Whether when assessee files estimate of income showing NIL advance tax liability on basis of loss returns of previous years it attracts penal provisions of Sec 273(2)(c) - NO: HC

THE issue before the Bench is - Whether when assessee files estimate of income showing NIL advance tax liability on basis of loss returns of previous years it attracts penal provisions of Sec 273(2)(c). NO, says the High Court.

Facts of the case

The appellant is a Public Limited Company, engaged in the manufacture and sale of synthetics

yarn & cement. It was following calender year, as the accounting period. For the AY 1982-83, assessee had closed its accounts on 31.12.1981. The assessee was supposed to submit the estimate u/s 209A for the purposes of payment of advance tax on 15.6.1981, 15.9.1981 and 15.12.1981. The assessee had filed an estimate on 9.6.1981 showing the advance tax liability at nil. According to the assessee, since the business condition of the calendar year did not improve, it was not considered necessary to revise the estimate under sub-section (4) of Section 209A, at the time when the subsequent installments become due for payment, by 15th September and 15th December, 1981.

For the assessment year 1982-83, the appellant filed return disclosing loss of Rs.565 lakhs comprising of current year's loss of Rs.184 Lakhs carried forward loss of Rs.206 lakhs for the assessment year 1980-81 and Rs. 230 Lakhs for the assessment year 1981-82.

For the assessment year 1980-81, by the assessment order dated 24.8.1983, the return loss was converted into profit of Rs.313.86 lakhs. For the assessment year 1981-82, the assessment was made on 27.9.1984 on an income of Rs.608.54 lakhs as against the disclosed loss of Rs.436.45 lakhs. For the assessment year 1982-83, the assessing authority has passed the assessment order on 29.5.1985 on an income of Rs.15,28,83,600/-. The income was finally determined vide order dated 11.5.1990 after the decision of the Tribunal at Rs. 1,65,82,800/-.

A notice under Section 273 was issued on the ground that the appellant failed to furnish the estimate of advance tax as required under sub-section (4) of Section 209A of the Act. The appellant filed reply to the show cause notice. However, the assessing authority has not accepted the reply of the appellant and vide order dated 25.10.1990 levied the penalty at Rs.16,00,000/-.

Being aggrieved by the penalty order, assessee filed an appeal before CIT(A), who had dismissed the same. On further appeal, Tribunal had allowed the appeal in part and confirmed the levy of penalty and had reduced the quantum of penalty from Rs.16,00,000/- to Rs.5,50,000/-.

On appeal, the HC held that,

++ admittedly, in the present case, the appellant had filed an estimate of income on 9.6.1981 showing the advance tax liability at nil. The estimate has not been further revised in the months of September and December, 1981. The question for consideration is whether there was a reasonable cause in not revising the estimate in the months of September and December, 1981. In case if there was a reasonable cause, the penalty is not leviable. We are of the view that there was a reasonable cause in not revising the estimate under sub-section (4) of Section 209A of the Act. The return for the assessment year 1980-81 was filed on 30.7.1980 disclosing loss of Rs.205.74 lakhs. The return for the assessment year 1981-82 was filed on 30.6.1981, showing loss of Rs.436.45 lakhs. The details of both the returns were available in the months of June, September and December, 1981. The assessment orders for the aforesaid two assessment years have been passed on 24.8.1983 and 27.9.1984, respectively, after June, 1981, September, 1981 and December, 1981. It is the case of the appellant that on the same method of calculation of loss and income, there was loss in the year, under consideration, also, and there was no improvement in the position in the months of September and December, 1981 and, therefore, the estimate could not be revised. We are of the view that there is no reason to disbelieve such explanation;

++ in the case of Commissioner of Income Tax vs. Sulphur Refinery Pvt. Ltd., the Bombay High Court has held that on the day when the assessee was liable to furnish the estimate there was accumulated loss available with the assessee even though ultimately the assessment was made on profit. In case if the estimate has not been revised and the advance tax has not been paid it falls within the purview of reasonable cause and the penalty under Section 273 (2) (c) is not leviable;

++ in the case of Commissioner of Income Tax vs. Birla Cotton Spinning & Weaving Mills Ltd., the Calcatta High Court has held that burden of proving that an estimate of advance tax submitted by the assessee was false or inaccurate to his knowledge is on the Revenue. The knowledge that the estimate is untrue or one which the assessee believes to be untrue must be at the point of time when he submitted the estimate. The mens rea of the mental element must be adjudged with reference to the facts and circumstances appearing at the time when the estimate was submitted. Mens rea of the assessee at the time when he made the estimate could not be adjudged by his subsequent conduct in returning a larger income in the return than what was estimated for the purpose of payment of advance tax. The evidence, whether negative or positive, small or large, may show that an honest and fair estimate was made by the the assessee and there was no conscious or deliberate furnishing of untrue estimate. The Calcutta High Court has relied upon the various decisions of other High Courts while arriving to the aforesaid conclusion;

++ in the present case, as stated above, on the day when the assessee was obliged to revise the return, the appellant had a bonafide belief of loss inasmuch as the details of the returns for the assessment years 1980-81 and 1981-82 were available. For both the assessment years, the returns of loss were filed, thus, it can be reasonably inferred that the appellant acted bonafidely in not revising the estimate under Section 209A (4). In the result, the appeal is allowed. The aforesaid questions of law are answered in favour of the assessee and against the revenue. The penalty imposed under Section 273(2)(c) of the Act is set aside.