GUJARAT MACHINERY MFRS LTD Vs. INCOME TAX OFFICER
LAWS(IT)-1992-2-10
INCOME TAX APPELLATE TRIBUNAL
Decided on February 26,1992

Appellant
VERSUS
Respondents

JUDGEMENT

B.M. Kothari, Accountant Member - (1.) THIS appeal is directed against the order of the CIT(Appeals) confirming the levy of penalty of Rs. 2,12,450 under Section 273(1)(b) of the IT Act, 1961 ('the Act')-
(2.) The appellant-company submitted a return of income on 31st July, 1982 disclosing total income at nil. During the course of assessment proceedings, it submitted a revised working of the computation of total income along with letter dated 1st January, 1983. In this revised working the total income declared by the assessee was Rs. 11,97,04$ on which tax worked out to Rs. 6,74,826. After deducting the amount of TDS of Rs. 3,622 the balance tax payable worked out to Rs. 6,71,204. The assessee, vide its letter dated 1st January, 1983, explained that the original return for assessment year 1980-81 was filed declaring a total income of Rs. 11,68,162. Subsequently the said return was revised as the loss incurred by Electrical Instruments Manufacturing Company Ltd. (EIMC) division of the company for the year ended on 31st December 1979 was not deducted in the original return, as the order of amalgamation of the two companies, namely, Gujarat Machinery Manufacturers Ltd. ('the assessee') and EIMC, was passed subsequent to the date of filing of the original return. The company also paid income tax by way of advance tax, TDS and self-assessment tax under Section 140A aggregating to Rs. 6,90,698 for assessment year 1980-81. This amount is refundable to the company on the basis of the revised return for assessment year 1980-81. Similarly for assessment years 1981-82 and 1982-83 the returns have been revised and for assessment year 1982-83 the sax payable as per the revised working comes to Rs. 6,74,821. The assessee, therefore, requested the assessing authority to adjust the refund for assessment year 1980-81 amounting to Rs. 6,90,698 against the tax payable as per the revised working of income tax of Rs. 6,74,921 for assessment year 1982-83 and requested for refund of the balance amount of Rs. 19,484. 2.1 The ITO completed the assessment at an income of Rs. 37,08,890 and directed his office to initiate penalty proceedings, inter alia, under Section 273(a). After providing necessary opportunity to the assessee, he imposed penalty of Rs. 2,12,480 under Section 273( 1 ){b) and observed that the assessee has, without reasonable cause, failed to furnish a statement of advance tax payable by him in accordance with the provisions of Section 209A(1)(a) of the Act. The CIT(Appeals) confirmed the said penalty. Before us, the learned counsel for the assessee contended that for the purpose of determining the applicability of the provisions relating to submission of statement of advance tax/estimate of advance tax payable by the assessee, the estimate of current income has to be based on the assessee's bona fide estimate of current income during the contemporary period when such statement of advance tax or an estimate in lieu thereof was required to be filed. In the instant case the date for filing statement of advance tax/estimate in lieu of such statement was 15th June, 1981. Therefore, the facts and circumstances prevailing on that .date with regard to the estimate of assessee's current income for the aforesaid purpose will have to be visualised. The assessee was under a bona fide belief that the carry forward in respect of unabsorbed business loss and unabsorbed depreciation of EMIC will be allowable to the assessee as per Section 72A from assessment year 1981 -82. Accordingly the assessee submitted a return of income for assessment year 1980-81 on 2nd July, 1980 declaring income of Rs. 11,68,102 without taking into consideration the unabsorbed business loss and depreciation of EIMC. The original return for assessment year 1981 -82 was filed on 31st August, 1981 in which the current year's income was disclosed at Rs. 33,73,047 as against which loss of EIMC under Section 72A was claimed at Rs. 82,92,247. The assessee claimed carry forward to loss amounting to Rs. 49,19,200. The original return for assessment year 1982-83 was furnished on 31st July 1982 in which current income was shown at Rs. 39,05,660 which was reduced to Nil by claiming unabsorbed loss and depreciation of EIMC. On 3rd September, 1982 declaration under Section 72A was received making the assessee eligible for claim of set off of past losses of EIMC. Thereafter the assessee furnished a revised return for assessment year 1980-81, showing total income at nil, after claiming carry forward in respect of unabsorbed business loss and depreciation of EIMC. Since the benefit of such carry forward of past losses under Section 72A was made effective from assessment year 1980-81 and the assessee, prior to that, was of the belief that it may be granted from assessment year 1981-82 onwards, it also submitted a revised return for assessment year 1981-82 on 12th January, 1983 and submitted a revised working, containing revised computation of income for assessment year 1982-83 along with aforesaid letter dated 1st January, 1983. This, according to the learned counsel, constituted a reasonable cause on the part of the assessee in entertaining a belief that its income for assessment year 1982-83 was not liable to any advance tax. 3.1 The other reason which gave such a belief to the assessee at the time when it was required to furnish the statement of advance tax was the claim made by the assessee for grant of deduction in respect of royalty payable to M/s Nikex Hungarian Trading Co. (NIKEX), the foreign collaborators, for the supply of technical know-how of the products manufactured by the assessee. An agreement was executed with NIKEX originally on 13th January, 1965 for a period of 10 years to be reckoned from the date of its coming into force w.e.f., 30th July, 1964. This agreement was approved by the Government of India finally vide letter dated 14th July, 1964. Due to devaluation of the Indian rupee in the year 1966, the implementation of the project was delayed and the plant could go into production only in the year 1970. On 25th March, 1970 a second agreement was executed with NIKEX under which the assessee-company confirmed their liability to remit the royalty for a period of 10 years starting from 25th March, 1970. The assessee, by virtue of the said revised/second agreement thus became liable for payment of royalty to NIKEX for the period from 25th March, 1970 to 24th March, 1980. The remittance was effected for the period ended on 29th July, 1974 i.e., till the duration of the first agreement. The assessee applied for grant of approval for payment of royalty for a period of 10 years in accordance with the revised agreement. This application was rejected by the Government authorities vide letter dated 19/20th January, 1983. The learned counsel submitted that the provision made by the assessee for payment of royalty in accordance with the revised agreement was allowed by the assessing authority for assessment years 1976-77', 1977-78 and 1978-79. For the first time the claim for grant of deduction in respect of royalty was disallowed in assessment year 1979-80 vide assessment order dated 19th September, 1983 i.e., much after the time when the assessee was required to submit the statement of advance tax for assessment year 1982-83 in the month of June, 1981. After refusal of the approval by the concerned government authority, the assessee had written back the amount of royalty provision aggregating to Rs. 39,08,844 in assessment year 1983-84 and the amount which had been allowed up to 1978-79 was subjected to levy of tax under Section 41(1). 3.2 If these two factors are taken into consideration, it will be found that the assessee was justified in forming a bona fide belief in the month of June 1981 that its taxable income after taking into consideration the carry forward allowable in view of Section 72A and the deduction in respect of royalty would be nil or a negative figure. These factors constitute reasonable cause. The penalty under Section 273(1)(b) cannot be levied if the facts and material existing on records prove that there was a reasonable cause for not furnishing the statement of advance tax or an estimate in lieu of such statement of advance tax. 3.3 The learned counsel further submitted that interest charged under Section 215 for this very year has been deleted in the quantum appeal by the CIT(Appeals). The department has not raised any ground of appeal against such deletion of interest under Section 215 before the Tribunal. Thus the finding given by the CIT(Appeals) deleting interest under Section 215 has been accepted by the department. This by itself sufficiently supports the assessee's contention that no penalty can be validly levied under Section 273(1)(6). 3.4 The learned counsel further argued that the burden lies on the department to prove the absence of reasonable cause before levy of penalty under Section 273(1 ){b). The mere default of non-submission of statement of advance tax or an estimate in lieu thereof would not automatically justify the levy of penalty but it is incumbent on the assessing authority to prove that the assessee has without any reasonable cause failed to do so. The ITO has not brought any material on record to discharge such a burden. He relied on the judgments in Addl. CIT v. Bipan Lal Kuthiala [1975] 98 ITR 343 (Punj. & Har..), CIT v. Gemini Pictures Circuit (P.)Ltd. [1991] 188 ITR 101 (Mad.), Jaipur Metals & Electricals Ltd. v. CIT [1974] 97 ITR 721 (Raj.), Hind Products (P.) Ltd. v. CIT [1980] 121 ITR 903 (Bom.) and CIT v. Birla Cotton Spg. & Wvg., Mills Ltd. [1985] 155 ITR 448 (Cal.) to support his contention that the burden lies on the revenue before levy of penalty under this section. He also relied on the following decisions to support his contention that the default of non-submission of statement of advance tax had occurred on account of the aforesaid reasonable cause on the basis of which the assessee remained under the bona fide belief that its current income would be nil or a negative figure: CIT v. Bihar State Road Transport Corporation Ltd. [1986] 162 ITR 504 (Pat.), Jeewanlal (1929) Ltd. v. ITO [1981] 130 ITR 405 (Cal.) and ITO v. Mahendra Electricals Ltd. [1991] 37 ITD 529 (Ahd.). He urged that the penalty levied on the assessee should be cancelled.
(3.) THE learned Sr. D.R. submitted that the ITO as well as the CIT( Appeals) have given elaborate reasons in their respective orders which duly justifies the levy of penalty. THE amalgamation scheme under Section 72A was made effective from 1-1-1979 and there could be no reasonable belief that carry forward in respect of unabsorbed business loss and depreciation of EIMC would be allowable from assessment year 1981-82. Similarly the agreement for royalty was disapproved by the concerning government department vide letter dated 19th October, 1977. THEreafter there could be no ground for entertaining any reasonable belief that deduction in respect of such provision for royalty would be allowable. THE assessee has itself submitted the revised working of taxable income for assessment year 1982-83 showing substantial amount of positive income. THErefore, the penalty levied by the ITO has rightly been confirmed by the CIT(Appeals).;


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