Income-tax---

----Advance tax---Penalty---Failure to furnish estimate of advance tax-- Condition precedent for imposition of penalty---Failure should be without reasonable cause---Failure to furnish estimate because of bona fide belief that there would be no profits---Penalty could not be imposed---Indian Income Tax Act, 1961, S. 273.

It, is clear from a plain reading of section 273(2)(c) of the Income Tax Act, 1961, that penalty can be imposed under the said provision if the Income-tax Officer is satisfied that the assessee has "without reasonable cause" failed to furnish the estimate of advance tax payable by him in accordance with the provisions of subsection (4) of section 209A of the Act.

The satisfaction of the Income-tax Officer in regard to the failure of the assessee to furnish an estimate of the advance tax payable by him in accordance with the provisions of section 209A(4) of the Act "without reasonable cause" is, thus, the condition precedent for imposition of the penalty under this clause. 'This satisfaction must be based on the materials on record. It is only after the Income-tax Officer arrives at a finding that the failure to furnish the estimate was "without reasonable cause" that he can impose penalty.

In the assessment of the assessee-company for the assessment year 1979-80, the Income-tax Officer noticed that on June 14, 1978, the assessee company had filed a statement in Form No.28A showing loss of Rs.3,199 while its income was assessed at Rs.3,01,540. The Income-tax Officer therefore, initiated proceedings for levy of penalty under section 273(2)(c). The assessee explained that it had accumulated losses and. unabsorbed allowances amounting to Rs.28,897 and that on the date of submission of the statement in Form No.28A it had expected to make a profit of Rs.25,698 only during the previous year relevant to the assessment year under consideration, It was contended that revised estimate under section 209A(4) of the Act was not submitted because the accounts could not be audited and the correct income could not be ascertained. No further statement of advance tax could be filed as the accountant was frequently indisposed and the correct profit of the year could not be ascertained up to December 15, 1978. The Commissioner of Income-tax (Appeals) accepted the contention of the assessee and observed that the estimate was bona fide in the facts and circumstances set out by the assessee. This was upheld by the Tribunal. On a reference:

Held, that both the Commissioner (Appeals) and the Tribunal had recorded a finding that there was reasonable cause for the failure of the assessee to submit the estimate under subsection (4) of section 209A. This finding was primarily and essentially a finding of fact which ordinarily is final and binding. That being so, the Tribunal was justified in holding that section 273(2)(c) of the Act was not attracted in the facts and circumstances of the present case.

Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26 (SC) applied.

Hind Products (P.) Ltd. v. CIT (1980) 121 ITR 903 (Bom.) fol.

Milind Sathe with S.A. Diwan for the Commissioner.

Nemo for the Assessee

JUDGMENT

DR. B. P. SARAF, J.---By this reference under section 256(1) of the Income Tax Act, 1961, the Income-tax Appellate Tribunal ("the Tribunal") has referred the following question of law to this Court for opinion at the instance of the Revenue.

"Whether, having regard to the facts and circumstances of the same, the provisions of section 209A(4) were applicable in the instant case, so as to attract the provisions of section 273(2)(c) of the Income Tax Act, 1961?"

The controversy in this reference pertains to the assessment year 1979-80. The material facts giving rise to this controversy, briefly stated, are as follows:

In the assessment of the assessee-company for the assessment year 19'79-80, the Income-tax Officer noticed that on June 14, 1978, the assessee company had filed a statement in Form No.28A showing loss of Rs.3,199 while its income was assessed at Rs.3,01,540. The Income-lax Officer, therefore, initiated proceedings for levy of penalty under section 273(2)(c) of the Income Tax Act, 1961 ("the Act"). A notice under section 274 of the Act was served on the assessee calling upon it to show cause why penalty should not be levied under section 273(2)(c) of the Act. In response to this notice, the assessee showed cause vide its letter, dated February 11, 1980; wherein it was stated that the assessee had accumulated losses and unabsorbed allowance amounting to Rs.28,897 and that on the date of submission of the statement in Form No.28A, it had expected to make a profit of Rs.25,698 only during the previous year relevant to the assessment year under consideration. It was contended that revised estimate under section 209A(4) of the Act was not submitted because the accounts could not be audited and the correct income could not be ascertained. The Income-tax Officer rejected the above explanation of the assessee and levied a penalty of Rs. 15,760 under section 273(2)(c) of the Act. While doing so, the Income-tax Officer observed that it was the statutory liability of the assessee under section 209A(4) of the Act to file a revised estimate of total income if its current income was likely to exceed the sum specified in section 208(2) .of the Act. He, therefore, levied a penalty of Rs.15,760 computed at the minimum rate of 10 percent. The assessee appealed to the Commissioner of Income-tax (Appeals). Before the Commissioner (Appeals), it was contended by the assessee that the Income-tax Officer should have accepted the explanation of the assessee that the estimate filed on June 14, 1978, was under the bona fide belief that the company would not make any profit during the relevant previous year and no further, statement of advance tax could be filed as the accountant was frequently indisposed and the correct profit of the year could not be ascertained up to December 15, 1978. In support of this contention, the assessee relied upon the decision of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26. The Commissioner (Appeals) accepted the contention of the assessee and observed mat-the estimate was bona fide in the facts and circumstances set out by the assessee. He recorded a clear finding of fact that the failure to revise the estimate was due to circumstances beyond the control of the assessee and that there was nothing on record to show that the statement filed on June 14, 1978. was an untrue estimate to the knowledge of the assessee. He, therefore" held that the assessee-company had filed statement of advance tax showing loss of Rs.3.199 under a bona fide belief that its income would not be liable to tax and since the revised statement could not be filed due to circumstances behind the control of the assessee, it could not be said that there was a conscious disregard of the statutory obligation on the part of the assessee. The Commissioner- (Appeals), therefore, cancelled the penalty of Rs.15,760 levied by the Income-tax Officer under section 273(2)(c) of the Act. While doing so. the Commissioner (Appeals) relied upon the decision of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa (1972) 83 ITR 26. Against the above order of the Commissioner (Appeals) the Revenue appealed to the Tribunal. The Tribunal, dismissed the appeal of the Revenue as it was of the opinion that the Revenue failed to discharge the onus cast on it to justify the levy of penalty. Hence, this reference at the instance of the Revenue.

We have heard Mr. Milind Sathe, learned counsel for the Revenue, who submits that mens rea or contumacious or guilty mind is not an essential ingredient of the offence under section 273(2)(c) of the Act. According to learned counsel, in the facts and circumstances of this case, the Tribunal was not justified in upholding the deletion of the penalty levied under section 273(2)(c) of the Act.

We have carefully considered the above submissions of Mr. Sathe Section 273 of the Act provides for -levy of penalty for furnishing of false estimate of advance tax or failure to pay advance tax. Subsection (2) thereof, which is relevant for the present. purpose, as it stood at the material time, reads as follows:

"S.273. False estimate of, or failure to pay, advance tax.---(2) If the Assessing Officer, in the course of any proceedings in connection with the regular assessment for the assessment year commencing on the 1^st day, of April, 1970, or any subsequent assessment year; is satisfied that any assessee-

(c) has without reasonable cause failed to furnish an estimate of the advance tax payable by him in accordance with the provisions of subsection (4) of section 209A or subsection (3A) of section 212

he may direct that such person, shall, in addition to the amount of tax, if any, payable by him, pay by way of penalty a sum-

(iii) which, in the case referred to in clause (c), shall not be less than ten percent., but shall not exceed one and a half times the amount by which.

(a) where the assessee has sent a statement under clause (a), or an estimate under clause (b), of subsection (1) of section 2C9A, or an estimate in lieu of a statement under subsection (2) of that section, the tax payable in accordance with such statement or estimate; or

(b) where the assessee was required to pay advance tax in accordance with the notice issued to him under section 210, the tax payable under such notice ,

falls short of seventy-five percent. of the assessed tax as defined in subsection (5) of section 215..."

Subsection (4) of section 209A, at the material time, reads as follows:

"S. 209A. Computation and payment of advance tax by assessee.---

(4) In the case of any assessee who is liable to pay advance tax under subsection (1) or subsection (2) or, as the case may be subsection (3), if, by reason of the current income being likely to be greater than the income on which the advance tax so payable by him has been computed or for any other reasons, the amount of advance tax computed in the manner laid down in section 209 on the current income (which shall be estimated by the assessee exceeds the 'amount of advance tax so payable by him by more than 33-1/3 percent. of the latter amount, he shall, on or before the date on which the last installment of advance tax is payable by him, send to the income Tax Officer an estimate of--

(i) the current income, and

(ii) the advance tax payable by him on the current income calculated in the manner laid down in section 209

and shall pay such amount of advance tax as accords with his estimate on such of the dates applicable in his case under section 211 as have not expired, by instalments which may be revised according to subsection (5).."

It is clear from a plain reading of section 273(2)(c) of the Act that penalty can be imposed under the said provision if the Income-tax Officer is satisfied that the assessee has "without reasonable cause" failed to furnish the estimate of advance tax payable by him in accordance with the provisions of subsection (4) of section 209A of the Act. The satisfaction of the Income-tax Officer in regard to the failure of the assessee to furnish an estimate of the advance tax payable by him in accordance with the provisions of section 209A(4) of the act "without reasonable cause" is thus the condition precedent for imposition of the penalty under this clause. In the instant case, both the Commissioner (Appeals) and the Tribunal have recorded a finding that there was reasonable cause for the failure of the assessee to submit the estimate under subsection (4) of section 209A. This finding, obviously is a finding of fact which is not the subject-matter of challenge before us in this reference. What is sought to be contended on behalf of the Revenue is that penalty under section 273(2)(c). is more or less automatic once there is non compliance of the provisions of section 209A(4) of the Act. This contention of the Revenue, in our opinion, is untenable for reasons more than one. First, though section 273(2)(c) provides for levy of penalty for failure to furnish an estimate of advance tax under subsection (4) of section 209A of the Act, liability to pay penalty does not arise merely on the proof of failure to furnish the estimate because the law is well-settled -that penalty should not be imposed for failure to carry out a statutory obligation merely because it is lawful to do so. No penalty can be imposed if the assessee was acting under honest and genuine belief in a particular manner. As held by the Supreme Court in Hindustan Steel Ltd. , v. State of Orissa (1972) 83 ITR 26, the penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty cannot also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute. In the instant case, it is clear that the assessee did not famish the e4timate of advance tax under section 209A(4) of the Act because it was under the honest and genuine belief that it was not required to do so as its income would not exceed the particular amount. No penalty can be levied in such a case, if this belief of the assessee later turns out to be wrong. Secondly, penalty can be levied under section 273(2)(c) of the Act only if an assessee fails to furnish "without reasonable cause" the estimate of advance tax payable by him in accordance with the provisions of subsection (4) of section 209A of the Act. Penalty is thus leviable only if the failure is "without reasonable cause". The Income-tax Officer must, therefore, be satisfied, before imposing the penalty under section 273(2)(c) of the Act, that the assessee had "without reasonable cause" failed to famish the estimate of advance tax. This satisfaction must be based. on the materials on record. It is only after he arrives at a finding that the failure to furnish the estimate was "Without reasonable cause" that he can impose penalty.

In the instant case, there is a categorical finding of the Commissioner (Appeals) and the Tribunal that non-filing of the estimate under subsection (4) of reasonable cause for not furnishing the same (sic). It was on the basis of this finding that the penalty was cancelled by the Commissioner (Appeals) and the Tribunal. This finding is, primarily and essentially, a finding of fact which ordinarily is final and binding. Moreover, in this reference there is no challenge to this finding of fact. That being so, the Tribunal was justified in holding that section 273(2)(c) of the Act was not attracted in the fact and circumstances of the present case.

We are supported in our above opinion by the decision of this Court in Hind Products (P.) Ltd. v. CIT (1980) 121 ITR 903. In that case also the controversy was in regard to levy of penalty for furnishing untrue estimate of advance tax under section 18A(2) of the Indian Income-tax Act, 1922 (corresponding to section 273(2)(c) of the 1961 Act). This Court examined the question when an estimate can be said to be untrue and observed (page 909):

"Having regard to these provisions, unless an Income-tax Officer is satisfied that the assessee, who had furnished a return under section 18A(2), knew or had reason to believe that the estimate which he had filed was untrue, no penalty could be levied against him. In the instant case, the estimate was filed on June 14, 1960. The assessee had produced before the Income-tax Officer a copy of the trial balance on which it was apparent that as on 31st May, 1960, there was a loss. It is true that when an estimate is required to be filed under section 18A(2), that estimate must necessarily show the estimated income for the year in question. Estimated income may or may not be the same as the ultimate returned income shown by the assessee. Just as it is possible that in a given case, the returned income may be more, it may also be that in a given case, the returned income may be less than the estimate. The very word 'estimate' implies the concept of approximation and it can never be accurate. Therefore, merely because at the end of the year, an assessee is shown to have earned an income which is more than that shown in the estimate filed under section 18A(2), that fact alone will not by itself indicate that the estimate was known to be untrue or that the assessee had filed an estimate having reason to believe that it was untrue. It is not possible to ascertain the vicissitudes which a businessman might experience in the course of his business, and a common sense approach will, therefore, have to be adopted in judging whether the estimate filed by an assessee can be said to be such that he had knowingly submitted an untrue estimate of his expected income during the year in question. While furnishing such an estimate, it will be perfectly reasonable for an assessee to take into account the normal trend of his business up to the time when he is required to file an estimate. If at the point of time when he is called upon to file an estimate the assessee has been incurring continuous losses, then unless there is material to show that he had reason to believe that in the months to come he was sure to make profits, an estimate filed on the basis of the trial balance 'showing a loss cannot be said to be untrue. Similarly, unless there is material to show that the assessee could reasonably have anticipated that there would be profits in the remaining part of the year, it cannot be said that the assessee had any reason to believe that the estimate which he had filed was untrue. The provision in section 18A(9) is a penal provision and it contemplates a deliberate conduct of filing an untrue estimate by the assessee. An incorrect or inaccurate view of the trend of the business in the future will not necessarily make the estimate with regard to income an untrue one. If the relevant material on the basis of which the estimate has been prepared is placed on record and if on the basis of that material it would be reasonably possible to conclude that the assessee could not be normally said to be expecting to make profits in the months to follow, an estimate showing that he was not liable to pay any advance tax, could not be said to become untrue merely because by reason of some circumstances subsequent to the date of the filing of the estimate, the assessee has earned profits. "

The legal position was summed up in the following words (page 910):

"A penal provision must always be construed very strictly and unless the conduct of the assessee falls squarely within the four corners of the penal provision, the penalty provision could not be made applicable to his case. Whether a person had knowingly filed a false estimate or he had reason to believe that the estimate is untrue - . is a question which has to be determined on the material appearing each case. But once the assessee had produced on record the material on which he has based his estimate then the burden will be on the Revenue to show as to why a finding-must be recorded in its favour that the estimate was untrue or that the assessee had reason to believe that the estimate was untrue (emphasis supplied) It is important to point out that the time with reference to which the knowledge of the assessee or his belief that the estimate was being filed correctly is the point of time when the return is filed. Subsequent events may not have much to do with the knowledge of the assessee at the time of filing of the estimate unless it is possible to say that the subsequent events which resulted in profits were such that they could be reasonably foreseen by the assessee. "

In the light of the foregoing discussion we are of the clear opinion that in the facts and circumstances of this case. no penalty is leviable under section 273(2)(c) for non-furnishing of estimate of advance tax under section 209A(4) of the Act We, therefore, answer the question referred to us in the negative, i.e. in favour of the assessee and against the Revenue.

This reference is disposed of accordingly with no order as to costs.

M.B.A./4008/FC;Reference disposed.