PATHAK C.J. - This is a reference under section 256(1) of the Income-tax Act, 1961.
The following question of law has been referred by the Income-tax Appellate Tribunal.
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in upholding the imposition of penalties by the Income-tax Officer under section 140A(3) of the Income-tax Act, 1961, relating to assessment year 1966-67, 1967-68 and 1968-69 ?"
The facts of the case may be briefly stated as follows :
The assessee filed returns of income for the three assessment years 1966-67, 1967-68 and 1968-69 on December 31, 1966, September 12, 1967, and September 27, 1968, respectively. Under the provisions of section 140A of the Income-tax Act, 1961, the assessee was required to pay self-assessment taxes on the basis of its return of income within thirty days from the date of submission of the returns. The assessee in the instant case filed to pay the taxes on the basis of self-assessment. So proceedings for imposition of penalty under section 140A(3) of the Income-tax Act, 1961, were initiated. Notice was issued requiring the assessee to show cause why penalty under that section should not be levied for non-payment of self-assessment taxes within the prescribed period. The assessee filed a written reply on October 9, 1969, for all the three assessment years stating that heavy construction works were undertaken during the relevant assessment years and the taxes as per returns could not be paid due to shortage of liquid funds and the assessee requested the Income-tax Officer to drop the penalty proceedings. The Income-tax Officer took the view that it was the duty of the assessee to make some provision for payment of taxes before making investment for other purposes. the Income-tax Officer held that the assessee was liable to penalty under section 140A(3) of the Income-tax Act, 1961, and he, therefore, imposed penalties of Rs. 1,500, Rs. 1,000 and Rs. 2,000 in the assessment years 1966-67, 1967-68 and 1968-69, respectively.
The assessee filed appeals against the penalty orders of the Income-tax Officer relating to the aforesaid three assessment years before the Appellate Assistant Commissioner who disposed of the appeals for all the three assessment years by his consolidated order dated December 27, 1971, and dismissed the appeals of the assessee. Thereafter, the assessee preferred three appeals before the Income-tax Appellate Tribunal on various grounds. The Tribunal considered the materials on record and for the reasons stated in the order held that the Income-tax Officer was justified in imposing the penalties in all the three assessment years in question and that the Appellate Assistant Commissioner was justified in confirming the penalties.
On the above facts the above-mentioned question of law has been referred.
Mr. B. P. Saraf, the learned counsel appearing on behalf of the assessee, has submitted that the Income-tax Officer committed an error of law in rejecting the cause shown by the assessee on the ground that the assessee should have made provision for payment of taxes before investing money in heavy construction works which were undertaken by the assessee during the relevant assessment years. The precise submission of the learned counsel is that instead of considering the reasons given by the assessee for non-payment of the taxes, the Income-tax Officer has given a sermon on the assessee as to how to behave in these matters and the Appellate Assistant Commissioner and the Tribunal also committed an error of law in upholding the finding and the order of the Income-tax Officer. We are however, unable to accept this submission of the learned counsel.
Section 140A of the Income-tax Act, 1961, reads as follows :
"140A. Self-assessment. - (1) Where a return has been furnished under section 139 and the tax payable on the basis of that return as reduced by any tax already paid under any provision of this Act exceeds five hundred rupees, the assessee shall pay the tax so payable within thirty days of furnishing the return.
(2) After regular assessment under section 143 or section 144 has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards such regular assessment.
(3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of sub-section (1), he shall, unless a regular assessment under section 143 or section 144 has been made before the expiry of the thirty days referred to in that sub-section, be liable, by way of penalty, to pay such amount as the Income-tax Officer may direct, and in the case of a continuing failure, such further amount or amounts as the Income-tax Officer may, from time to time, direct, so, however, that the total amount of penalty does not exceed fifty per cent. of the amount of such tax or part, as the case may be :
Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard."
Going through the provisions of section 140A, it is found that if after submitting a return the assessee does not pay the tax on the basis of the self-assessment made in the return submitted, within thirty days from the date of submission of the return, he is liable to penalty, which may be up to fifty per cent. of such tax. The proviso to the section lays down that before levying such penalty the assessee must be given a reasonable opportunity of being heard. Considering the language of the section, it is found that the Income-tax Officer had a discretion of levy penalty. Since it is provided in the section itself that before levying the penalty the assessee should be given a reasonable opportunity of being heard, the Income-tax Officer is not legally bound to levy the penalty in all cases without considering the reasons that may be given by the assessee after getting notice in this respect. Before the Income-tax Officer may levy the penalty the assessee is entitled to a notice to that effect and if he so desires he should be heard also. That being the legal position, the Income-tax Officer has a duty cast upon him by the section to consider the reasons, if any, given by the assessee for non-payment of the tax in question within the prescribed period. If the reasons are not considered, of course, the order may be bad. But, in the instant case, the reason given was that the assessee was engaged in heavy construction works and, therefore, it was short of liquid funds for payment of the tax in question. In other words, the assessee pleaded inability of paying the tax in question because it had no liquid funds, that is to say, the liquid funds that might have been with it had been invested in the heavy construction works. When the reason given by the assessee is considered in this way, it will not be reasonable at all and, in our opinion, the Income-tax Officer took the cause shown by the assessee in that light and that too correctly. That being so, it cannot be said that in the instant case the reason for non-payment of taxes as shown by the assessee was not considered by the Income-tax Officer. After considering the reason given by the assessee for non-payment of the taxes the Income-tax Officer was not satisfied and this non-satisfaction cannot be said to be perverse or without consideration of the materials on record. That being so, the Income-tax Officer was within his jurisdiction and the Appellate Assistant Commissioner and the Tribunal were not wrong in accepting the finding of the Income-tax Officer and upholding the impugned orders of penalty passed by the Income-tax Officer.
In the result, we answer the question referred in the affirmative and in favour of the deparatment.
The reference is answered accordingly. We, however, make no order as to costs.
BAHARUL ISLAM J. - I agree.