Commissioner of Income Tax vs Pure Drinks Ltd.

Adarsh Kumar Goel, J.—Following question of law has been referred for opinion of this Court by the Income Tax Appellate Tribunal, Chandigarh, arising out of its order dated 13.12.1994 in I.T.A. No. 397/89 for the assessment year 1984-85:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in quashing the penalty for the period from 25.2.1985 to 31.10.1985 and sustaining it from 1.11.1985 to 24.3.1986, u/s 140A(3) of the Income Tax Act, 1961?

The Assessee was engaged in the business of manufacturing and bottling of soft drinks. It failed to deposit the entire amount of advance tax, on account of which, the Assessing Officer initiated proceedings u/s 140A of the Income Tax Act, 1961 (for short, "the Act") for levy of penalty. The defence of the Assessee was that default in making payment was on account of financial stringency due to destruction of equipments and material during riots in November, 1984. The Assessing Officer did not accept the explanation and imposed penalty @ 2% per month. The CIT(A) accepted the explanation of the Assessee for the period from 1.11.1984 to 25.2.1985 i.e. for about four months. On further appeals, by the revenue as well as by the Assessee, the Tribunal held that for the period from 1.11.1984 to 25.2.1985, for which relief was allowed by the CIT (A), penalty had not even been levied by the Assessing Officer. The Tribunal granted relief for the period from 25.2.1985 to 31.10.1985.

We have heard learned Counsel for the parties.

Learned Counsel for the revenue referred to para 9 of the order of the Tribunal, taking a view that plea of financial hardship could not be accepted, for the reasons mentioned therein and submitted that thereafter, relief could not have been given. On the other hand, learned Counsel for the Assessee relies on finding of the Tribunal in para 11, as under:

...We have already seen that the Tribunal in the Assessee''s case relating to earlier two assessment years thought it appropriate to give benefit on account of difficulties faced by the Assessee because of riots and fire on 1.11.1984. In our opinion, certain breathing period should be reasonably allowed to the Assessee on account of unprecedented and unfortunate incidents on account of which it suffered extensive damage and huge losses. Therefore, we find it appropriate to allow relief from 25.2.85 to 31.10.1985.

It is clear from the finding recorded by the Tribunal that breathing period was allowed to the Assessee on account of riots and fire in November, 1984. The said event is a well known event. It cannot be disputed that u/s 140A(3) of the Act, levy of penalty is not mandatory. There is no minimum penalty provided. On the facts and circumstances, if the Tribunal having regard to the hardship to the Assessee, has waived penalty for a limited period, the view so taken cannot be held to be erroneous.

Accordingly, question of law is answered against the revenue and in favour of the Assessee.

The reference is disposed of.