1. This is an appeal against the order of the CIT (Appeals) sustaining a penalty of Rs. 2,25,544 levied under Section 273(2)(a) of the Income-tax Act, 1961.
2. This appeal arises out of the income-iax proceedings of M/s. Star Paper Mills Ltd., the appellant herein. The assessment year 1976-77, for which the previous year ended on 31-3-1976, the appellant carries on business in the manufacture and sale of paper. The appellant filed its return of income for this year on 28-9-1976 declaring a total income of Rs. 3,45,94,013 which later on revised by a revised return filed on 22-1-1979 as Rs. 3,40,91,560. The total income finally assessed for this year amounted to Rs. 3,53,25,310 alter giving effect to the appellate orders of the Appellate Tribunal dated 6-11-1985.
3. Before completing the assessment under Section 143(3) on 21-1-1980 on a total income of Rs. 3,63,06,800, the IAC, Range-VI (Central), Calcutta initiated penal action under Section 273(2)(a) of the Act against the assessee for filing wrong estimate of advance tax under Sections 212(1) and (2). In response to the show-cause notices against the levy of penalty, the assessee submitted its objections in writing on 14-3-1980 and again on 20-1-1986. The ITO, Central Circle-IV, Calcutta, who came to have jurisdiction over this case, in the meanwhile considered these objections of the appellant and held as follows to impose a penalty of Rs. 2,25,544 under Section 273(2)(a) of the Act :-- The assessee's submission in the replies have been considered. The assessee's submission that the delay in finalisation of A/c. till August 1976 was a ground for filing lower estimate is not accepted.
The audit of the company is generally completed after the close of the accounting year. If the assessee's contention is accepted then no Company is required to submit an estimate of Advance Tax during the Financial Year as its account is not completed within the accounting year. Further, it is found from the 'Director's Report' for the accounting year ended on 31-3-1975 under 'Mill Operation' that production was increasing from July 1974 under 'Crash Programme'. Again, as per 'Director's Report' under 'Mill Operation' for the accounting year ended on 31-3-1976, the production recorded increase by about 12 per cent, this year as a result of putting into commission the remaining equipments under 'Crash Programme". The last year's account was completed on 30-8-1975 and revised return for the assessment year 1975-76 was filed on 3-10-1975 showing total income of Rs. 2,69,31,790. The filing of lower estimate showing total income of Rs. 2,25,00,000 was without any reasonable cause.
Hence, I impose penalty under Section 273(2)(a) of IT Act, 1961 as follows.
4. The assessee appealed against this penalty and reiterated its submissions urged in its explanation submitted on 14-3-1980 and 20-1-1986. The Commissioner, however, did not agree with these submissions. He pointed out that the Director's report for the accounting year ended on 31-3-1975 under the head "Mill Operation" mentioned that production was increasing from July 1974 under "Crash Programme". Similarly, the Director's report for the accounting year ending 31-3-1976 mentioned that the production had recorded increase by about 12 per cent as a result of putting into commission the remaining equipment under the "Crash Programme', that the Director's report clearly showed that the assessee had been implementing the crash programme for increasing the production, that the production, in fact, started increasing from July 1974 onwards and that it was not explained how a lower estimate could be reconciled with these facts mentioned in the Director's report.
5. The Commissioner pointed out that the assessee filed the first estimate on 12-10-1975 showing an income of Rs. 1,60,00,000, that it filed a revised estimate on 5-3-1976 showing an income of Rs. 2,25,00,000, that no facts and figures were filed to show the basis on which these estimates were filed and that no information whatsoever was given as to how a miscalculation was made. The Commissioner held that the authorised representative was unable to explain as to what happened between 12-12-1975 and 15-3-1976 which lead to a revision of the first estimate. According to him, in short, absolutely no basis was given for these estimates. He pointed out that the assessee has filed a revised return for the assessment year 1975-76 on 3-10-1975 showing an income of Rs. 2,69,31,790 and that the estimates of advance tax, referred to above, were filed after this date wherein the income was estimated by the assessee at Rs. 1,60,00,000 and Rs. 2,25,00,000. The Commissioner noticed that in the return filed on 28-9-1976. the total income declared by the assessee was Rs. 3,45,94,013. According to him, in the estimate filed, the income estimated was even at the lower figure as compared to returned income in the preceding year and that no explanation was whatsoever offered as to how the estimate was filed showing such a low income when the production was showing an upward trend and when the assessee had already declared income at Rs. 2,70,00,000 for the preceding year. On these facts, the Commissioner, therefore, held that the assessee had filed an estimate which it knew or had reason to believe to be untrue. He, therefore, upheld the penalty levied by the ITO and dismissed the appeal. Aggrieved by this order of the Commissioner, the appellant has come up on further appeal to the Tribunal.
6. Shri M.P. Thard, the learned counsel for the appellant, filed a compilation consisting of 43 pages and reiterated the submissions that were urged before the departmental authorities. He submitted that the departmental authorities erred in rejecting the appellant's explanation overlooking the facts that the basis for the estimates filed by the appellant was the income returned by it for the earlier assessment year 1975-76 after taking into account the rise in production as well as fall in the price of paper in the year of account. If these factors were taken into consideration, the assessee could not make an exact estimate of his profits for the year under appeal for the purpose of advance tax. He, however, pleaded that the estimates made were bona fide and honest estimates with reference to the figures available in incomplete accounts of the appellant and that, in fact, the appellant continued to make payments of tax on such estimate basis under Section 140A amounting to Rs. 69,17,414 on three dates, viz.,-- The learned counsel submitted that these payments were made by the appellant when it became clear to it that its income would be much more than the estimates made by it and, therefore, it made these payments before filing its return of income on 28-9-1976 declaring a total income of Rs. 3,45,94,013. Shri Thard, therefore, argued that the finding of the departmental authorities to the effect that the assessee-company had filed estimates of advance tax which it knew or had reason to believe to be untrue within the meaning of Section 273(2)(a) of the Act was not justified and that they ought to have accepted the assessee's explanation and dropped the penalty proceedings having regard to the declared facts pleaded by him before the Tribunal.
The learned counsel relied on the following decisions of the Calcutta High Court in CIT v. Birla Cotton Spg. & Wvg. Mills Ltd. [1985] 155 ITR 448 and CIT v. Birla Cotton Spg. & Wug. Mills Ltd. [1986] 157 ITR 516.
He also referred to the decision of the Calcutta High Court in the case of Ramnagar Cane & Sugar Co. Ltd. v. CIT [1982] 134 ITR 609. The learned counsel argued that the ratio of the decisions of the Hon'ble High Court would be applicable to the facts of the present case and that therefore, the penalty is liable to be cancelled.
7. Shri Biswas, the learned Departmental Representative, relied on the findings of the CIT (Appeals) and pointed out that there was no basis shown by the assessee for the two estimates of advance tax filed by it either before the departmental authorities or even before the Appellate Tribunal. He argued that the submission that these estimates were based on the income returned for the immediately preceding assessment year after taking into account the rise in production as well as the fall in the price of paper in the year of account, was being stated for the first time before the Appellate Tribunal and there was absolutely no material either to substantiate this or to prove how these estimates were arrived at. He submit ted that the present explanation stated before the Tribunal was an entirely new case which was being set up for the first time before the Tribunal and that the same should not be allowed to be taken up at (his late stage. He further argued that the said explanation is also vague and unsubstantiated. Shri Biswas further submitted that on the authority of the decisions of the Calcutta High Court, it must be held that the assessee had failed to substantiate the basis of the advance tax estimates filed by it for this year and in the absence of any such satisfactory explanation, the adverse inference drawn by the departmental authorities was justified against the assessee. He submitted that the decision of the Madras High Court in the case of Appavoo Pillai v. CTT[1965] 57 ITR 41 would directly apply to the facts of the present case and that the departmental authorities were justified in levying the minimum penalty of 10 per cent and that there was no scope of any further relief to the assessee. In reply to the argument of the assessee's learned counsel with reference to the three payments of taxes on self-assessment basis under Section 140A of the Act, the learned departmental representative argued that far from proving the bona fides of the appellant, it proved that the appellant was hying to avoid the payment of further penalty under Section 140A(3) of the Act and that it did not explain in any manner the default committed by the appellant under Section 273(2)(a) of the Act.
8. We have carefully considered the rival submissions urged on both sides in the light of the materials placed before us and the decisions relied on in respect of the same. The penalty in question has been levied under Section 273(2)(a) of the Income tax Act, 1961 which reads as follows :-- (2) If the Assessing Officer, in the course of any proceeding in connection with the regular assessment for the assessment year commencing on the 1st day of April, 1970, or any subsequent assessment year, is satisfied that any assessee-- (a) has furnished under Sub-section (1) or Sub-section (2) or Sub-section (3) or Sub-section (5) of Section 209A, or under Sub-section (1) or Subsection (2) of Section 212, an estimate of the advance tax payable by him which he knew or had reason to believe to be untrue, He may direct that such person shall, in addition to the amount of tax, if any, payable by him, pay by way of penalty a sum-- (i) Which, in the case referred to in Clause (a), shall not be less than ten per cent but shall not exceed one and a half times the amount by which the tax actually paid during the financial year immediately preceding the assessment year under the provisions of Chapter XVII-C falls short of-- (1) seventy-five per cent of the assessed tax as defined in Sub-section (5) of Section 215, or (2) where a statement under Clause (a) of Sub-section (1) of Section 209A was furnished by the assessee or where a notice under Section 210 was issued to the assessee, the amount payable under such statement or, as the case may be, such notice, whichever is less; It would be noticed from the above provision of law that the default put against the assessee is regarding the advance tax estimate filed by it, "which it knew or had reason to believe to be untrue". This expression has been the subject-matter of judicial interpretation even under the old Act under which the corresponding provision was Section 18A(9)(a) read with Section 28(1)(c) of the Indian Income-tax Act, 1922. The earliest decision on the subject is that of Madras High Court in the case of P. Arunachala Mudaliar v. CIT [1963] 50 ITR 36. On pages 41 and 42 of the reports, the Madras High Court held as follows :-- The point that arises for decision is whether the assessee furnished the estimate of the tax under Section 18A(2) on 13th September, 1952, knowing or having reason to believe that it was untrue. Now, Section 18A(9) is one of the punishment Sections of the Act. It is a common feature of every taxing statute to impose penalty for violation of all or any of the provisions therein. Such penal provision has to be construed so as not to affect the subject, unless he or she is plainly caught within the literal statutory language. In adjudging the culpability of the assessee under Section 18A the department has the unified role of both the prosecutor and the judge. We do not suggest that the said provision is uniform or invalid because of this circumstance. We only wish to emphasise the fact that every care and caution must be taken by the department to see that the provision is not used against the assessee as an instrument of oppression. The proceedings are of a quasi-judicial character and it is unnecessary to point out that the authorities must act in a fair and unbiased manner. The accusation against the assessee is in the nature of criminal charge and it is obvious that the guilt must be brought home to him by adopting the standard of proof, as far as may be possible, requisite to sustain a conviction in a criminal court.
9. The next decision is the decision of the same High Court in the case of Appavoo Pilled (supra) wherein it was reiterated by the Court that an assessee who makes an estimate of advance tax under Section 18A(2) is expected to make an honest estimate and he can do so only on the basis of the accounts which are available with him as on the date of the estimate. The Court further held that where an assessee submitted an estimate of income for purposes of advance tax under Section 18A(2) and the income fell far short of the sum assessed at regular assessment and the assessee was not able to show that his estimate was justified by the state of accounts as they stood on the date of the estimate, the imposition of penalty under Section 18A(9) read with Section 28(1)(c) was lawful.
10. In Birla Cotton Spg. & Wvg. Mills Ltd. 's case (supra), the Calcutta High Court has held as follows while construing the provisions of Sections 212 and 273(a) of the Act as they stood with reference to the assessment years 1966-67 and 1968-69 :-- The burden of proving that an estimate of advance tax submitted by the assessee was false or inaccurate to his knowledge is on the Revenue. Such estimate can't be made with mathematical precision.
Mere disparity between the estimate submitted by the assessee and the income he himself returned or the ITO finally determined in the assessment by itself would not justify imposition of penalty under Section 273 of the Act. Where there is a disparity and the disparity is enormous, mere self-serving statement of the assessee that he thought that his estimate represented a probable income of the year would not be sufficient to escape the liability under Section 273 of the Act. He has to justify the basis of the 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 one 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. 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.
In this case Their Lordships of the Calcutta High Court have referred to all the decisions bearing on the subject including the decision of the Madras High Court in the case of Appavoo Pillai (supra) above. The other decision in Birla Cotton Spg. &. Wvg. Mills Ltd.'s case (supra) which is the same as in Birla Cotton Spg. & Wvg. Mills Ltd.'s case (supra), therefore, need not be referred to again. The decision in Ramnagar Cane & Sugar Co. Ltd.'s case (supra) relied on by the assessee's learned counsel, the facts were entirely different from the assessee's case and, therefore, this decision would be of no avail to the assessee. A perusal of the facts of the case would show that the assessee was able to substantiate the estimates of advance tax filed by it and the Court accepted the assessee's plea that it could not have anticipated the huge profits which arose on account of valuation of closing stock at the time when it made the estimate on the basis of profits earned in the immediately preceding year.
11. We would like to refer the latest decision of the Calcutta High Court which is now in CIT v. Calcutta Steel Co. Ltd. [1991] 191 ITR 691. In this decision, Their Lordships of the Calcutta High Court have held that the question whether the estimate of advance tax was true to the knowledge of the assessee or not, was a question of fact, that the Tribunal had referred to all the facts brought on record and arrived at the conclusion that the assessee's estimate was not false and that the Tribunal was justified in deleting the penalty.
12. When we examine the facts of the present case in the light of the ratio of the various decisions quoted above, we find that the appellant had filed two estimates of advance tax in Form No. 29 for this year.
The first one was filed on 12-12-1975 estimating the total income at Rs. 1,60,00,000 on which the advance tax payable was computed at Rs. 92,40,000. The second estimate was a revised estimate filed by the assessee on 15-3-1976 estimating the total income at Rs. 2,25,00,000 and the advance tax thereon at Rs. 1,29,73,750. From the figures furnished by the assessee's learned counsel in the summarised statement of facts on page 1 of the paper book, it would be noticed that by the time the assessee filed its first estimate of advance tax on 12-12-1975, the appellant had filed its return of income for the immediately preceding assessment year 1975-76 on 3-10-1975 disclosing an income of Rs. 2,69,41,790. It is on the basis of this return, the ITO had issued a revised demand notice under Section 210 which was received by the assessee on 6-11-1975 demanding an advance tax of Rs. 1,54,86,623. On what basis the assessee arrived at the figure of Rs. 1,60,00,000 as its total income for the assessment year 1976-77 is not known. We have already referred to the findings of the CIT (Appeals) in this regard pointing out the total lack of basis and explanation offered by the assessee for this estimate of advance tax filed by it on 12-12-1975 in spite of repeated opportunities given by the Departmental authorities at the various stages. As rightly pointed out by the Commissioner (Appeals), the Directors' report for the year under appeal shows an increase of 12% in production as a result of putting into commission remaining equipments under the "Crash programme" which was being pursued by the appellant from the earlier accounting year. In fact, the Directors have said : "Due to increased production and improved working efficiency resulting in higher yield from raw materials, the working of the Mills has shown better results this year.
Due to picking up of demand, the off-take of paper has improved resulting in reduction of stocks to normal level". If this report of the Directors regarding the Mill operation in their report is taken along with the income declared by the assessee in its return of income for the earlier assessment year 1975-76, the income for the year under appeal would have been much more than what the appellant had returned for the assessment year 1975-76. Therefore, it is very difficult to accept the contention urged on behalf of the assessee by its learned counsel that the basis of this estimate filed on 12-12-1975 is the income returned by it for the earlier assessment year 1975-76. If it were truly so, the assessee ought to have added at least 1/3rd of that figure of income returned by it for the assessment year 1975-76 which is the margin of error contemplated by the enactment itself under Section 212(3A) of the Act for purposes of estimating the current income for purpose of advance tax. The assessee's plea is that there was fall in the selling price of paper even though there was increase in production. The learned departmental representative is right in his submission that this contention was never put forward by the appellant before any of the authorities below and it was being stated for the first time before the Tribunal and, therefore, it should not be allowed to be taken up at this late stage. Even if we assume for the sake of argument, that there was some fluctuation in the selling price of paper in the year under appeal, as alleged by the assessee, the appellant has not been able to show as to what extent it affected its profits to bring it below the income returned by it for the assessment year 1975-76. We are of the view that this explanation sought to be put forward for the first time before the Tribunal remains unsubstantiated, apart from being vague. We are also unable to agree with the assessee's learned counsel that the estimate made by the assessee on 12-12-1975 was a bonafide estimate on the basis of the accounts available with it and that its bona fides were further proved by the revised estimate filed by it on 16-3-1976 and that further it had paid three amounts of tax totalling nearly Rs. 69 lakhs under Section 140A of the Act before filing its return on 28-9-1976. All these facts do not substantiate or support the assessee's claim that the estimate filed by it was an honest, prudent, fair and reasonable estimate based on facts and figures. On the contrary, they only show that the appellant has been postponing the payment of advance tax as far as possible, so that it could have its funds for its rotation till it filed its return of income for the year under appeal on 28-9-1976. We are, therefore, unable to agree with this submission of the assessee's learned counsel.
The amount of penalty levied is the minimum amount of penalty of 10 per cent of the tax as specified in Section 273(2)(a) of the Act and there is no dispute about the quantum of penalty levied. In the absence of any materials placed by the appellant either before the departmental authorities or even before us to substantiate the alleged bona fide miscalculation, we find ourselves unable to accept the assessee's contention that the levy of penalty was not justified on the facts of the present case. We, therefore, hold that the departmental authorities were justified in their conclusion that the estimates of advance tax filed by the assessee on 12-12-1975 and 15-3-1976 were estimates which the assessee knew or had reason to believe to be untrue within the meaning of Section 273(2)(a) of the Act and that the levy of penalty was fully justified. Accordingly, we confirm the order of the CIT (Appeals).