ORDER
S.K. Chander, Accountant Member
1. These cross appeals by the revenue and the assessee are directed against the order of the CIT(A), IX, New Delhi dated 24-1-1985 relating to assessment year 1975-76. By this order, the 1d. CIT(A) reduced the quantum of the penalty from Rs. 12,90,800 levied by the Income-tax Officer Under Section. 273(a) of the Income-tax Act, 1961 by his order dated 21-9-1984 to Rs. 7,74,470. The reduction is on account of the impugned penalty being reduced from 25 per cent of the shortfall of the tax to 15 per cent thereof by the 1d. CIT(A). This action of his has left both the parties aggrieved. Hence, the present cross appeals before us.
2. Before us, the arguments were opened by the revenue, through Shri B.D. Sinha. It was submitted that the Income-tax Officer issued to the assessee a notice Under Section. 210 of the Act because the assessee was an existing assessee. This notice was served upon the assessee on 30th May, 1974. This notice took into consideration the previously assessed total income of Rs. 2,53,10,000 and, therefore, demanded the tax thereon amounting to Rs. 1,43,47,719 in three equal instalments payable on or before 15-6-1974,15-9-1974 and 15-12-1974. It was submitted on behalf of the revenue that instead of paying the tax in accordance with this notice served upon the assessee the assessee filed an estimate of its total income and the tax payable thereon Under Section. 212. This estimate was filed for the first time on 13-6-1974. In this estimate, total income was taken as nil and consequently, the tax payable also was shown as nil.
3. Thereafter, the assessee filed, it was contended, a revised estimate on 7-9-1974. In this estimate, the total income was taken at Rs. 3,11,31,000. The tax payable thereon was estimated at Rs. 1,79,78,000. As per this estimate this tax of Rs. 1,79,78,000 was payable in two equal instalments of Rs. 89,89,000. The assessee rounded off the payment from this figure to Rs. 90 lakhs and paid the same on 13-9-1974.
4. Thereafter the assessee filed the third estimate on 13-12-1974, in which the income was estimated at Rs. 1,76,92,000 and the tax payable was worked out at Rs. 1,00,59,000. The assessee had paid on 13-9-1974 a sum of Rs. 90 lakhs as stated earlier. Therefore, the balance of the tax payable, i.e. (Rs. 1,00,59,000-Rs. 90,00,000), Rs. 10,59,000 was paid on 16-12-74.
5. It was contended by the 1d. D.R. that the assessment was framed on a substantially higher total income than the total income shown in the estimate filed by the assessee on 13-12-74. Finally, after giving appeal effect for the first time to the order of the Tribunal, the total income came to Rs. 3,55,82,700 as per order dated 24-8-1984. The tax payable shown came to Rs. 2,02,96,173. Thus, it would be seen that both the figures of estimated total income and the tax payable thereon, it was contended, were understated by the assessee. The ITO, therefore, issued a notice to the assessee to show cause why penalty need not be levied Under Section. 273(a) for filing an estimate of the total income and the tax payable thereon, which the assessee knew or had reason to believe to be untrue. In response to this notice, the assessee made written submissions before the ITO. After taking into consideration the explanation tendered by the assessee, the ITO proceeded to levy the impugned penalty of Rs. 12,90,800 on the facts and in the circumstances of the case, he held that the estimate filed by the assessee on 13-12-74 was to the knowledge of the assessee untrue. It was contended by the Id. D.R. that the ITO has given reasons in the impugned penalty order why he came to such a conclusion. It was pointed out to us that particularly it was clear that the assessee had deliberately underestimated the income on the basis of certain projections for the last two months and had also taken into consideration expenditure to the tune of Rs. 43 lakhs incurred on scientific research wrongly into the estimate of the total income and the tax payable in a mala fide manner.
6. In support of Ms arguments, it was projected that the assessee made substantial payments Under Section. 140A as indicated in the impugned penalty order. These payments are Rs. 70 lakhs paid on 30-10-1975 and Rs. 51,31,784 paid on 14-11-1975. It was, thus, emphasised that the very factum of payment of Rs. 1,21,31,784 by the assessee, it is shown that the estimate filed by the assessee on 13-12-1974 on the basis of which the tax payable was shown at the mere figure of Rs. 1,00,59,000 establishes the mala fide of the assessee and justifies the imposition of penalty of 25 per cent of the shortfall. It was, thus, contended that the 1d. CIT(A) erred in tinkering with the order of the ITO and reducing the penalty as he did.
7. Particularly attacking the order of the 1d. CIT(A) on the ground of taking into consideration the quantum of interest levied Under Section. 215 of the Act in reducing the penalty, the 1d. D.R. contended that the decision of the 1d. OIT(A) is contrary to the law laid down by the Supreme Court in the case of Gursahai Seigal v. CIT [1963] 48 ITR 1.
8. It was contended that the mere fact that there was wide variation between the income finally assessed and the income declared in the estimate filed on 13-12-1974 should be, in view of the ratio decidendi, of the Allahabad High Court judgment in the case of CIT v. U.P. Tannery Co. (P.) Ltd. [1977] 107 ITR 842 should be sufficient to hold that or to raise an assumption that the estimate filed by the assessee on 13-12-1974 was to the knowledge of the assessee untrue. Therefore, penalty should not have been reduced by the 1d. CIT(A) in the manner he did.
9. It was further contended that it is not for the ITO necessarily to prove that the estimate filed by the assessee was false or untrue because there lies the burden upon the assessee to justify the estimate as true and correct as held in the case of Gurdas Ram & Co. v. ITO [1986] 19 ITD 415 (Delhi). It was, thus, contended that if the entirety of the facts and circumstances is taken into. consideration, it is a clear case of penalty leviable Under Section. 273(a). The 1d. CIT(A), therefore, erred in reducing the quantum of penalty levied by the ITO. His order be reversed and that of the ITO restored in its place.
10. On the other hand, the learned counsel for the assessee submitted that the authorities below have from the very beginning levied and confirmed the penalty on misunderstanding of the relevant provisions of law. It was submitted that if the assessee has been served with a notice Under Section. 210 then the penalty cannot be levied with reference to the total income assessed and the tax thereon and the income estimated and the advance tax payable thereon in the estimate filed by the assessee. Not conceding that the penalty is imposable, the learned counsel for the assessee, for the sake of argument, submitted that, the penalty if at all is to be levied it should be calculated in accordance with the provisions of Section 273(i)(2) of the Act. This provides the computation of the penalty in case of default Under Section. 273(a), i.e., where the estimate of advance tax passable by the assessee is filed, which he knew or had reason to believe to be untrue. According to these provisions, in such a case, the ITO 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 10 per cent, but shall not exceed 11/2 times the amount by which the tax actually paid during the financial year immediately preceding the asstt. year under the provisions of Chapter 120 when falls short of (1) 75 per cent of the tax determined on regular assessment and modified under the provisions of Sub-section. (5) of Section. 215, or (2) where a notice Under Section. 210 was issued to the assessee, the amount payable thereunder, whichever is less.
11. It was submitted that though neither before the ITO nor before the CIT(A), the matter was projected in this legal aspect, yet, the fact being already on record and there being no necessity for enquiry on facts, this legal issue can be considered at this stage without difficulty.
12. Proceeding to support his submissions that penalty is not leviable on the assessee on merits he submitted that the ITO has himself considered that the first and second estimates filed on 13-6-1974 and 7-9-1974 were such that no allegation could be fastened upon the assessee of the type that is necessary for invoking the provisions of Section. 273(a), i.e., the knowledge of the assessee that the estimate of total income and the advance tax payable was such that he could have reason to believe it to be false or untrue. Coming to the details of these estimates, the learned counsel for the assessee projected that he had placed before the authorities below full facts as to how the estimates came to be made by the assessee. In this regard, he thought fit to compare the figures taken by the assessee in the two estimates one filed on 7-9-1974 and the other filed on 13-12-1974. He stated that he would like to take these figures because the estimate filed on 7-9-1974 had been considered as bona fide and the bona fides of the assessee had been questioned on the basis of the estimate filed on 13-12-1974. Taking the figures in the estimates filed on 5-9-1974, it was projected to us that the assessee had shown estimated gross profit for the year at Rs. 9,77,22,000 and had, thereafter, taken deductions like development rebate and capital expenditure on scientific research including claims Under Sections. 80J and 80G of the Act. The details projected to us from page 8 of the paper book, which was before the authorities below indicated these figures and in the light of these details and figures he brought to our notice the computation of the total income and the tax payable made for the purpose of filing the estimate on 13-12-1974. These figures appear at pages 18 and 19. Referring to these pages, it was emphasised that the assessee had proceeded to estimate the total income and the tax payable thereon in the same manner and with same method as adopted in the earlier two estimates but with a difference that in three units run by the assessee, namely, Fibretek Engg. Division at Dadri near Ghaziabad, Nimba Hira Cement Division and Syntex Tube Works, Kanpnr losses had been noticed. The assessee, therefore, took those losses into consideration and since, the previous year of the assessee, which ends on 31st December had already run its course of 10 months, the assessee projected the figures for the remaining two months and filed the estimate. The estimate filed, thus, took into consideration, the projections of the two months and actuals of 10 months. The development rebate in the estimate filed on 13-12-1974 was taken at Rs. 1,40,00,000 as against Rs. 91,11,000 and capital expenditure on scientific research was again taken at the same figure of Rs. 43 lakhs in estimate filed on 17-9-1974. It was, thus, submitted that these were mere bona fide projections and taking into consideration the track record of the assessee such calculations made bona fide were never questioned. It was submitted that even penalty levied Under Section. 271(1)(c) was cancelled. Therefore, the learned CIT(A) erred in retaining the quantum of penalty that he did. Since, there is no case for imposition of penalty upon the assessee, entire penalties should have been cancelled.
13. Availing of the right of rejoinder in his own appeal, the learned D.R. submitted that the argument of the learned counsel for the assessee that the assessee took into consideration the projections of the last two months as incongruoxis in the sense that the estimate itself was filed on 13-12-1974 whereas previous year of the assessee ended on 31-12-1974 and by the time the estimate was filed the assessee should be aware of the figures practically of the whole accounting period, and it was also argued that the deductions, which the assessee had taken into consideration were also considered while filing the return and still there was wide variation of course between the total income returned and the estimate filed on 13-12-1974.
14. The learned counsel for the assessee availing of the rejoinder for his own appeal submitted that due to far flung established businesses of the assessee, the figures for computing the total income and the tax payable are called much in advance than imagined by the learned D.R. and, therefore, figures taken for computing the estimate of total income and the tax payable in advance as per the estimate filed on 13-12-1974 were the figures for the period of 10 months. The penalty retained by the learned CIT(A) may, therefore, be cancelled.
15. We have given careful consideration to the rival submissions. Before we come to the purely legal aspect about the computation of penalty imposable Under Section. 273(a) projected to us by the 1d. counsel for the assessee, we proceed to determine the issue on merits. When we do so, we find that the estimates filed by the assessee of its total income and the tax payable in advance on 13-6-1974 and 7-9-1974 were accepted by the Income-tax Officer to be of the type which the assessee knew not or did not have reason to believe to be untrue. In other words, the two estimates have been accepted as bona fides and reflecting the true and correct position of the state of affairs of the business of the assessee from which the figures for filing the estimates had to be culled out. The ITO has, however, levied penalty for estimate filed on 13-12-1974. We have, therefore, to examine whether the figures taken for the purpose of estimating the total income and the tax payable thereon were such that the assessee could have had the knowledge or had reason to believe to be untrue. We find that the ITO issued notice Under Section. 210 on the basis of last assessed income at Its. 2,53,10,000. The assessee, however, did not pay any tax on that basis and as is narrated (supra) filed estimates of income and the tax payable thereon three times. We find that the total income estimated in the estimate filed on 13-12-1974 is Rs. 1,76,92,000 and the tax payable thereon at Rs. 1,00,59,000. But before this estimate was filed, the assessee had paid Rs. 90 lakhs on 30-9-1974 on the basis of the estimate filed on 7-9-1974. Thus, taking into consideration, the total income estimated in the estimate filed on 13-12-1974, the balance tax payable was only Rs. 10,59,000. This was paid on 16-12-1974.
16. According to the assessment made Under Section. 143(3) read with Section 144B on 23-9-1978, the total income assessed was Rs. 5,74,87,440. This assessment of course was challenged in appeal with the result that after giving appeal effect to the Tribunal’s order dated 24-8-1984, the income assessed was such that assessed tax came to Rs. 2,02,96,173. Since the assessee had paid advance tax only to the extent of Rs. 1,00,59,000 it had to pay self-assessment tax Under Section. 140A of the Act amounting to Rs. 1,21,31,754. In the narrative part of this order, on facts above while recording the arguments of the parties, the dates of payment of this have been recorded. Thus, we find that the last assessed income on the basis of which the ITO issued notice Under Section. 210 on 30th May, 1974 was Rs. 2,53,10,000 and the finally assessed income for the year under appeal was so much higher that the finally assessed tax came to Rs. 2,02,96,173.
17. The estimate filed by the assessee on 13-12-1974 shows that the assessee examined various claims made in the estimate filed on 7-9-1974. For example, the claim for development rebate in the estimate made on 7-9-1974 was Rs. 91,11,000, whereas the claim for development rebate was at Rs. 1,40,00,000 in the estimate made on 13-12-1974. There is also minor variation upwards in the claim of depreciation in so far as the figure goes up from Rs. 3,82,79,000 to Rs. 3,87,00,000. However, we find that the figure of capital expenditure for scientific research has been maintained in both the estimates at Rs. 43 lakhs. Before the Income-tax Officer as well as before the 1d. CIT(A) the assessee was unable to establish as to why this figure of Rs. 43 lakhs firstly taken and secondly sustained in the estimate filed on 13-12-1974 had been kept the same when actual expenditure was less in the assessment framed the Income-tax Officer allowed actual expenditure. of Rs. 12,81,972. Before us except for claiming that it was estimate of the scientific research expenditure no reason has been given why when the last estimate was framed on 13-12-1974, towards the end of the accounting period of the assessee, this figure of Rs. 43 lakhs was retained as a debit in working out the total income on which the advance tax was to be paid. Therefore, in our considered opinion, the authorities below have rightly projected this aspect as going against the assessee in determining the correctness of the estimate being bona fide or not as filed on 13-12-1974.
18. The ITO in his impugned penalty order dated 21-9-1984 has further projected that the assessee estimated the profit for the period from 1-1-1974 to 31-10-1974 at Rs. 8,50,000. The estimate for the remaining two months was, however, made at Rs. 75 lakhs only. According to the ITO, the assessee reduced the profits for these two months from Rs. 1,70,00,000 to Rs. 75 lakhs by working out the averages. He has recorded clearly in the impugned penalty order that this the assessee could not justify on the basis of material evidence during the course of penalty proceedings.
19. We find that there was hardly any justification for reducing the estimated profits for these two months because apparently despite the losses in three units to which the 1d. counsel for the assessee has adverted to in his arguments and submissions before us, the assessee was earning taxable income more than the income last assessed and these losses had been taken into consideration. Before us, except for the arguments given before the ITO, the copies of the computation on the basis of which estimates were filed, the assessee has not placed any evidence from which it could be gathered whether the estimate of the income for the last two months was such that it could not be said that the assessee could not have the knowledge or reason to believe it to be untrue. This is part of the estimate filed on 13-12-1974 and to a great extent is responsible for making that estimate such that could give the ITO in the course of regular assessment proceedings a satisfaction that the assessee had the knowledge or had the reason to believe that the estimate filed on 13-12-1974 was untrue.
20. On a very careful assessment of the relevant evidence and the contentions of the parties, we have come to the conclusion that penalty Under Section. 273(a) is leviable upon the assessee because in our considered opinion, the estimate filed by the assessee on 13-12-1974 was such that the assessee had the knowledge or had reason to believe it to be untrue. The question, therefore, is as to what should be the quantum of penalty leviable. In this regard, we have to consider the legal issue raised on behalf of the assessee by its learned counsel. According to him, in working out the penalty imposable, the ITO has omitted to consider the provisions of Section 273(1)(a)(i)(2) of the Act. This can be done by finding out the amount, which would have been payable by way of advance tax if the assessee had furnished a correct and complete statement in accordance with the provisions of Clause (a) of Sub-section (1) of Section 209A, of the Act. Now, this to our mind requires investigation on facts. This issue was not raised before the authorities below. Therefore, at this stage, we reject this contention outright, as without investigation of facts, it cannot be decided and having not been raised earlier, the assessee is not entitled to do so at this stage.
21. Considering the entirety of the facts and the circumstances of the case and each of the reasons that we have assigned supra for holding that the penalty is imposable. We are of the opinion that the penalty at the rate of 15 per cent of the shortfall is justified. The 1d. CIT(A) has retained the penalty on Rs. 7,74,470 which comes to 15 per cent of the shortfall. In doing so, he has, of course, given different reasons. However, for the reasons that we have assigned supra, we uphold this quantum of penalty as imposable upon the assessee Under Section. 273(a) of the Act.
22. In view of what is stated above, we find that the appeal of the revenue as well as of the assessee has to be dismissed.
23. Appeals dismissed.