COMMISSIONER OF INCOME TAX vs. KISMET PVT LTD

ITR/222/1991HC GujaratGJHC24013455199111 September 2003Author: HONOURABLE MR. JUSTICE D.H.WAGHELA,HONOURABLE MR. JUSTICE D.A.MEHTA4 pages
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What were the facts?

The Commissioner of Income Tax (Revenue) filed a reference before the High Court of Gujarat at Ahmedabad against an order of the Income Tax Appellate Tribunal (Tribunal). The assessment year in question is 1980-81, with the relevant accounting period being the calendar year 1979. The assessee, Kismet Pvt Ltd, initially showed a total income of Rs. 8,50,000/- and paid advance tax of Rs. 5,95,000/-. However, the assessed income ultimately rose to Rs. 12,65,210/-, partly due to the disallowance of Rs. 1,97,418/- towards advertisement and publicity expenses under Section 37(3A) of the Income Tax Act, 1961. The Income Tax Officer (ITO) rejected the assessee's claim of bonafide belief that the expenses fell under Section 37(3D) and levied a penalty of Rs. 15,000/- under Section 273(2)(a). This was upheld by the CIT (Appeals) but later cancelled by the Tribunal.

What did the High Court hold?

The High Court held that the Tribunal was right in cancelling the penalty. The Tribunal had found as a matter of fact that the assessee's belief regarding the applicability of Section 37(3D) was bonafide, as it was supported by the assessment order for the immediately preceding assessment year (1979-80) at the time the advance tax estimate was filed. The Court noted that the revisional proceedings under Section 263 were initiated subsequent to the filing of the advance tax estimate. The Tribunal's reasoning, which the High Court endorsed, was that for determining the correctness of an advance tax estimate, the income considered should be the current income at the time of making the estimate, not the income ultimately assessed. The mere fact that the assessee was assessed at a higher figure later does not, by itself, prove that the initial estimate was untrue or that the assessee should be penalized for a shortfall in advance tax payment. The provision requires the estimate to be false, meaning the assessee knew or had reason to believe it was untrue. In this case, the assessee had a bonafide belief supported by prior assessment, and the subsequent revision under Section 263 did not negate this bonafide belief at the time of filing the estimate. Therefore, the penalty was rightly cancelled.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in cancelling the penalty levied by the ITO under Section 273(2)(a) amounting to Rs. 15,000/-? Assessee's contentions (as understood from the Tribunal's findings and the High Court's discussion): The assessee contended that it held a bonafide belief that its advertisement expenses were governed by Section 37(3D) and not Section 37(3A). This belief was supported by the fact that similar expenditure was allowed in the assessment for the preceding assessment year 1979-80, and the assessment for that year had not been disturbed at the time the advance tax estimate was filed. The assessee argued that the estimate of advance tax should be based on the income believed to be current at the time of filing the estimate, not the income ultimately assessed. Revenue's contentions: The revenue argued that the Tribunal erred in relying on the assessment order for assessment year 1979-80, as that order had been revised under Section 263 of the Act. The revenue further contended that the assessee had not proven its bonafide belief, and the ITO had rightly rejected this plea.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 37(3A),Section 37(3D),Section 273(2)(a),Section 263

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 222 of 1991

For Approval and Signature:

HON'BLE MR.JUSTICE D.H.WAGHELA and HON'BLE MR.JUSTICE D.A.MEHTA

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,

The order continues below.

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