TMI Blog1979 (3) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. A sum of Rs. 3,72,566 was worked out to be the tax due and payable on the aforesaid income admitted by the assessee by virtue of the provisions of s. 140A of the Act, payable on or before January 25, 1965. A sum of Rs. 2,00,000 was paid by the assessee on January 25, 1965. Three days later, on January 28, 1965, the assessee had, through a letter to the ITO, prayed for time for payment of the balance till the end of February, 1965, on the ground that the assessee could not pay any further amount in spite of its sincere efforts as its financial position was very deficient on account of its launching certain major schemes of expansion. The ITO had raised the demand under s. 141 on January 29, 1965. The assessee had in fact paid a sum of Rs. 1,2,1,791 on February 15, 1965, and the balance of Rs. 50,000 on February 26, 1965. The ITO had issued a notice on January 29, 1965, when he raised the demand under s. 141 requiring the assessee to show cause why penalty under s. 140A(3) should not be imposed as it did not pay the tax due under self-assessment under s. 140A within the due date. By its reply dated February 1, 1965, the assessee had sought to explain that the delay in payment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of s. 140A(3) should be construed fairly, reasonably and harmoniously with the other provisions of the Act and, in any event, the circular issued by the CBDT under s. 119 was really binding on the ITO and the Tribunal had rightly held that there was reasonable cause for the short delay in the payment of a portion of the tax and this was not a fit case where penalty should have been levied. Mr. Rama Rao replied that the circular issued by the CBDT had no statutory force and the ITO had no jurisdiction to extend any time for the payment of the balance of tax in this regard. We may profitably notice the provisions of s. 140A of the Act which provides for self-assessment. Section 140A(1) makes the assessee liable to pay such tax before furnishing the return which has to be accompanied by proof of payment of such tax as required under s. 139 or s. 148. The present case is governed by the provisions of s. 140A which was originally inserted by the Finance Act, 1964, with effect from April 1, 1964, till March 31, 1971, when the same was substituted by the T. L. (Amend.) Act, 1970, with effect from April 1, 1971. This s. 140A reads thus : " 140A. Self-assessment.-(1) Where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be liable to pay by way of penalty such amount as the ITO may direct. The amount of penalty, however, cannot exceed 50 per cent. of the amount of tax or part thereof, as the case may be. However, if provisional assessment under s. 141 or regular assessment under s. 143 or s. 144 has been made before the expiry of 30 days referred to in that sub-section, this provision will not come into play. The proviso to sub-s. (3) entitles an assessee to have reasonable opportunity of being heard before levying any such penalty. The jurisdiction of the assessing authority to levy penalty under sub-s. (3) of s. 140A would accrue if the assessee fails to pay the tax or part thereof in accordance with the provisions of sub-s. (1). The failure to pay either the entire tax or any part thereof as required by sub-s. (1) of s. 140A would be the basis for the imposition of penalty under sub-s. (3). The Tribunal committed a grievous error of law in misconstruing this provision. If the interpretation sought to be placed by the Tribunal in the present case is given effect to, the penalty under the provision can be easily avoided by any assessee by a token payment of a rupee or so, because that is also a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or a token amount of Re. 1. Where the ITO has to give reasonable opportunity to the assessee of being heard and if he, after hearing the assessee, is satisfied that there is reasonable, just and sufficient cause for the assessee for his failure to pay the entire amount within the time permissible under s. 140A(1), he can certainly exercise, in appropriate cases, his discretion and direct him not to pay any amount in respect of penalty. In other words, he is empowered, in his discretion in appropriate cases, to exonerate the assessee from the liability to pay any amount towards penalty, if he is satisfied, on the consideration of the facts and circumstances, that there was sufficient or reasonable cause for the assessee for his inability to pay the entire amount or part thereof, within the time permissible to him under law. If really the ITO is bound in law without any discretion to levy penalty in every case where there is a failure of the assessee to pay the tax or part thereof as required under sub-s. (1) to s. 140A, the proviso, whereunder the assessee is entitled for a reasonable opportunity of being heard, would be redundant. The entire provision must be read harmoniously and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to levy such penalty in each and every case. Otherwise, this provision would be illusory. A Division Bench of the Calcutta High Court in CIT v. Wesman Engineering Co. (P.) Ltd. [1976] 104 ITR 695 also has taken a similar view. At page 607 it was pointed out by the Calcutta High Court after noticing the provisions of s. 140A: "From the language of this section and in particular sub-section (3) thereof it appears that the verb 'shall' governs the rest of the subsection, namely, that the assessee shall be liable by way of penalty to pay such amount as the Income-tax Officer may direct. Once the direction is given by the Income-tax Officer for payment of such penalty no doubt the assessee is bound to pay the same. But the sub-section does not cast an absolute duty on the Income-tax Officer to levy a penalty. As the Tribunal had observed, under this section, the assessee is given an opportunity of being, heard before any penalty is imposed. This opportunity would be illusory if the penalty was automatic. Further, under this section, the Income-tax Officer has discretion as to the rate of the penalty to be levied within the ceiling of 50 per cent. This also indicates that the pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f genuine transactions of loans, and the idea was not to affect such transactions and not to bring them within the mischief of the new provision. " This view has been reiterated by the Supreme Court in Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913. The learned judge, Hegde J., speaking for the court at p. 920, repelled the several contentions advanced by the learned Solicitor-General appearing for the Revenue that the instructions issued by the Board of Revenue cannot have any binding effect and those instructions cannot abrogate or modify the provisions of the Act. After reiterating the observations made by the Supreme Court in Navnit Lai C. Javeri v. K. K. Sen, AAC [1965] 56 ITR 198, it was observed that the directions given in that circular clearly deviated from the provisions of the Act, yet the court held that the circular was binding on the ITO. We, therefore, hold on this ground also that the assessing authority must be held to be having the jurisdiction and discretion to consider in each case whether it is a fit case for levy of penalty or not. In the present case, the Tribunal on a consideration of the facts and circumstances, has held that there was reasonable cause fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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