground that the demand raised under section 210 was not illegal?"

Shortly stated, the facts leading to this question are that on April 3, 1970, the assessee filed its return for the assessment year 1969-70 disclosing an income of Rs.4,14,313 and also paid the tax under section 140A of the Act. Subsequent to this, on August 3, 1970, the Income Tax Officer ("the ITO", in short) passed an order under section 210 on August 3, 1970, requiring the assessee to pay as advance tax a sum of Rs.1,85,044 relating to the assessment year 1971-72 (previous year 1970-71). This demand of advance tax under section 210 was raised not on the basis of the income returned by the assessee before him for the assessment year 1969-70 at Rs.4,14,313 as aforesaid, but on the basis of the income of Rs.2,87,480 being the latest assessed income relating to the assessment year 1967-68.

The assessee, however, paid the instalments of advance tax in terms of the demand of the Income Tax Officer under section 210 on September 15, 1970, and December 15, 1970, each installment being of Rs.61,681. On February 17, 11071, the Income Tax Officer revised his order under section 210 and demanded advance tax of Rs.9,22,366 on the basis of the returned income of Rs.16,20,610 for the assessment year 1970-71. But, the assessee had not paid any tax by way of self-assessment under section 140A till February 17, 1971, i.e. the date of revision of the demand by the Income Tax Officer. The assessee objected to the said revised order under section 210 by a letter dated March 1, 1971, contending that no tax under section 140A having been paid, it was not open to the Income Tax Officer to raise the enhanced demand under section 210. On March 15, 1971, the assessee paid the final instalment of Rs.61,681 according to the terms of the original order under section 210 passed by the Income Tax Officer on August 3,1970.

The Income Tax Officer on completion of the assessment of income for the assessment year 1971-72, initiated penal proceedings under section 273(c) on the ground of the assessee's failure to revise the estimate of advance tax suo motu in terms of section 212(3A). The assessee contested the penal proceedings on the ground that such proceedings could not be validly initiated as there was no valid order under section 210 of the Act. According to the assessee, it was not open to the Income Tax Officer to demand advance tax on the basis of the last completed assessment relating to the assessment year 1967-68 when the assessee had before hand paid the tax under section 140A by way of self-assessment on the basis of the return filed for the later assessment year 1969-70 and that the payment made by the assessee in terms of the said demand under section 210, though invalid, was merely a gesture of goodwill. In short, the assessee's case was that the original demand of advance tax under section 210 was bad in law on the ground that, at the time when the original demand had been raised on the basis of the assessment for the assessment year 1967-68, the assessee had already filed returns for the assessment years 1968-69 and 1969-70 and the tax under section 140A had been paid. Before the demand for advance tax was raised on August 3, 1970, on the basis of the assessed income for the assessment year 1967-68, tax under section 140A in respect of the assessment year 1969-70 had been paid on April 3, 1970, and the total income in that year was shown at Rs.4,14,313. Therefore, the demand under section 210 on August, 3, 1970, was non est.

The Income Tax Officer, however, did not accept the plea of the assessee that the original demand was bad in law and he also pointed out that the assessee had paid the demand made on the basis of the original order of the Income Tax Officer under section 210. According to the Income Tax Officer, even if there was any irregularity in the order, the same had been waived by the assessee. The Income Tax Officer also did not accept the contention that the assessee was under a bona fide belief that notice of demand under section 210 was not in accordance with law and hence it was not under any obligation to file an estimate under section 212(3A). The Income Tax Officer held that the assessee failed to furnish the estimate under section 212(3A) as its income for the assessment year 1971-72 had been shown at Rs.21,47,880 in the return. He, therefore, imposed 'a penalty of Rs.1,00,000 under section 273(c) of the Act.

When the matter came before the Appellate Assistant Commissioner, similar arguments were placed before him and reliance was placed on the decision of the Allahabad High Court in the case of Chitra Cinema v. ITO (1968) 68 ITR 877. In that case, it had been held that it was open to an assessee to challenge an order under section 210 if the amount of advance tax had not been computed in accordance with the principles set out in the statute. It was contended before the Appellate Assistant Commissioner that the assessee was under a bona fide belief that notice under section 210 was not in accordance with law and, therefore, there was no obligation to file an estimate under section 212(3A). The quantum of penalty was also challenged as being excessive.

The Appellate Assistant Commissioner found force in the submissions of the assessee and held that the original order was not in accordance with law as the Income Tax Officer had raised a dower demand on the basis of the last completed assessment for the assessment year 1967-68 and had not substituted it on the basis of the total income for the assessment year 1969-70 in respect of which a return had been filed and tax under section 140A had been paid before the order under section 210, dated August 3,1970 was passed.

According to the Appellate Assistant Commissioner, the advance tax should have been calculated on the basis of the total income of Rs.4,14,313 and not on the basis of the total income of Rs.2,87,480 as taken by the Income Tax Officer.

On this ground, the Appellate Assistant Commissioner held that the notice under section 210 was not valid. He also held that payment by the assessee according to this notice would not validate the notice. He also accepted the contention that the later revised notice on February 17, 1971, was also not valid because the demand was raised on the basis of tax payable as per return for the assessment year 1970-71 and not on the basis of income on which tax under section 140A had been paid. Having held that these notices were not validly issued, the Appellate Assistant Commissioner concluded that the assessee was under no obligation to file an estimate under section 212(3A). He, therefore, cancelled the penalty imposed by the Income Tax Officer.

The Department fled an appeal and the assessee filed a cross?-objection to that before the Tribunal. The Tribunal considered the facts of the case and held as under:

"We have considered the facts of the case and we are of the view that, for the reasons given in the immediately preceding year, the original demand under section 210 cannot be held to be bad in law. The circumstances in that year were similar to those in the present year. It may be clarified that there is no dispute between the parties that the revised demand in February, 1971, was not correct in accordance with law and the Department does not rely on it. However, the question for consideration is whether the assessee, having paid advance tax according to the demand by the Income Tax Officer and having not raised any objection to it before the third instalment had become due, could contend that the original demand order was bad as it should have been based on a higher total income as indicated in a later year's return. In our opinion, the basic requirement of section 209(i)(c) had been satisfied though the Income Tax Officer had to substitute it by a higher demand. If there was a return for a later year on the basis of which tax under section 140A had been paid, the original order itself could not become bad in law only for that reason. It was based on a valid order and the total income taken was the total income of the latest completed assessment. Taking the total income of either of the years on the basis of which advance tax demand should have been raised and also considering the very high income earned by the assessee in this assessment year, obligation to file an estimate under section 212(3A) would certainly be there. We hold that, for the reasons given in the earlier order, the original demand order could not be held to be invalid and the Appellate Assistant Commissioner erred in holding so. However, we find that the Appellate Assistant Commissioner had not considered the question of imposition of penalty on merits and has not disposed of the assessee's ground regarding there being a reasonable cause for not furnishing an estimate and has also not considered the quantum of penalty. The whole matter of quantum as well as merits should go back to him so that he may apply his mind on the basis of the grounds raised by theassessee and decade it in accordance with law: In view of this, we set aside the order of the Appellate Assistant Commissioner and allow the Departmental appeal as well as the assessee's cross-objection. The Appellate Assistant Commissioner will consider the ground raised by the assessee that there was reasonable cause for not filing the estimate."

The contentions canvassed before the lower authorities were reiterated before us. Learned counsel appearing for the assessee contended that:

(i) the provisions of section 273 are penal in nature and have to be strictly construed. The case is one of imposition of penalty and not of charging of tax or interest. No penalty should be levied unless the case clearly falls within the purview of the penal sections.

(ii) The obligation to file an estimate under section 212(3A) can arise only when there is a valid order under section 210 of the Act. If there is no lawful and valid order under section 210, then no estimate is required to be filed under section 212(3A). The only order which is to be considered is that dated August 3, 1970. Long before the passing of the said order, namely, on April 3, 1970, the assessee had filed for the assessment year 1969-70, a return declaring an income of Rs.4,14,313 and had paid the tax under section 140A and this returned income was higher than the assessed total income of Rs.2,87,480 of the assessment year 1967-68. Under section 209(1)(d)(i), the Income Tax Officer was bound to pass the order under section 210 of the Act with reference to the said figure of Rs.4,14,313 and not on the said figure of Rs.1,85,044.

(iii) Under section 210(1) of the Act, the Income Tax Officer may, by order in writing, require the assessee to pay to the credit of the Central Government "advance tax determined in accordance with the provisions of sections 207. 208 and 209." An order which does not determine the advance tax in accordance with the provisions of section 209 is not a valid or lawful order. Such an order is a nullity and there can be no question of any waiver or acquiescence.

Learned counsel has also cited two decisions referred to hereafter where the effect of a defective order under section 210 of the Act has been considered:

(a) In the case of Chitra Cinema (1968) 68 ITR 877, the Allahabad High Court held that. an order under section 210 of the Act calling upon the assessee to pay advance tax for 1963-64 on the basis of the total income of the previous year relevant to the assessment year 1959-60, which assessment had been set aside before the order under section 210 was made, was invalid. It was further held that the Department could not contend that, if the. assessee disputed the amount demanded by the said order, it was open to him to file an estimate of advance tax under section 212(1) as section 212(1) presupposes a valid order under section 210. It was held (at page 878 of the Reports):

"if the assessment of that total income has been set aside, it is not open to the Income Tax Officer to consider that total income for the purpose of computing the amount of advance tax. An assessment which has been set aside exists no longer. It cannot constitute any basis for computing the amount of advance tax."

The High Court further held that, though there was delay on the part of the assessee in approaching the Court, the order under section 210 is "so patently illegal" that it was inclined to interfere.

(b) In the case of Jaipur Udyog Ltd. v. CIT (1969) 71 ITR 799, the Supreme Court held that any demand for advance tax on the basis of an invalid provisional assessment was liable to be set aside. In the said case, the assessee had filed its return of income for the assessment year 1964-65 in which it had claimed set-off of losses of earlier years carried forward and, on such set-off of loss, it paid the tax under self-assessment. The Income Tax Officer made an order of provisional assessment disallowing the set-off of the losses and raised an additional demand. On the basis of the enhanced total income in such provisional assessment, the Income Tax Officer passed an order for payment of advance tax under section 210 for the year 1965-66. The Supreme Court held that the Officer could not make any enquiry at the stage of provisional assessment and he had to accept the return as made. It further held that, since the provisional assessment made by the Income Tax Officer was invalid for having interfered with the returned figure, the order under section 210 for payment of advance tax on the basis of such provisional assessment was also liable to be set aside. At page 805 of the Reports, it was held as under:

"For the year 1965-66, the Income Tax Officer demanded payment of advance tax on the provisional assessment for the year 1964-65. It is true that under subsection (3) of section 210 as inserted by the Finance Act, 1963 (13 of 1963), and later modified by the Direct Taxes (Amendment) .Act, 1964 (31 of 1964), the Income Tax Officer is entitled to make an order for payment of advance tax on the basis of provisional assessment made under section 141, and he is not obliged to demand advance tax only for the amount provisionally assessed by way of regular assessment in respect of any previous year. Subsection (3) of section 210, however, predicates a valid provisional assessment on the basis of which advance tax may be demanded. But the provisional assessment for the year 1964-65 made by the Income Tax Officer was invalid, and tax could not be demanded on that invalid assessment. No order for payment of advance tax for the year 1965-66 could then he made, relying upon the provisional assessment for the year 1964-65.

The appeals will be allowed and the orders passed by the High Court set aside. The orders of provisional assessment made by the Income Tax Officer in respect of the years 1963-64 and 1964-65 will be set aside and the order for payment of advance tax for the year 1965-66 is also set aside."

The decisions relied upon by learned counsel for the assessee are distinguishable and do not provide an answer to the issue emerging from the facts in the present case. Here, the basic issue is whether the Income Tax Officer, by not opting for the higher demand of advance tax, either due to inadvertence or want of care, is altogether debarred from raising a valid demand under section 210. Section 210 does not present much difficulty in the context of the present case. The order of the Income Tax Officer under section 210 is assailed by the assessee on the ground that the said order is not in accordance with the provisions of section 209. Relevant part of section 209 as in force at the material time is reproduced:

"209.--(1) The amount of advance tax payable by an assessee in the financial year shall, subject to the provisions of subsections (2) and (3), be computed as follows:---

(a) (i) his total income of the latest previous year in respect of which he has been assessed by way of regular assessment shall first be ascertained;

(ii) the amount of capital gains and income referred to in sub-clause (ix) of clause (24) of section 2, if any, included in such total income shall be deducted therefrom, and on the balance, income-tax shall be .calculated at the rates in force in the financial year;

(iii) the income-tax so calculated shall be reduced by the amount of income-tax which would be deductible during the said financial year in accordance with the provisions of sections 192 to 194, section 194A, section 194C, section 194D and section 195 on any income (as computed before allowing any deductions admissible under this Act) on which tax is required to be deducted under the said sections and which has been taken into account in computing the said total income;

(iv) the net amount of income-tax calculated in accordance with sub-clause (iii) shall, subject to the provisions of clauses (c) and (d) be the advance tax payable.

(c) in cases where an estimate is sent by the assessee under subsection (1) or subsection (2) or subsection (3) or subsection (3A) of section 212, the total income so estimated shall, for the purposes of calculation of tax under this section, be substituted for the total income referred to in clause (a);

(d) in cases where; --

(i) the total income of the latest previous year (being a year later than the previous year referred to in clause (a)) on the basis of which tax has been paid by the assessee under section 140A exceeds the total income referred to in clause (a), or

(ii) the Income Tax Officer makes an amended order referred to in subsection (3) of section 210 on the basis of the total income on which tax has been paid by the assessee under section 140A.

the-total income referred to in clause (a) shall be substituted,---

(1) in a case falling under sub-clause (i) by the total income on the basis of which tax has been paid under section 140A, and

(2) in a case falling under sub-clause (ii), by the total income on the basis of which the amended order under subsection (3) of section 210 is made."

Section 209 indicates the mode of computing the advance tax payable by the assessee in respect of any advance tax year i.e., the financial year immediately preceding the assessment year. The first step for the Income Tax Officer is to compute advance tax on the basis of the assessee's total income of the latest previous year in respect of which he has been assessed by way of regular assessment. The second step is to ascertain whether the assessee has filed any return for any later assessment year on payment of the self-assessment tax under section 140A and whether such returned income exceeds the total income for which the assessee was last assessed, i.e. the income referred to in the first step herein. Thus, in the second step, the Income Tax Officer has been given an opportunity of raising a higher advance tax than would be payable by the assessee going by his latest assessed income. In the present case, the Income Tax Officer has acted in oversight of the second situation, which would have entitled him to demand a higher amount of advance tax from the assessee.

The assessee now seeks to turn this against the Income Tax Officer's order under section 210 and contends that the demand under section 210 not being a valid demand, the Income Tax Officer cannot invoke section 212(3A) read with section 209(a), (c) and thus the initiation of penal proceeding under section 273(c) is devoid of sanction or inherent jurisdiction. In our view, the Income Tax Officer by not having demanded the higher amount of advance tax cannot be said to have stripped himself of his jurisdiction to initiate penal proceedings. His demand remains a demand valid and effective and it cannot be said that by not choosing to compute the advance tax at a higher amount, his order attracted any infirmity. Section 209 lays down the rule for computing the advance tax payable by a certain definite method and to a definite measure in the interest of the assessee so that the assessee may not be subjected to any high-handed demand. In the present case, the assessee was asked to pay less than what he would have been required to pay by the Officer. That does not invalidate the demand as such. The cases, which the assessee relies upon present facts of a different nature. In the first case, Chitra Cinema (1968) 68 ITR 877 (All.), the demand was raised on the basis of the assessment of income of an assessment year. But the assessment relating to that year stood set aside at the material time the demand was computed. There, it was the case that the Income Tax Officer made a non-existent assessment the basis of his demand. An assessment which is set aside for being redone and is thus effaced cannot obviously furnish the foundation of any demand under section 210. Therefore, it was held by the High Court, and rightly, that the demand under section 210 itself was a nullity.

In Jaipur Udyog (1969) 71 ITR 799 (SC), the Income Tax Officer took the extraordinary course of making certain disallowance of set-off of past losses claimed in the return while making provisional assessment as per return and on the basis of such unauthorised manipulation of the returned income, computed the advance tax payable under section 210. The entire demand in that case is tainted with illegality going to the root of the assumption of jurisdiction. The Supreme Court held that the Income Tax Officer has no right at the stage of provisional assessment to recompute the returned income for the purpose of raising the demand under section 210 on the basis of pre?assessment computation. In the present case, we do not find any such illegality in the action of the Income Tax Officer as might reduce the demand under section 210 to a nullity and render the provisions of section 212(3A) read with section 209(1)(c) ineffectual.

For the reasons aforesaid, we hold that the demand raised by the Income Tax Officer under section 210 in the case could not be said to be a nullity precluding the initiation of penal proceedings. The assessee had taken shelter solely behind hyper technicality which we do not approve.

In the premises, we answer the question in the affirmative and against the assessee.

There will be no order as to costs.

J.N. HORE, J.--I agree.

M.BA./217/T.F.?????????????????????????????????????????????????????????????????????????????????? Reference answered.