Commissioner of Income Tax and Another vs Amrit Banaspati Co. Ltd.

S.K. Gupta, J.—The present appeal filed u/s 260A of the Income Tax Act (hereinafter referred to as the Act) has been admitted on the following question of law framed in the memo of appeal:

Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in upholding deletion of the penalty of Rs. 4,21,230 by the Commissioner (Appeals) imposed u/s 273(2)(aa) of the Income Tax Act, 1961 by the assessing officer whereas, the assessee has furnished wrong estimate of advance tax knowing fully well that the same was wrong and reason to believe to be untrue, since the sales-tax liability is an income of the assessee as, the same is liable to be deductible in computing against the taxable income.

The present appeal relates to the assessment year 1987-88.

The background facts in nut shell essentially are as follows.

The appellant was following accounting period as the June ending and for the assessment year 1987-88, the accounting year was 30-6-1986. Under the relevant provisions of the Act, the appellant was required to pay advance tax for this year on 15-6-1986, 15-9-1986 and 15-12-1986. The appellant filed a statement on 13-6-1986 estimating its income at Rs. 2.40 crores. The statement was revised on 11-9-1986 and 15-12-1986 estimating the income respectively at Rs. 2.80 crores and Rs. 3.40 crores. The advance tax was paid in accordance with these estimates.

The appellant filed the return of income on 23-6-1987 declaring income at Rs. 3,35,54,250 and was granted refund on provisional assessment. The return was revised on 5-5-1988 and further a refund was granted to it. A second revised return was filed on 28-3-1989 wherein the appellant included an amount of Rs. 1,30,65,719 for the first time and requested that additional tax on this amount may be realised from the refund of assessment year 1986-87. The amount of Rs. 1,30,65,719 represents sales-tax liability disallowed u/s 43B of the Income Tax Act. After completion of the regular assessment, the assessing officer initiated the penalty proceedings u/s 273(2)(aa) of the Act and vide order dated 6th March, 1992 imposed a penalty of Rs. 4,21,230.

Aggrieved by the order, dt. 6-3-1992, the assessee preferred an appeal before the Commissioner (Appeals), Muzaffamagar (in short "Commissioner (Appeals)"), who cancelled the penalty. Whereafter an appeal was filed by the revenue against the order of the Commissioner (Appeals) which was dismissed by the Tribunal and the order passed by Commissioner (Appeals) was upheld. Hence the present appeal.

It is submitted by learned Counsel for the revenue that the Tribunal has erred in law in deleting the penalty of Rs. 4,31,230 imposed u/s 273(2)(aa) of the Act, and further contended that the assessee furnished estimate of advance tax which he knew and had reason to believe to be untrue as it was well within his knowledge that sales-tax liability is income of the assessee and the same is not liable to be deducted in computing the taxable income.

On the other hand learned Counsel for the respondent assessee has supported the impugned order and has submitted that the assessee is not liable to pay penalty u/s 273(2)(aa) of the Act. It has been further submitted that the assessee had sufficient reasons to believe that the sales-tax liability is not liable to be included in the total income and on that bona fide belief he did not include the same in advance tax estimate.

Heard Sri A.N. Mahajan, learned standing Counsel for the revenue and Sri S.D. Singh, learned Counsel appearing on behalf of assessee and perused the record.

The crux of the matter in this appeal is as to whether it can be said that the appellant had knowledge or had reason to believe that his estimate to be untrue at the time when advance tax instalment was paid. The item on which the issue is to be decided is the sales-tax liability of Rs. 1,30,65,719. It is an admitted fact that this amount was realised by the appellant in the last month of the accounting year and was shown payable in the balance sheet. The assessing authority has held that this item should have been paid accordingly under the provisions Section 43B of the Act and since the appellant had failed to do so, he was liable for penalty u/s 273(2)(aa) of the Act.

The assessing authority in the penalty order has mentioned right from the assessment year 1984-85 , the sales-tax liability was being disallowed in the assessees own case, therefore, assessee was fully aware about the treatment of the sales-tax liability and should have accordingly paid the tax on the same by way of advance tax instalments.

On this point, it may be noted that the assessment for the assessment year 1984-85 was completed for the first time on 31-12-2007 by which time the last date for payment of advance tax for the assessment year in question viz. 31-12-1986 had already expired. Therefore, the question of treatment of sales-tax liability by the department being in the knowledge of the appellant by the time last instalment of advance tax was paid does not arise. On the contrary, the counsel for the assessee has pleaded that there was a judgment delivered by the Tribunal, Cochin Bench in the case of S. Govindaraja Reddiar v. ITO (1986) 19 ITD 177 (Coch-Trib) wherein it was held that sales-tax liability could not be disallowed u/s 43B. This judgment was delivered on 31-7-1986 whereas the last date for payment of instalment of advance tax was 31-12-1986. In this regard, it has also been argued that formation of his bona fide belief that sales-tax liability is not to be disallowed, was also based on the judgment of Supreme Court in the case of Commissioner of Wealth Tax, Kanpur Vs. J.K. Cotton Manufacturers Ltd., wherein the word "payable" had been considered by the Supreme Court in the context of Wealth Tax Act.

Commissioner (Appeals) as well as the Tribunal have examined relevant facts and circumstances of the case and took a view that the assessees claim of bona fide belief about the sales-tax liability was genuine and legitimate. The Tribunal as well as Commissioner (Appeals) has given satisfactory, cogent and convincing reasons for setting aside the penalty order and had analysed the matter in detail and arrived at the conclusion that the assessee acted bona fidely in believing that sales-tax liability was not includible in the total income and on that belief he did not include the same in the sales-tax estimate. The finding recorded by the Tribunal is based on appreciation of evidence and material available on record and is neither perverse nor based on extraneous consideration. It is also notable that second revised return was filed on 28-3-1989 in which the assessee included the amount of Rs. 1,30,65,719 and requested that additional tax of this amount may be realised from the refund for the assessment year 1986-87. This point also goes in favour of the assessee.

This Court can not substitute its own opinion for the opinion of the Tribunal unless it is found that the conclusion drawn by the Tribunal is erroneous being contrary to the mandatory provision of law or was passed on inadmissible evidence or arrived at a finding without evidence. I do not find any illegality or infirmity in the impugned order.

In the result this appeal fails and is accordingly dismissed.