1. These two appeals are filed by B.V.R. Balreddy & Co. of Secunderabad against the order of AAC upholding a penalty of Rs. 5,286 and Rs. 2,928 for the assessment years 1978-79 and 1979-80 under Section 140A(3) of the Income-tax Act, 1961 ('the Act').
2. The assessee is a firm of 9 partners doing business as printing and stationers. It returned incomes of Rs. 69,802 and Rs. 54,520 on 20-10-1978 and 29-7-1979, respectively. Tax payable thereon was Rs. 6,293 and Rs. 3,660, respectively. Self-assessment tax was not paid till the assessments themselves were completed and the self-assessment tax got merged with the demand on regular assessment. It is the asses-see's case that even this regular demand could not be paid and the assessee had to ask for time for payment of the same, due to paucity of funds which is the ground pleaded for non-payment of self-assessment tax on the due dates. The ITO did not accept the explanation and levied the impugned penalties of Rs. 5,286 for the assessment year 1978-79 and Rs. 2,928 for the assessment year 1979-80.
The first appellate authority confirmed the penalties. Hence, the second appeal.
3. The learned counsel for the assessee raised an initial objection that at the time of institution of the penalty proceedings and at the time of levy of penalty, there was no self-assessment tax in demand inasmuch as there was only demand on regular assessment. He claimed that there was no default which could have been penalised. On merits, he filed copies of elaborate statements which were also filed before the authorities below to suggest that the assessee was in financial difficulties and was not in a position to pay the tax. He pointed out that nearly 70 per cent of the capital was locked up in sundry debts and closing stock. In view of the same, he claimed that the liquidity position was so poor that the assessee was not in a position to make the payments. He relied upon the decision of the Andhra Pradesh High Court in the case of Addl. CIT v. Sarvaraya Textiles Ltd.  137 ITR 369 wherein the High Court pointed out that levy of penalty is not automatic and that the power should be exercised judiciously and equitably. He also referred to the decision of the Delhi High Court in the case of Addl. CIT v. Free Wheels India Ltd.  137 ITR 378 where the High Court pointed out that the penalty was not exigible where the assessee was prevented from payment of self-assessment tax by 'genuine financial difficulties'. The assessee's case was also, according to the learned counsel, a case where there was genuine financial difficulties. He further cited the decision of the Madras High Court in the case of CIT v. Mysore Fertiliser Co.  145 ITR 91 wherein it was pointed out that the ITO had discretion both as to whether to levy penalty or not to levy penalty as well as on the quantum of penalty.
4. The learned departmental representative, on the other hand, pointed out that even where self-assessment tax itself had been paid, the Madras High Court in the case of CIT v. Smt. Vijayanthimala  108 ITR 882 held that the fact of subsequent payment, though prior to the issue of notice, did not wipe out or efface the default and cannot protect the taxpayer from liability on such default. He claimed that the assessee's facts were worse because the regular demand of which the self-assessment tax payable was part, had admittedly not been paid even at the time of issue of the notice. As for merits, he relied upon the self-same documents filed by the assessee to show that the assessee's position was not one of genuine financial difficulties even according to the guidelines provided by the decisions cited by the learned representative for the assessee. He pointed out that the bank balance as on 31-10-1978 was Rs. 9,340 and as on 20-10-1979 it was Rs. 31,593.
He further pointed out that the return for the assessment year 1979-80 was filed only on 29-12-1979 not far from the balance sheet date of 20-10-1979. He claimed that it is not the assessee's case that all the sundry debtors had gone bad or that the closing stock was dead stock.
It is a case of an assessee, if at all, ploughing back the profits into business. In such a case, it was claimed that it could not be said that there was financial stringency. He also pointed out to a decision of the Gauhati High Court in the case of Bhauram Jodhraj Properties (P.) Ltd. v. CIT  108 ITR 305 where the shortage of liquid funds for payment of tax was not a reason which could be accepted as a ground for non-levy of penalty.
5. We have carefully considered the records as well as the arguments.
As for the objection on jurisdictional ground, we do find that the decision of the Madras High Court in Smt. Vijayanthimald's case (supra) substantially answers the assessee's objection. The assessee's default does not get wiped out merely because the demand has taken some other form. As pointed out by the learned departmental representative, the assessee's facts are worse than those encountered in the decision relied upon by him. We do not, therefore, find that there was any legal impediment for the ITO seeking to have a recourse to the penal provisions of Section 140A.6. As for merits, it would, at first sight, appear that the High Courts have taken conflicting views as to the adequacy of financial stringency as an explanation for avoiding penalty. But there is really no such conflict if one were to look into the facts of the cases. In the case of Sarvaraya Textiles Ltd. (supra), the assessee was a public limited company which had delayed the payment only by a month. The assessee also explained that it was unable to make the arrangement of such a large amount of Rs. 3,72,566 within a short time due to its difficult financial position in spite of its sincere efforts. Major part of the amount was paid on due dates and the other part was paid within a month. It is under these circumstances the Tribunal held that the ITO ought to have been satisfied with the assessee's explanation. The High Court upheld this conclusion. In the case before the Delhi High Court, Free Wheels India Ltd's case (supra) the taxpayer was again a company and the penalty came to be levied without even a show-cause notice. It was further pointed out that there was a change of management and that even arrears of dividends declared could not be paid by the company.
Even the past demand was being paid under instalment scheme granted by the CBDT itself. Self-assessment tax had also been paid only after a delay of 4 months. It was under these circumstances that the penalty itself was reduced substantially by the AAC and the Tribunal (by majority) decided that even what had been retained by the AAC should be deleted in the facts of the assessee's case. The High Court agreed with the Tribunal's finding. In the case before the Madras High Court, Mysore Fertiliser Co.'s case (supra) the assessee was found to be a debtor and that it was borrowing heavily from a sister concern for its business. The argument of the revenue before the High Court was that mere want of liquid resources or its over-drawing cannot justify the Tribunal's conclusion. The High Court, after stating the facts and the arguments of the revenue stated as under: ... We would rather decide the matter arising in this case on the usual touchstone in tax references which we apply to cases where discretionary orders are passed by the Tribunal or where findings of fact are rendered by that body. In such cases, the Tribunal's decision is normally given due respect and finality, unless this Court finds that the finding had been come to on no evidence or unless the discretion had been exercised in a non-judicial way ...
(p. 95) Hence, in all these three cases, the Tribunal's conclusion was upheld by the High Court as one on facts. The first two cases related to the companies which had made the payment after a short delay due to financial difficulties. In the last case, the taxpayer was heavily indebted and the Tribunal found that the non-payment was due to heavy indebtedness. On the other hand the Gauhati High Court in Bhauram Jodhraj Properties (P.) Ltd.'s case (supra) found that shortage of liquid funds could not be accepted as a good reason. This decision was again on the basis of facts particular to the case before them. The assessee stated that due to 'heavy construction works' there was a shortage of liquid funds so that the tax could not be paid. This explanation was found to be unacceptable because the ITO took the view that the assessee should have made provision for payment of tax 'before making investment for other purposes'. The first appellate authority as well as the Tribunal agreed with the conclusion of the ITO, after considering all the materials on record. It is only in this context that the High Court upheld the order of this Tribunal. It specifically referred to the assessee's explanation in the context of the assessee's facts relating to its investments and pointed out that it was not reasonable at all 'in the instant case'. Hence, after considering all these decisions, we find that there is no general hard and fast rule that the financial stringency by itself would constitute a reasonable explanation in every case. It is possible that such explanation may be acceptable in the facts of a particular case, while the facts of some other case might show that this explanation is either too vague or otherwise unacceptable even if true.
7. We would now proceed to consider the facts of the assessee's case.
As pointed out by the learned departmental representative, the balance sheet does show cash balance far in excess of the tax payable on the day of closing of accounts. The assessee has not brought any material to show that the assessee was unable to make any provision out of such cash balance. Again, as pointed out by the learned departmental representative, there is no material to suggest that the capital had been blocked either in unrealisable debts or dead stock. The mere fact that 70 per cent of the capital is blocked in sundry debtors or closing stock does not lead to a conclusion either way. On the contrary, we do not find that there was any insurmountable obstacles for the assessee to have made a reasonable provision, for the admitted tax on the profits as per its own books of account. We also find that there are as many as 9 partners. It has not been shown to us that the partners were also unable to find finances for the admitted tax of the firm even from their own resources. However, we hasten to add that even otherwise, the assessee's explanation that there was financial stringency is vague on the facts and in the circumstances of the case. It does not mean that the statutory dates for payment of taxes can be postponed merely due to difficulty to find finances. In the cases relied on by the learned representative, as pointed out earlier, the stringency as found by the Tribunal was of much greater intensity and the default by and large of much lesser duration. In the assessee's case, the tax has not been paid even at the time when the penal proceedings were initiated. There are no other facts or other circumstances which would justify our disagreement with the authorities. In other words, we find that the argument that there was 'financial stringency' hard enough to constitute sufficient cause for non-payment of self-assessment tax is found unacceptable on the facts and in the circumstances of the assessee's case. No doubt, both the ITO and the AAC, prima facie, considered that 'financial stringency' by itself cannot avoid penalty.
They would not be right in taking this view as a universal proposition.
But their conclusion was right" on the facts and in the circumstances of the assessee's case. It is for this reason, we uphold their orders.