1983 (1) TMI 121 - AT - Income Tax

Summary

Issues:
1. Penalty levied under section 140A(3) of the IT Act for non-payment of advance tax.
2. Consideration of reasons for non-payment of advance tax.
3. Applicability of penalty computation under section 140A(3) of the IT Act.
4. Justification for the quantum of penalty imposed.

Detailed Analysis:
1. The appeal before the Appellate Tribunal arose from a penalty levied under section 140A(3) of the IT Act due to non-payment of advance tax by the assessee. The Income Tax Officer (ITO) initiated penalty proceedings as the balance of tax under section 140A was not paid by the assessee within the stipulated time frame.

2. The assessee contended that the failure to pay advance tax was due to the dislocation of business caused by the detention of directors under MISA and illness of another director. However, the ITO did not accept this explanation, citing that the assessee, being an old entity, should have been aware of tax provisions and possessed sufficient liquid funds to pay the balance.

3. The CIT(A) rejected the assessee's plea but noted that the penalty imposed by the ITO seemed to be based on estimation. The CIT(A) directed the ITO to compute the penalty at 2% of the tax due for every month of default, as per section 140A(3). The CIT(A) also highlighted the incorrect application of penalty provisions by the ITO.

4. The Appellate Tribunal analyzed the applicability of penalty computation under section 140A(3) of the IT Act. The Tribunal observed that the penalty computation should have been based on the provisions existing at the time of the default, and not the amended provisions. The Tribunal found that the CIT(A) misapplied the law and that the penalty imposed by the ITO was not in accordance with the legal framework.

5. The Tribunal further deliberated on the justification for the quantum of penalty imposed. The assessee argued that a nominal penalty or no penalty should suffice, citing a legal precedent. However, the Tribunal disagreed, emphasizing that the non-payment of advance tax deprived the state Exchequer of significant funds without provision for interest on delayed payment. Consequently, the Tribunal set aside the CIT(A)'s order and reinstated the ITO's penalty decision.

6. Ultimately, the Appellate Tribunal partly allowed the appeal, directing that the order of the CIT(A) be set aside and the ITO's penalty decision be restored, emphasizing the importance of timely tax payments and adherence to legal provisions.