ORDER
SATISH CHANDRA, A.M. :
The assessee’s appeal arises out of the order dt. 25th October, 1990, of the CIT(A), whereby he confirmed the levy of penalty at Rs. 7,100 under s. 273(2)(c) of the IT Act, 1961 (for short ‘the Act’) for failure of furnishing estimate of advance tax in Form No. 29 in accordance with the provisions of sub-s. (4) of s. 209A of the Act for the asst. yr. 1985-86.
2. The assessee is a firm engaged in the business of sale of motor, pumps, monoblocks, etc. The assessee-firm filed estimate of advance tax declaring current income at Rs. 2,25,000, on which tax payable worked out to Rs. 45,000, which was paid. The return declaring income at Rs. 2,25,107 was filed for the asst. yr. 1985-86 but the assessment was completed on total income of Rs. 2,87,901. The Assessing Officer initiated penalty proceedings.
3. In response to show-cause notice, it was contended before the Assessing Officer that the difference between the current income estimated by the assessee for the purposes of advance tax estimate and the income assessed arose on account of certain disallowances which could not be predicted at the time of filing the estimate. Hence, the penalty is not exigible. The Assessing Officer did not accept the explanation on the ground that the disallowances made by the Assessing Officer in the assessment order had not been challenged in appeal. From this, he concluded that the assessee was aware of such disallowances and, therefore, the assessee should have filed higher estimate of advance tax. Since higher estimate of advance tax was not filed without any reasonable cause, he held that the penalty was exigible. Accordingly, he levied the impugned penalty, against which the assessee went in appeal before the CIT(A) but did not succeed. Aggrieved thereby, the assessee is in appeal before us.
4. Shri S. K. Jain, the learned counsel for the assessee, submitted that the assessee-firm had made provision of about Rs. 1 lac under various heads and had claimed deduction by debiting the same to P&L account. Out of such provisions, the Assessing Officer allowed provisions to the extent of Rs. 38,000 and the balance provision has been disallowed and added to the income of the assessee. It is on account of such disallowances that the difference arose between the current income estimated by the assessee for payment of advance tax and income assessed. According to him, such variation cannot call for levy of impugned penalty. Inviting our attention to the penalty order, Shri Jain submitted that the only reason given by the Assessing Officer for rejecting the assessee’s explanation is that the disallowance made by the Assessing Officer out of the said provisions have not been contested by the assessee in appeal. According to Shri Jain, non-filing of appeal does not necessarily lead to the conclusion that the assessee had not estimated its current income correctly. The assessee has maintained its account on mercantile basis and, therefore, it was necessary for it to provide for liability of the year of account. During the course of assessment proceedings, the assessee had furnished explanation in respect of provisions made under different heads of account and it has not been found by the Assessing Officer that such provisions were not made bona fide. He vehemently argued that the very fact that the Assessing Officer has allowed the provisions to the extent of Rs. 38,000 goes to suggest that the assessee’s claim was not bogus. According to Shri Jain, the onus of proving that the assessee had paid lesser advance tax is on the Revenue but the said onus has not been discharged by it by bringing on record any material in that respect. Shri Jain referred to the decision in the case of Cement Marketing Co. of India Ltd. vs. Asstt. CST, Indore & Ors. (1980) 124 ITR 15 (SC) and invited our attention to the following observations of their Lordships appearing at page 19 of the report :
“If the view canvassed on behalf of the Revenue were accepted, the result would be that even if the assessee raises a bona fide contention that a particular item is not liable to be included in the taxable turnover, he would have to show it as forming part of the taxable turnover in his return and pay tax upon it on pain of being held liable for penalty in case his contention is ultimately found by the Court to be not acceptable. That surely could never have been intended by the legislature.”
Shri Jain further argued that even otherwise the penalty would work out to nil if it is computed in accordance with the decision of the Indore Bench of the Tribunal rendered in the case of Ramlal Chironjilal, Dewas vs. ITO ITA No. 296/Ind/1987, dt. 30th November, 1991 (copy of which appears at pages 6-9 of the compilation). The contentions of the learned counsel for the assessee were opposed by Shri N. K. Vijayvargiya, the learned Departmental Representative. Inviting our attention to the assessment order, Shri Vijayvargiya pointed out that the assessee had made provision for bonus in respect of anticipatory expenses relevant to the succeeding assessment year. He further submitted that provision for freight was also made without any basis, as the assessee had provided the expenses on estimate only. Moreover, it was found that the provision for stationery and printing was, in fact, not made on the basis of bills received, as contended by the assessee. Shri Vijayvargiya argued that from the very nature of the provisions made by the assessee under the above three heads, the assessee could very well foresee that such provisions would not be allowed in assessment. Therefore, the assessee was under obligation to file higher estimate of advance tax and failure to do so has invited penalty, which has been confirmed in first appeal and deserves to be sustained. Shri Vijayvargiya referred to the decision of Hon’ble Madhya Pradesh High Court in the case of CIT vs. Bhabuti Contractor (1990) 183 ITR 445 (MP) and submitted that the penalty has been calculated as per law in accordance with the Expln. 2 below s. 273 of the Act. In his counterpart arguments, Shri Jain, the learned counsel for the assessee, submitted that the Hon’ble Madhya Pradesh High Court decision (supra) does not lay down the manner of computation of penalty and, therefore, the reliance placed by the learned Departmental Representative on the said decision is misplaced.
5. We have considered the rival submissions. It is an admitted position that the assessee-firm had filed an estimate of advance tax estimating its current income at Rs. 2,25,000 and had paid advance tax of Rs. 45,000 on the basis of the said estimate. It is also not in dispute that the income returned by the assessee was also in conformity with the income as per its advance tax estimate. However, the income has been determined on assessment at Rs. 2,87,901. The difference between the current income as per advance tax estimate and assessed income is admittedly on account of disallowances out of provisions under certain heads of account debited to the P&L account. The assessee had made provision in respect of certain expenses, as it was following mercantile system of accounting. At the time of filing the estimate of advance tax, the assessee could not foresee that out of such provisions of about Rs. 1 lac made under various heads of account, provisions to the extent of Rs. 38,000 only would be allowed in assessment. We are inclined to agree with the submissions made by Shri Jain, the learned counsel for the assessee, that the penalty order does not speak that the assessee had preferred bogus claim and the provisions were made only with a view to avoid payment of proper advance tax. In our considered view disallowance of certain expenses claimed by the assessee cannot be made basis for levy of penalty on the ground that the assessee should have visualised such disallowance at the time of filing advance tax estimate. Moreover, the assessee cannot be visited with penalty on the ground that no appeal was preferred against the disallowance made in the assessment. We are, therefore, of the view that it is not a fit case for imposition of the impugned penalty. Since we are holding that no penalty is leviable, we refrain ourselves from dealing with the argument about the manner of calculation of penalty.
6. In the result, the appeal is allowed.