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I.T.A. No. 574 of 1983‑84, decided on 10th July 1984.

‑‑‑Ss. 18‑A(3) & 28(1‑B)(b)‑‑Advance tax‑‑ Default‑‑Penalty‑‑Assessee registered firm‑‑First year of business and first year of assessment‑ Declared income under S.18‑A(3), Income‑tax Act, 1922 and paid tax‑ Income finally assessed at a figure higher than declared‑‑Assessing Officer after issuing notice under S.28(3) imposed penalty under cl.(b) of S.28(1‑B) on ground that assessee intentionally paid less tax‑‑Held: Clause (b) of S.28(1‑B) applied where assessee had not paid advance tax under subsection (1) or (3) of S.18‑A and it was a case where cl.(a) was applicable‑‑To apply said clause Department should have shown by some material evidence that assessee had estimated tax paid by him under S.18(A)(2) or (3) which he knew or had reason to believe to be untrue which could be possible when assessee's estimated tax and declared or assessed tax was extremely disproportionate.

M. Arshad Pervaz, AC, DR for Appellant.

Kh. A. Mueed for Respondent.

Date of hearing: 19th February 1984.

This is a departmental appeal against the cancellation of penalty imposed by the I.T.O. under section 28(1‑B)(b).

The brief facts of the case are that the assessee is a registered firm and the assessment year 1978‑79 was the first year of business. The assessee declared his net income under section 18(A)(3) of the Repealed Income‑tax Act and paid tax amounting to Rs.2,700. After the close of the accounting year the assessee filed his return declaring income at Rs.44,192 which was finally assessed at Rs.58,692. The assessing officer issued a notice to the assessee under section 28,(3) in reply to which the assessee explained as under :

Total assessed income Rs.58,692

80% of total income Rs.46,960

Super Tax calculation was as under:

On Rs.30,000 Rs. 750

On Rs.16,960 Rs‑. 1,696

Rs.2,446

It was pleaded by the assessee that the super tax paid by the assessee was in excess of what was the tax due against the assessee on 80% of the total income assessed. The Assessing Officer, however was of the view that tax payable by the assessee was Rs.3,619 and, therefore, the tax paid by the assessee was much less than the tax assessed. On appeal the learned A.A.C. cancelled the penalty on the ground that the default of the assessee was not intentional. The learned D.R. contended that since the assessee's tax paid was short of the tax assessed, therefore, it should be considered intentional default and the assessee was liable to penalty under section 28(1‑B)(b).

The argument of the learned D.R. is misconcieved, which is evident from reading of subsection (3) of section 18‑A anal the section 28(1‑B)(b) read together. Subsection (3) of section 18‑A is reproduced below:

"Any person who has no hitherto 1 Men assessed shall, before the fifteenth day of June in each year, if his total income (excluding income to which sixth Schedule supplies) of the period which would be the previous year for an assessment for the year next following is likely to exceed twenty‑five thousand rupees, send to the Income‑tax Officer an estimate of the tax payable by him on that part of him income to which the provisions subsections (2), (2‑A) and (2‑B) of section 18 (or the Sixth Schedule) do not apply of the ,said previous year calculated in the manner laid down in subsection (1), and shall pay the amount, on such of the dates specified in that subsection as have not expired, by instalments which may be revised according to the proviso to subsection (2)."

It is evident that in this subsection the assessee who has not been hitherto assessed and whose income is likely to exceed Rs.25,000 has to send to the I.‑T.O., "the estimate of the tax payable by him It is, therefore, obvious that an accurate amount can neither be calculated nor payable. The estimate is after all an estimate, which can at best be judged as reasonable or unreasonable. It can never be strictly in accordance with the ultimate tax assessed. Therefore, the assessing officer cannot make the assessed tax as the basis to determine as to whether the default was intentional or not under section 18‑A(3) This interpretation is further supported by the wording of section 28(1‑B). It may not be out of place to mention here that clause (b) of section 28(1‑B) has no application in the facts of the present case and the learned assessing officer has wrongly applied this clause. Clause (b) applies on a case where an assessee has not paid any advance tax A under subsection (1) or (3) of section 18‑A. In the present case clause (a) of subsection 1‑B of section 28 will be appplicable, which is reproduced below:

""(a) has furnished under subsection (2) or subsection (3) of section 18‑A estimates of the tax payable by him which, he knew or had reason to believe to be untrue."

The sine due of the application of clause (a) is that the assessee had deliberately and intentionally made a wrong estimate of tax under subsection (3) of section 18‑A. The words "tax paid by him which he knew or had reason to believe to the untrue are significant. In order to bring into application this clause the assessing officer by some material or circumstantial evidence has to show that the assessee had estimated the tax paid by him under subsection (2) or subsection (3) of section 18‑A which he knew or had reason to believe to be untrue. This can be possible when the assessee's estimated tax and the declared tax are even assessed tax is extremely disproportionate. In that case it may possibly be presumed that the assessee knew or had reason to believe that his income would likely to be what he had declared but in a case like this, it cannot be said that the assessee's estimate under section 18‑A(3) was incorrect to the extent that he knew or had reason to believe to be untrue at the time of making the estimate of tax.

For the foregoing reasons I entirely agree with the learned A.A.C that there was no intentional default by the assessee and penalty had wrongly been imposed by the assessing officer. In these circumstances the appeal by the department is dismissed being without any merit.

M.P. A. Appeal dismissed.

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