R.N. Misra, J.
1. On an application of the assessee, the Income-tax Appellate Tribunal has stated this case and referred the following question for opinion of the court:
' Whether, in the facts and circumstances of the case, with respect to the default in payment of the advance tax for the assessment year 1968-69 computed with reference to the completed assessment for the assessment year 1962-63, the final order referred to in Section 221(2) of the Income-tax Act' is the order of assessment made for the assessment year 1968-69 and whether the penalty levied for that default should be cancelled on that basis
2. Assessee is a firm and the relevant year of assessment is 1968-69. By notice under Section 210 of the Income-tax Act (hereinafter referred to as the Act) served on the assessee on May 23, 1967, the assessee was called upon to pay advance tax for the assessment year 1968-69. There was default in compliance with the demand and accordingly the Income-tax Officer levied penalty of Rs. 3,400 under Section 221(1) of the Act.
3. Assessee challenged the imposition of penalty in appeal. In the regular assessment for the year no demand was raised against the assessee as the firm's income fell short of the minimum amount inviting liability for tax. At the time of hearing of the first appeal, the assessee contended relying upon Sub-section (2) of Section 221 of the Act that it had no liability for penalty. The contention was negatived.
4. Assessee reiterated its claim in second appeal before the Tribunal. The Tribunal negatived the contention of the assessee by holding:
' We find that an assessee who is in default can be penalised under Section 221(1) if he is in default in making payment of tax and he does not give any satisfactory explanation. Section 218 enacts that if any assessee did not pay the advance tax demanded tinder Section 210 by the date specified in that notice he was to be deemed to be an assessee in default. There is no dispute in this case that the assessee was in default in respect of the advance tax demanded under Section 210. The only dispute raised by Shri Ray is that the assessment order passed by the Income-tax Officer which resulted in nil demand should be taken to be a final order within the meaning of Section 221(2) and so the penalty imposed should be reduced accordingly. We have carefully considered this contention but we do not agree with the same. Section 219 refers to giving credit for advance tax towards the demand raised subsequently on making the regular assessment. But there is no provision in the Act under which the passing of a regular assessment modifies the demand raised under Section 210. Hence, the making of a regular assessment, in our opinion, cannot be considered as a final order within the meaning of Section 221(2) of the Income-tax Act.'
5. For convenience, we may extract the provision in Section 221 :
'(1) When an assessee is in defaulter is deemed to be in default in making a payment of tax, he shall, in addition to the amount of the arrears and the amount of interest payable under Sub-section (2) of Section 220, be liable, by way of penalty, to pay such amount as the Income-tax Officer may direct, and in the case of a continuing default, 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 the amount of tax in arrears:
Provided that before levying any such penalty, the assessee shall be given a reasonable opportunity of being heard:
Provided further that where the Income-tax Officer is satisfied that the default was for good and sufficient reasons, no penalty shall be levied under this section.
(2) Where as a result of any final order the amount of tax, with respect to the default in the payment of which the penalty was levied, has been wholly reduced, the penalty levied shall be cancelled and the amount of penalty paid shall be refunded.'
6. In our opinion, the dispute can be resolved on a bare analysis of the provision and without adverting to other provisions in the Act or precedents. An assessee is deemed to be in default in the circumstances indicated in Section 220(1) of the Act. Under Section 218 of the Act, when an assessee does not pay on the specified date any instalment of advance tax he is required to pay under Section 210 and does not, before the date on which any such instalment as is not paid becomes due, send under Sub-section (1) or Sub-section (2) of Section 212 an estimate or a revised estimate of the advance tax payable by him, he shall be deemed to be an assessee in default in respect of such instalment or instalments. Sub-section (1) of Section 221 confers jurisdiction on the Income-tax Officer to levy penalty on such an assessee in default. Since the default is committed in respect of payment of advance tax which under the scheme of the Act is intended to be adjusted against the assessed tax, provision has been made in Sub-section (2) requiring the Income-tax Officer to deal with the matter of penalty after the final order of assessment has been made. On the result of the assessed tax, the quantum of penalty requires reconsideration. Where there is no demand, penalty is to be reduced to nil.
7. 'Final order' within the meaning of Sub-section (2) means an original order of assessment becoming final in the absence of an appeal, or an appellate order of the Appellate Assistant Commissioner when no further appeal is carried, or an appellate order of the Tribunal when no reference is carried or where a reference is taken, the result reached on the basis of the decision of the High Court or the Supreme Court. Every order of a statutory authority is final unless challenged in appeal or revision. Therefore, when the Income-tax Officer makes an order of assessment under the Act, it may be final. In the present case, by a final order of this type, the assessee was found not to be liable to any tax. Therefore, Sub-section (2) was applicable to the situation and the entire penalty had to be cancelled. In our view, the reasoning advanced by the Tribunal is unsustainable.
8. We would, accordingly, answer the question referred to us by saying :
On the facts and in the circumstances of the case, the penalty levied should have been cancelled in terms of Section 221(2) of the Income-tax Act.
9. We make no order as to costs of the reference.
10. I agree.