TMI Blog1985 (1) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... 965. It filed another estimate on November 23, 1965, showing an estimated income of Rs. 7,00,000. It substituted these estimates by another estimate on March 9, 1966, declaring an estimated income of Rs. 6.8 lakhs which consisted of business income of Rs. 3.40 lakhs and dividend income of Rs. 3.40 lakhs. The assessee submitted a return declaring income from property at Rs. 26,754, business income of Rs. 9,80,431 and dividend income of Rs. 3,38,937. Income was assessed by the Income-tax Officer for the first year under reference only by enhancing the business income from Rs. 9,80,431 to Rs. 10,01,752. The Income-tax Officer started penalty proceedings against the assessee under section 273 of the Act. For the second year under reference, the assessee filed an estimate under section 212 of the Act for Rs. 3,35,000 whereas income returned was Rs. 14,86,000. After giving effect to the appellate order, the income was finally assessed at Rs. 16,25,636. The Income-tax Officer started penalty proceedings against the assessee in terms of section 273 of the Act. The income which was finally determined was more than the income returned by the assessee. In the course of penalty proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee could not judge the trend of business and that it did not have an idea as to what the business profit should be. It was argued that property income was not included in the estimate of income. The Revenue also relied on the decision of the Calcutta High Court in the case of United Asian Trailers Ltd. v. CIT [1970] 77 ITR 711, and contended that the facts of that case are on all fours with the facts of the present case. The learned counsel for the assessee, on the other hand, contended that the only discrepancy that would be found was in regard to ginning factory. The assessee had to deal with agricultural products and the variation of yield would depend upon various factors with reference to agricultural products and that no yardstick could be found in that regard and as such when the assessee had given a basis and when the Appellate Assistant Commissioner found the basis to be proper, his orders for the two years required no interference. It was stated that the assessee had always been paying advance tax regularly as demanded and that it had paid more advance tax than what has become payable. He stated that in the immediately preceding year, advance tax paid was Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause there is disparity between the estimated income and the assessed income, no penalty could be imposed under section 273(a). Before dealing with the merits of the respective contentions, it is necessary for us to briefly refer to the decisions which have been relied on by the learned counsel appearing for the parties. One of the decisions heavily relied on by the Revenue is in the case of Appavoo Pillai v. CIT [1965] 57 ITR 41 (Mad). Therein the assessee had several sources of income ; one of them is a bus business. In September, 1953, the Income-tax Officer issued a demand under section 18A(1) of the Indian Income-tax Act, 1922, basing that demand on the last completed assessment, which was that of the assessment year 1948-49. Under sub-section (2), the assessee has the liberty of estimating his income and of paying advance tax in accordance with such estimate. In the estimate so submitted by him, he gave the estimated income as Rs. 25,000, but the total income as furnished by him came to Rs. 35,515. On assessment, however, his income was fixed at Rs. 90,759. The Income-tax Officer thereafter proceeded to apply section 18A(9) of the 1922 Act. In the view, therefore, that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Act, 1922, showing nil income and also showing the advance tax payable as nil for the accounting years 1958-59 and 1959-60. For one year, the income returned was Rs. 10,763 and for the other year Rs. 10,567. The assessment was completed for the year 1959-60 at Rs. 17,059 and for the second year 1960-61 on a total income of Rs. 12,974. The Income-tax Officer imposed penalty under section 18A(9) of the old Act for the aforesaid assessment years. It was contended before the Appellate Assistant Commissioner that the assessee's business was dealing in jute and hemp and the fluctuation in prices of these commodities being very heavy, it was not possible to predict what would be profit or loss of the business at the end of the year. On the dates on which the assessee had submitted the estimate under section 18A(2) of the Act, the assessee's account showed business losses and the assessee had no reason to expect that there would be a profit at the end of the year for either of these two years. Therefore, it was contended that there was no reason for the Income-tax Officer to be satisfied that the assessee had furnished the estimate which it knew or had reason to believe to be untrue. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the close of the accounting period, that does not by itself establish that the estimate which is filed is not only false but also false to the knowledge of the assessee. Before the expiry of the accounting year, an assessee may or may not have a full picture of the result of the income earned in that year. The time for making that calculation comes at the time of filing of the return. Therefore, unless there is evidence to indicate that 10 or 12 days prior to or after the close of the accounting period, the assessee knew or had reason to believe that the estimate filed by him was false, it cannot be presumed, simply because he had filed it after the expiry of the accounting year, that he had such knowledge. In the case of Ramnagar Cane Sugar Co. Ltd. v. CIT [1982] 134 ITR 609 (Cal), the assessee-company carried on the business of manufacture and sale of sugar. Its previous year for the assessment year 1971-72 ended on August 31, 1970. It paid advance tax as demanded by the Income-tax Officer under section 210 of the Income-tax Act, 1961, on an income of Rs. 5.44 lakhs. The last instalment of advance tax was paid on January 15, 1971. On May 7, 1971, the books of account of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be untrue. Under section 210 of the Act, the Income-tax Officer may require the assessee to pay the advance tax determined in accordance with the provision of sections 207, 208 and 209 of the Act. Since the advance tax is payable on the basis of the regular assessment or as the self-assessment made for the latest previous year, it may, therefore, bear no relation to the tax payable in respect of the income of the previous year relevant to the advance tax. Section 212 gives right to the assessee to estimate his income of the relevant previous year and to pay the advance tax on the basis of his own estimate if his income is likely to be less than that on the basis on which the advance tax is determined. If an assessee wishes to displace the obligation imposed upon him by an order under section 210, he has to file an estimate under section 212. Such an estimate cannot be made with mathematical precision. The estimate in that sense can never be accurate. Whether, an assessee had knowingly filed a false estimate or he had reason to believe that the estimate is untrue has to be determined on the facts and circumstances appearing in each case. An assessee, if he is carrying on business, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be sufficient to escape the liability under section 273 of the Act. He has to justify the basis of his estimate. The estimate must be an honest estimate based on the accounts which are available with the assessee on the date of estimate. The knowledge that the estimate is untrue or which the assessee believes to be untrue must be at the point of time when he submits the estimate. The mens rea or 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 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 assessee and there was no conscious or deliberate furnishing of untrue estimate. In such a case, no penalty can be imposed. It is in this background, we have to consider whether, on the facts of this case, the Tribunal was right in holding that no penalty can be imposed for deliberately furnishing an untrue estimate. Parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s found that the actual yield during the season of 1965-66 was much more than the 1964-65 season. The Appellate Assistant Commissioner compared the percentage of yield in different units with regard to kapas ginned and pressed for the season 1964-65 (assessment year 1965-66) with the season 1965-66 (corresponding to the assessment year 1966-67). He found that yield with regard to quality No. 320F taken was higher, being 34.65% in Malout unit, 35.34% in Kesrisingapur unit, 34.90% in Fatehabad unit and 34.04% in Sabgaria unit, whereas in the immediately preceding year with regard to the first year under reference, the yield in these units was 33.84%, 33.06 and 32.82%, respectively. He also noticed that the percentage of desi cotton was higher during this year. He also found that the assessee had extra yield of 2,951 quintals of No. 320F cotton and 555 quintals of desi cotton. He thus held that the assessee had reasonable explanation to offer with regard to the estimate of advance tax filed by it. On those facts, the Appellate Assistant Commissioner held that the assessee had a basis while submitting its own estimate. He also found that it was the basis of the immediately preceding ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimated income and the income returned arose due to the profits from inning and pressing factories which were situated at four places, one at Punjab, another at Rajasthan and two others at Haryana. The estimate of advance tax was prepared on the basis of the estimated profits of the various units. It was stated by the assessee before the Income-tax Officer that the exact yield could be determined only in May/June, 1966, i.e., after the close of the accounting year. The Revenue did not verify the position as to whether before May/June, it was not possible to know the exact position. There is no evidence that in the factories at Rajasthan, Haryana and Punjab, there is a teleprinter system or telex communication so that the assessee could get information then and there. The Tribunal held that unless verification was made, the Income-tax Officer was not justified in holding that an increasing trend in yield was noticeable before furnishing the estimate. The assessee submitted the estimate based on materials of the previous years. The Tribunal Also found that there was no mala fide intention in submitting the estimate of income in the manner it was done by the assessee. It could be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no evidence that at the material time the assessee had the information that profit of the assessee would go up to such an extent as would warrant it to pay tax of Rs. 24,92,216. The assessee stated that results of yield could be taken from agricultural products and various other factors that would determine the position about the yield. It is not the case of the Revenue that in cases of ginning and pressing factories, normal incident was increase in profits or increase in yield. The Appellate Assistant Commissioner stated that the assessee did not know nor had he reason to know the true position. One other point was raised by the Income-tax Officer in his order that the property income was not taken into consideration in filing the estimate and as such the assessee consciously failed to file a true estimate. The Tribunal held that the property income was never shown separately while filing the estimate of advance tax and that property was part of the assets of the assessee and, in such circumstances, it cannot be stated that the assessee omitted income from property with the oblique purpose to avoid payment of advance tax. Records do not indicate that for not showing pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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