Decided on February 04,1994



Shri R.V. Easwar, Judicial Member - (1.) THIS appeal by the department pertains to the assessment year 1985-86 and is directed against the order of the CIT(A) dated 26-7-1990 by which he cancelled the penalty of Rs. 2,10,533 imposed on the assessee under Section 273(2)(a) of the I.T. Act.
(2.) The appeal arises this way. A notice Under Section 210 of the Act was served on the assessee on 29-11-1984 demanding an advance-tax of Rs. 60,190. On 30-11-1984 the assessee responded by filing an estimate in Form No. 29 declaring nil income and consequently nil advance-tax. In filing this estimate the assessee-company took into account the loss of Rs. 16,87,520 for the assessment year 1984-85 as per return filed on 18-6-1984 and the loss of Rs. 3,38,860 for the assessment year 1983-84 as per return filed on 21-7-1983. The ITO completed the assessment on 11-1-1988 determining the total income at Rs. 45,85,583. He initiated proceedings for the levy of penalty under Section 273(2)(a) of the Act on the ground that the assessee filed an estimate of advance-tax which it knew or had reason to believe to be untrue. After considering the explanation of the assessee he imposed a penalty of Rs. 2,10,533. On appeal it was noticed by the CIT(A) that as per the returns filed for the assessment years 1983-84 and 1984-85 there was only a loss and therefore at the time when the assessee filed the estimate it had reasons to believe that after adjusting the losses there would be no income on which advance-tax should be paid. He further noticed that the assessments for the aforesaid two assessment years were completed on 31-3-1986 and 12-2-1987 respectively which dates fell after the date of the filing of the estimate. In the assessment for the assessment year 1983-84 there was a loss of Rs. 1,51,890 but the assessment for the assessment year 1984-85 was made on an income of Rs. 15,01,482. Since the assessments were completed after the date of filing of the estimate the assessee did not know that there would still be some income subject to advance-tax for the assessment year under appeal. He, therefore, cancelled the penalty.
(3.) THE Ld. D.R. contended in support of the appeal that there was wide disparity between the estimate and the income returned and the assessee had not explained the same. In this connection he referred to the judgment of the Calcutta High Court in CITv. Birla Cotton Spg. & Wvg. Mills Ltd. [1985] 155 ITR 448 especially the observation at page 449 wherein it has been held that it was the assessee's duty to explain the disparity between the income estimated and the income returned or assessed. It was further pointed out by him that the assessee should have known or anticipated that the interest on advances would be assessed on accrual basis though its method of accounting in respect of such interest had been changed from accrual basis to cash basis. In this connection it was pointed out by him that in the assessment year 1984-85 the change in the method of accounting for interest was not accepted by the departmental authorities and this position should have put the assessee on guard. He further submitted that the assessee's explanation is a mere self-serving statement which should not have been accepted by the CIT(A).;

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