Per Shri U. S, Dhusia, Judicial Member - The assessee is in appeal against the order of the Commissioner sustaining the levy of the penalty levied by the IAC (Assessment), under section 273(a) of the Income-tax Act, 1961 (the Act) for the assessment year 1976-77.
2. The IAC (Assessment) by his order passed on 23-3-1981 had levied a penalty of Rs. 1,45,355. this has been reduced by the Commissioner (Appeals) while he had maintained the levy of the penalty by the IAC (Assessment).
3. Facts which give rise to the levy of the penalty are that the assessee had been served with a notice under section 210 of the Act on 28-8-1975 to make advance tax payment of Rs. 30,25,97. This was worked out on the total income of Rs. 44,33,666. No doubt, this was the second revised notice under section 210 and earlier notice under section 210 dated 30-5-1975 had been served on 26-6-1975. By this earlier notice, the assessee had been called upon to make payment of advance tax of Rs. 12,43,850. The assessee in reply to the second notice demanding advance tax of Rs. 30,25,977 filed an estimate of Rs. 13,23,001 on an estimated total income of Rs. 21 lakhs. The assessee having felt that he had not made a correct estimate made payment of Rs. 10 lakhs as advance tax on 8-3-1976. The IAC (Assessment) completed the assessment on 30-11-1978 on a total income of Rs. 58,35,456 which after appeal was raised to Rs. 58,76, 310. On these facts, the IAC (Assessment) was of the view that the assessee had filed an estimate which he knew or had reason to believe to the untrue. Accordingly, he initiated penalty proceedings under section 273(a) for the year in appeal. Although twice he called upon the assessee to show cause, it is admitted that the assessee filed to give any reply or explanation. This led the IAC (Assessment) to hold that the assessee was liable under section 273(a) for filing an underestimate. he observed, silence on the part of the assessee goes to reveal that assessee has nothing to say for the default. From the facts narrated above, it is clear that the assessee had committed a default by furnishing false estimate. it is, therefore, a fit case for imposition of penalty under section 273(a). Accordingly, he caused a penalty of Rs. 1,45,355 to be levied. The assessee did not accept the penalty as well-founded in law and on facts and, therefore, impugned it in appeal filed before the Commissioner (Appeals). He raised several pleas based on the error and invalidity of the notice issued under section 210 which demanded tax payment of Rs. 30,25,977. According to the assessee, the notice was erroneous because it was based on a total income of Rs. 44,33,666 which was returned for the assessment year 1975-76. Inasmuch as, this contained capital gains of Rs. 10,678 this had to be excluded before it could be made the basis of advance income-tax assessment. He also impugned the legality of the notice, inasmuch as, it was based on the returned income of the assessment year 1975-76 on which the assessment tax under section 140A of the Act had not been paid by the assessee till the date for which the notice under section 210 for the year in appeal was issued. He also submitted that in making the estimate of Rs. 21 lakhs a mistake had occurred at the end of the assessee, inasmuch as the Chief Accountant of the company who was charged with the task of making the estimate had by oversight excluded the income derived from the Furnance Division. besides, his mind was swayed by a debit note of Rs. 23,62,448 received from Punjab Concast Steel Ltd. Ludhiana along with a letter dated 19-7-1975. He referred to an affidavit filed by the Chief Accountant to these effects to show that his mind had been affected by the debit note as well as by his oversight which led to his failure to include the income from Furnance Division. It was also submitted before the Commissioner (Appeals) that if the returned income of Rs. 44,33,666 for the assessment year 1975-76 was to be considered which was made the basis by the IAC for issuing notice under section 210 excluding the amount of Rs. 23 lakhs mentioned in debit note, it would give almost the same income which was estimated by the assessee-company. There was, thus, no failure nor any default on the part of the assessee which could make him liable to under section 273(a) for any penalty. He also referred to the payment of Rs. 10 lakhs as advance tax on 18-3-1976 which had been considered by the IAC and treated as advance tax paid by him. A consideration of this payment would show that the assessee had been genuinely misled by the erroneous estimated of income made by the Chief Accountant and, therefore, sought to make the amends by making the payment of additional advance tax before the financial year had expired. The assessee could not be held on these facts exposed to any liability for filing underestimate of income for advance tax payment consciously. Even if it is held that the assessee had filed an underestimate, the assessee had explained beyond doubt that this had been done under the strees of an error committed by the Chief Accountant whose affidavit was produced in which he had testified to this effect. The assessee-company after the error was noticed sought to make amends by paying the additional payment of Rs. 10 lakhs. The Commissioner (Appeals) considered these pleas but he could not be persuaded that the assessee could be held not liable under section 273(a) for filing an underestimate consciously. Accordingly, as indicated above, he sustained the levy of penalty imposed by the IAC.He observed, As stated earlier as against the advance tax demand of Rs. 27,93,210 had become finally payable in this case the appellant-company had filed an estimate at a total income of Rs. 21 lakhs and the tax amount of Rs. 13,23,001 on 15-9-1975 which was low and the reasons given by the appellant-company for the said low estimate are not convincing because on the one hand it was pleaded that the low estimate was on account of inadvertence of the Chief Accountant to include the profit of the Furnance Division amounting to Rs. 21,93,357 and on the other it was stated to be on account of the receipt of the debit note amounting to Rs. 23,62,448 from Punjab Concast Steel Ltd. Ludhiana which appears to be contradictory proposition. Under these circumstance, I am unable to agree with the authorised representative of the appellant-company that the provisions of section 273 could not be applicable in this case. He, however, allowed some reduction in the quantum of the penalty which failed to satisfy the assessee and, accordingly, he had brought this issue in appeal before us.
4. The learned counsel for the assessee reiterated the pleas which he had raised before the Commissioner (Appeals) and which we have taken pains to reproduce them above. His main plea was based on the affidavit of the Chief Accountant wherein it was admitted that the Chief Accountant on account of inadvertence failed to include the income from the Furnance Division on the estimate and that his mind was also affected by a knowledge of the debit note of Rs. 23,62,448 received from. Punjab Steel Concast Ltd. at the time when the estimate was made by the assessee-company while on account of the inadvertence he failed to include the income from the Furnance Division. He had the conscious knowledge of the liability of Rs. 23,62,448 which could have the effect oaf reducing the income of the assessee. It was also stressed by the learned counsel that the notice issued under section 210 was invalid because it was based on the returned income of the assessment year 1975-76 even before the tax under section 210 was erroneous because in adopting the returned income for the assessment year in appeal, capital gains was not excluded. In any case even if there was an error in the estimate, it was submitted by the learned counsel that it was caused by the oversight of the Chief Accountant and that the company did its best to make amends by undertaking to pay additional tax once it was apprised of the error in the estimate of income filed by it on 15-9-1975. Accordingly, he questioned the propriety of maintaining a part of the penalty levied by the IAC (Assessment) under section 273(a). On the other hand, the departmental representative took the stand that a consideration of the pleas and recorded his finding but it was not called for in an appeal against the order of penalty levied by the IAC (Assessment). It was the satisfaction of the ITO or of the IAC (Assessment) in this case, which will provide the basis for the penalty to be imposed under section 273(a). It is the satisfaction of the assessing officer which is mandatory and called for to become the basis of the order of penalty under section 273(a). It is this satisfaction of either of them the ITO or the IAC (Assessment), which is required to support an order of penalty levied by them. It is not the satisfaction of the appellate authorities about the default which will sustain the levy of a penalty under section 273(a). It is not the case of the assessee that the IAC (Assessment) in levying the penalty had not provided him with an opportunity to put forth the pleas in consideration of his liability. Repeated opportunities had been provided to him to show cause why he should not be held liable under section 273(a). The assessee had ignored these notices and did not avail the opportunities. He put forth pleas and material before the Commissioner (Appeals) noted his pleas and rejected it but he would have been more correct if he had not considered the pleas because these had not been put forth before the Tribunal is misconceived that a proper consideration of the plea was not made by the Commissioner (Appeals). The Commissioner (Appeals) had no authority to look at a plea which had been withheld from the IAC. What prevents in law the Commissioner (Appeals) from considering the plea which the assessee had not put forth before the IAC (Assessment) will also prevent the Tribunal from making a consideration of the plea. Therefore, the appeal of the assessee is liable to be dismissed, on this ground alone.
5. We have considered the facts of the case and the rival submissions made by both the parties. In our view, it is not possible to overrule the plea of the revenue that under the mandate of section 273(a) it is the assessing officer who is to be satisfied in the course of any proceeding in connection with the regular assessment that the assessee had filed an estimate of advance tax payable by him which he knew or had reason believe to be untrue. This implies that penalty can be started only on the basis of the satisfaction derived by the assessing officer which would imply that the satisfaction of the appellate officer levying the penalty. No doubt, the appellate authorities may examine if the discretion vested in the assessing officer was properly exercised or not and that the satisfaction on which he had acted lawfully and properly obtained and was supported by relevant material or not. Where the assessee chooses not to put forth his plea or his explanation before the assessing officer in reply to the show-cause notices, he cannot make amends by producing them before the appellate authorities for their consideration. As we have already indicated, it is not the satisfaction of the appellate authorities which can form the basis of a levy of a penalty under section 273(a). Therefore, we uphold the contention of the revenue that the Commissioner was not called upon to consider the pleas which the assessee had put forth before him and which he had withheld from the consideration of the assessing officer, the ITO or the IAC (Assessment), whoever he may be any justification for our consideration either on the ground that those please put forth by the learned counsel for the assessee had not been properly considered by the Commissioner (Appeals). We, therefore, reject the plea of the assessee for consideration of pleas which had been considered by the Commissioner (Appeals) but which had not been put forth before the IAC (Assessment). We are, therefore, on the facts and in the circumstance of the case, left with no alternative but to consider the finding of the IAC (Assessment) on the basis of facts brought on record and which had been made the basis of his finding that the assessee had made himself liable under section 273(a) for penalty.
We may reproduce his finding contained in para 2 of his order as under : "Since the tax on the assessed income of Rs. 58,35,456 works out much more than the tax paid as per estimate of the assessee, the assessee has furnished under section 212 an estimate of the advance tax payable by him which he knew or had reasons to believe to be untrue. Penalty notice the assessee requiring him to show cause as to why penalty may not be levied for this default. No reply seems to have been filed by the assessee." A perusal of this finding shows that his finding regarding the liability was based on the fact that the tax payable by the assessee on the basis of regular assessment was far more than tax paid by him on the basis of the estimate furnished by him under section 212 of the Act. In other words, his finding is that the assessee filed an estimate which was erroneous when the tax paid on the basis of the estimate of advance tax filed by him is considered against the tax worked out as payable on the basis of the assessment. It does not need any genius or great effort to understand that the estimate filed by the assessee was far too low as compared to the tax liability which was assessed finally in regular assessment. Finding of the IAC (Assessment) to this extent is beyond cavil or any challenge. But this is not the only requirement which is prescribed in section 273(a) to entitle the assessing authority to fasten the liability on the assessee under section 273(a).
Section 273(a) when read properly will not fail to inform to inform the mind that two conditions are laid out which have to be met with before liability can be fastened on the assessee for default under those provisions. One of them is that the assessee must have filed an erroneous estimate. The underestimate filed by the assessee in the case in hand as pointed out earlier, can certainly be looked upon as an erroneous estimate but there is another mandatory requirement which is also to be complied with and which require the assessing officer to establish that the erroneous estimate filed by the was known by him to be untrue or which he had reason to believe to be untrue. It is not for the assessee to show that he did not know that the estimate which he filed was untrue. It is for the assessing officer, the ITO or the IAC to bring on record the material to show that the assessee had filed the erroneous estimate which he knew to be untrue or had reason to believe to be untrue. It is not for the assessee to show that he did not know that the estimate the IAC to bring on record the material to show that the assessee had filed the erroneous estimate which he knew to be untrue or had reason to believe to be untrue. A perusal of the finding of the IAC does not show that he looked at the matter from this aspect at all. In his consideration, the wide gap between the tax found due on regular assessment and that payable by him under the estimate filed by him on 15-9-1975 was enough to show that not only the estimate was erroneous but that he also knew or had reason to believe to be untrue.
We are unable to appreciate the approach of the IAC in this matter. We cannot proceed on the basis of the presumption that when the estimate was filed by the assessee, he knew that it was an underestimate. As we have overruled the plea of the assessee based on the affidavit of the Chief Accountant regarding his oversight and his consideration flowing from the debit note of Rs. 23,63,448 received from Punjab Concast steel Ltd., on the ground that these had not been put forth before the IAC, we cannot impute the knowledge and consideration of facts or in other words, imagine facts which had been considered by the IAC in reaching a finding about the correctness of his satisfaction, but which is not brought out in the order. He had, no doubt, referred to the fact of payment of Rs. 10 lakhs as additional advance tax on 18-2-1976, but that would only show that the assessee had filed an erroneous estimate about which he became conscious on 18-3-1976 only when he tried to make amends undertaking to pay the additional advance tax on the aforesaid sum. That would not, in our consideration, go to show that the assessee was conscious of this erroneous estimate when he had filed it on 15-9-1975 before the IAC. The IAC has penalised him for filing an estimate on 15-9-1975 which was erroneous to his knowledge or belief.
The estimate filed on 15-9-1975 the IAC should have brought material to show that he knew or believed his estimate to be false. There is no material brought on record by the IAC on which he could rely to hold that when the assessee filed the estimate on 15-9-1975 he knew the estimate to be false. In our consideration, the IAC has not referred to any materials, whatsoever, not even to the basis on which the estimate could have been made by the assessee. Nothing was easier for him than to refer to the trading of the assessee-company for the period ended 15-9-1975 when the estimate had been made and with the relevant data thus gathered to show that the assessee in making the conscious disregard of the date available with him could be held to have had the belief if not the knowledge that the aforesaid estimate was false. On facts, therefore, we are not able to see the light as he saw from the solitary fact of liability determined on the regular assessment on 30-11-1968 three years after the estimate was filed on 15-9-1975 to hold that the assessee had raised before the Commissioner (Appeals) to show that the error in the estimate was caused by the oversight of the Chief Accountant and by his knowledge of the liability of the debit note of Rs. 23,62,448 received from Punjab Concast Steel Ltd. we cannot uphold the finding of the IAC that on facts and in the circumstance of the case, the assessee could be held liable for default under section 273(a) in consciously filing and underestimate of advance tax on 15-9-1975. We would, therefore, hold that as the IAC had failed to properly spell out the liability under section 273(a) the penalty levied by him is to be cancelled. We, therefore, reverse the finding of the Commissioner (Appeals) and allow the appeal.