KATJU,J. - (1.) THIS reference has been made under S. 256 (2) of the IT Act, 1961 (the Act). The questions referred to are as follows: "1. Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in holding the onus of proving that the estimate filed by the assessee under S. 18A (2)/221(2) was false to his knowledge or he had reasons to believe to be untrue, is on the Department ? 2. Whether on the facts and in the circumstances of the case the Tribunal was justified in cancelling the penalty of Rs. 2 lakhs imposed under S. 273(a) of the IT Act, 1961 ?"
(2.) WE have heard the learned standing counsel and Shri R. S. Agarwal, the learned counsel for the assessee. The facts of the case are that the assessee company derives income mainly from the manufacture of cotton textiles and the sale thereof. A notice under S. 18A (1) of the Indian IT Act, 1922 was served on the assessee on 22nd May, 1961 demanding advance tax of Rs. 21,567 during the financial year 1961-62 on the basis of the latest completed assessment for the asst. yr. 1956- 57. The company did not pay the tax as demanded, instead it filed an estimate under S. 18A (1) and (2) on 15th June, 1981 declaring its income at Rs. 20 lakhs and the tax payable thereon at. Rs. 9 lakhs. The sum of Rs. 9 lakhs was paid between 28th June, 1961 and 24th March, 1962. The assessment was made on 29th March, 1967 on total income of Rs. 66,04,762. Before the completion of the assessments notice under S. 274 of the Act, was issued and served on the assessee on 31st March, 1967 requiring the assessee to show cause as to why penalty should not be imposed under S. 273(a) of the Act for filing an estimate which was untrue. In reply to this notice the assessee filed a letter dt. 22nd June, 1967 in which it raised various contentions which are mentioned in the said letter and the assessee denied its liability to pay penalty. The ITO rejected the assessee's contention holding that against the business, income as per revised return filed on 5th March, 1963 which works out to Rs. 34,56,768 the income determined after giving effect to the order of the AAC comes to Rs. 58,17,031. On the above facts the ITO held that the company failed to furnish any reasonable ground for the difference between its estimated income and the income determined by the ITO. In view of this the ITO imposed a penalty of Rs. 2 lakhs under S. 273 (a).
(3.) THE assessee filed an appeal before the AAC against the order of the ITO but the same was rejected. The assessee filed second appeal before the Tribunal which was allowed. The Tribunal held that the burden was on the Department to prove that the assessee knew or had reason to believe that the income shown in the estimate was not true. This burden was not discharged by the Department.;