Delhi High Court
J. K. Synthetics Ltd. vs Assistant Commissioner Of Income ... on 3 July, 1992
Equivalent citations: (1993) 45 TTJ Del 110
ORDER
S. K. JAIN, J. M. :
Levy of penalty of Rs. 12,23,145 by the Assessing Officer under S. 273(a) of the IT Act, 1961 for the asst. yr. 1978-79 (previous year ending 31st Dec., 1977), having been unsuccessfully challenged in appeal before the CIT(A) - IX, New Delhi, is being reagitated by the assessed-company in this second appeal.
2. As the S. 273(a) then stood, the charge against the assessed is that it had furnished under S. 212 an estimate of advance tax payable by it which it knew or had reason to believe to be untrue. The estimate of advance tax furnished by the assessed on 15th Dec., 1977 showed income of Rs. 529.15 lacs whereas the revised return of income declared income of Rs. 703.39 lacs. There was thus a different of Rs. 174.24 lacs in the returned income and the income estimated for the purpose of advance tax. This, according to the Assessing Officer, was a big difference between the income returned and the estimate of advance tax filed. On the basis of this difference he drew an inference that the estimate filed was not on proper basis and no full and proper justification was shown therefore. The assessed filed detailed explanation before the Assessing Officer but all that was dismissed as untenable. Again the assessed filed the detailed explanation before the CIT(A) but that too met with the same fate. The CIT(A) also took into account the past history of the estimates of advance tax filed by the assessed while determining the quantum of penalty. He was of the view that the assessed maintained gross profit register for four units only and that too for 10 months. According to him, the basis of information tabled in the gross profit register was not scientific and was bound to result in abnormal variation. Further he observed that the gross profit register did not reflect the expenses of the head office. In his opinion, the assessed could have filed a reasonable estimate for the reasons that it was maintaining books of accounts on day-to-day basis and it had a system of reporting financial matters to the Board as well as to the Managing Director. He further observed that the assessed had a support of taxation and account department and competent taxation advisers.
3. Learned counsel for the assessed placed before us the explanations furnished before the tax authorities below and contended that there was honest endeavor on the part of the assessed in estimating its income and there was nothing on its part in furnishing the estimate of advance tax which can be branded as untrue to its knowledge or belief. He explained that the gross profit register was maintained for four units only since the other units, namely, FEM and Rayon Divisions were always in loss and S. P. R. C. and Registered Office divisions were only expenditure divisions. It is further contended by him that the actual gross profit in respect of the four units was recorded up to October, 1977 and for the remaining two months estimate was made by taking the average of the ten months. It is further contended by him that the assessed-company is a multi-unit company. It manufactures diverse goods like synthetic yarn, cement, cops, steel, etc. By the time the estimate of income was to be made the results of November were not received and, therefore, the assessed adopted a reasonable method for estimating the profits for November and December by averaging the profit disclosed in the gross profit registers up to October, 1977. The actual gross profit for November and December came out to be proportionately more. The assessed had estimated the gross profit at Rs. 265.31 lacs for November and December but the actual came out at Rs. 451 lacs. This is how there was a difference of about Rs. 186 lacs. It is further contended by the learned counsel for the assessed that had there been any intention on the part of the assessed to underestimate the advance tax the assessed could not have made a short claim for deduction on account of depreciation, excise duty and loss at Rs. 70 lacs. There was no doubt excess receipt of processing charges at Rs. 27 lacs and excess claim of deduction under Chapter VIA of the IT Act, 1961 at Rs. 15 lacs and the assessed on its own made disallowance under Ss. 40A(5) and 40A(8) of the IT Act at Rs. 20 lacs but all that was an estimate without any intention to underestimate the advance tax.
4. Learned Departmental Representative, on the other hand, supporting the orders of the tax authorities below stressed that the past history of he assessed shows that it has been underestimating the advance tax in the earlier years as well.
5. We have minutely considered the respective submissions of the parties. It is needless to say that an estimate cannot be a mathematically accurate. What is to be seen is that there was honest endeavor on the part of the assessed to estimate its income for the purposes of advance tax. For estimating the gross profit the assessed has adopted a system and has regularly maintained gross profit register for its own units. That system cannot be said unscientific. It could not be expected from the assessed to calculate the actual gross profit from the four units for the last two months of November and December. The assessed rightly took the average gross profit for those two months particularly when the estimate of advance tax was due to be filed by 15th December. That estimate itself has made a difference of Rs. 186 lacs. That is to say more than what was the difference in the estimate of advance tax and the returned income. In this view of the matter coupled with the arguments of the learned counsel for the assessed referred to above, with which we agree, it is difficult to draw an inference that the estimate was untrue to the knowledge or belief of the assessed.
6. For arguments sake the estimate may be treated as untrue but at any rate it cannot be branded as untrue to the knowledge or belief of the assessed. The assessed made clear the process by which the income was estimated for the purpose of advance tax. No positive evidence has been brought on record by the Department if any inference of contumacious conduct of the assessed can be drawn from such method as was adopted by the assessed for estimating its income. So far as the past history of the assessed is concerned, it is no doubt relevant but it cannot be formed as the basis for drawing inference of contumacious conduct of the assessed for the instant assessment year. In order to arrive at such finding one has to advert to the facts obtaining in the instant case and in case finding is reached against the assessed, it can be sought to be supported or re-enforced by the past history. The CIT(A) rightly observed that defaults committed by the assessed in the past can be taken into account for determining the quantum of penalty. However, as stated above, the past history cannot be taken as basis to punish the assessed for the acts relating to this year. We have since reached the finding that the estimate of advance tax could not be proved to be untrue to the knowledge or belief of the assessed. We do not attached weight to the past history.
7. In view of our discussion the orders of the tax authorities below are set aside and the penalty is cancelled.
8. In the result, the appeal is allowed.
