TMI Blog1981 (9) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee preferred an appeal to the Appellate Tribunal. Before the Tribunal it was contended that the ITO had not given the assessee an opportunity to show cause against the proposed imposition of penalty. It was also contended that the assessee bad been prevented by sufficient cause from paying the amount of tax under s. 140A and in support of this contention it was pointed out that a similar penalty levied for non-payment of advance tax for the assessment year 1968-69 had been remitted by the AAC. The Tribunal rejected the first of the contentions put forward on behalf of the assessee but, so far as the second contention was concerned, it was of the view that the relevant fact had not been properly considered by the AAC. The Tribunal, therefore, set aside the order of the AAC and restored the matter to him for fresh disposal in accordance with law. When the matter thus came up again before the AAC, the assessee filed a paper book running into over 250 pages. On the strength of the various documents in this compilation it was urged that the payment of self-assessment tax could not be made for reasons beyond the company's control. In support of the plea of financial difficulties it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the circumstances of the present case no reasonable cause has been made out by the assessee for the default in the payment of the tax under s. 140A. He was of opinion that the cancellation of the penalty levied for non-payment of advance tax for the assessment years 1968-69 and 1969-70 stood on different footing. In his view the self-assessment tax became payable after the end of the accounting period when the income had already been earned by the assessee and if an assessee ignored his responsibility to pay this tax and placed himself in financial difficulties he alone would be to blame. The learned judicial Member recognised that there could be occasions where, at a given point of time, an assessee might bona fide carry the impression that temporary user of money in his normal business errands would not prevent the same being available to him at the appropriate time for being deposited with the Government but he observed that if an assessee chose to deliberately use funds available with him elsewhere with his eyes open with the result that they were not available when the tax fell due, he need not receive any indulgence from the Revenue at the time of levy of penalty. Exami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f-assessment tax. He also disagreed with the view of the learned judicial Member that the diversion of funds by the assessee had been made with mala fide intentions and in his view there was no suggestion or evidence to show that the assessee had joined hands with Globe Motors Ltd. (which was the holding company) with the ulterior motive of defrauding the Revenue. On the other hand, the correspondence and subsequent proceedings amply justified the view advanced on behalf of the assessee that the relationship between the assessee-company and the holding company were really strained and that in fact the assesseecompany had been cheated by the holding company. The learned Accountant Member further pointed out that apart from the fact that penalty for non-payment of advance taxes for the assessment years 1968-69 and 1969-70 had been cancelled, there was also evidence to show that the CBDT, before which applications had been filed seeking the postponement of payment of tax in arrears (including the advance tax for the assessment years 1968-69 and 1969-70, and self-assessment tax for the assessment year 1967-68) accepted the position that the assessee-company was not in possession of fun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bused their authority, it was the company which was ultimately responsible. Analysing the position, the learned Vice-President pointed out that it was nobody's case that the transfer of funds of the assessee-company had been made to avoid payment of tax by the assessee-company. On the other hand, there was an evidence to show that the funds were transferred in order to tide over the financial difficulties of other companies in which the holding company or its directors were interested. The assessee-company could be said to have colluded with the holding company only in the sense that it acquiesced in the transfer of funds, but it was not possible to suggest that this acquiescence was actuated by a desire to avoid payment of taxes on its own income. Pointing out that there was a struggle between the two groups of shareholders in the company and that ultimately both the holding company and the assesseecompany passed under the control of different groups of persons the learned Vice-President observed that even though the assessee-company retained its identity as a company it was not reasonable to ignore the fact that to a considerable extent it was helpless in the matter of preserving ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -a-vis the financial condition of the assessee in the relevant period to hold that it should be treated as in default in respect of the demand under s. 140A. With respect to the observation of the learned judicial Member that the full facts regarding the decision of the CBDT were not before the Tribunal, the learned Vice-President pointed out that the entire correspondence in the matter had been placed before the Tribunal and that this correspondence gave full details of the liabilities and difficulties which the assessee was experiencing. For the above reasons, the learned Vice-President endorsed the conclusion of the Accountant Member and agreed with him that the penalty imposed ought to be cancelled. In conformity with the view of the majority of the members who heard the appeal, the appeal preferred by the assessee was allowed and the penalty stood cancelled. The Addl. Commissioner of Income-tax has, therefore, come to this court under s. 256(1) of the I.T. Act, 1961. The question referred to us for decision is in the following terms : " Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that no penalty under section 140A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT v. Vrajlal Manilal Co. [1981] 127 ITR 512, on this aspect and we entirely agree with this view. The only other aspect urged by Shri Lalwani was that in the present case the assessee could not be said to have had reasonable cause for the default in the payment of the tax. He urges that the assessee was aware that it had to pay advance tax by the middle of September, 1967, and that it had purposely diverted its funds and invested them in long range imprudent and infructuous investments. According to him it is not very material that these investments were made because Globe Motors Ltd., by virtue of their majority shareholding, had a hold over the affairs of the company. We are unable to accept this contention of the learned counsel for two reasons. In the first place, whether on the facts and circumstances of particular case, the non-payment of tax stems from a reasonable cause or whether in the circumstances the conduct of the assessee was such as to merit the imposition of the penalty is purely a question of fact. It depends upon the examination of the facts and circumstances of each case. The position is similar to that regarding the imposition of penalty under s. 271(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... points out that these were investments made in concerns in which the holding company was interested and that these long range investments made between April and September, 1967, were against the normal conduct of a prudent man. However, in another part of the order, he refers to them as reckless, shady and collusive deals entered into by the assessee-company. The full circumstances in which the diversion of funds took place have not been brought on record by the Revenue while getting this statement of case prepared. We have, therefore, to proceed only upon such information as is available on record and as has been considered by the Members of the Tribunal. Both the Accountant Member and the judicial Member have pointed out that at the relevant time Globe Motors Ltd. had a dominating position in the shareholding of the assessee-company and that the funds had got diverted much against the will of the minority shareholders and with a view to rescue the other companies in which Globe Motors Ltd. was interested from certain difficulties into which they had got themselves entangled. It is no doubt true that a company is a separate entity for purposes of taxation but in judging the condu ..... 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