Bona fide belief as to non-applicability of a provision precludes initiation of penal proceedings.

Shyamal Kumar Sen, J.

1. ON an application under Section 256(1) of the Income-tax Act, 1961, the following questions have been referred to this court for determination :

"(1) Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the assessee had bona fide reasons to believe that it had no taxable income and as such it was not liable to file an estimate of advance tax under Section 209A(1)(b) of the Income-tax Act, 1961, is based on any relevant material or perverse ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in cancelling the penalty imposed under Section 273(2)(b) of the Income-tax Act, 1961 ?"

2. THE facts, inter alia, as appear from the statement of case are that the assessee filed its return of income for the assessment year 1979-80 disclosing nil income after adjustment of business loss of the year and after taking into account the deduction admissible under Section 80M of the Income-tax Act, 1961. THE assessment was completed on a total income of Rs.2,47,571 which, in appeal, was reduced to Rs.2,34,850. Finding that the assessee had defaulted in furnishing an estimate of advance tax payable by it as required under Section 209A(1)(b), the Income-tax Officer initiated penalty proceedings under Section 273(2)(b). THE assessee submitted its explanation which was rejected by the Income-tax Officer who levied a penalty of Rs.20,000. The assessee carried the matter before the Commissioner of Income-tax (Appeals) but it was unsuccessful.

3. BEFORE the Tribunal, the orders of the lower authorities were objected to and it was contended that the penalty was not justified. The Tribunal after considering the facts of the case and whatever submissions were made before it, found that the assessee did not file an estimate of income under Section 209A(1)(b) of the Act as it believed that after taking into account the benefit of set off of business loss against the income under other heads there would be no taxable income. The Tribunal has further taken the view that the Income-tax Officer assessed the assessee's income at a positive figure by mainly denying the assessee the benefit of set off claimed by it which is not conclusive of the matter. The Tribunal has also accepted the submissions made by the assessee's counsel that the matter relating to the assessee's claim for set off of loss under the head "Share dealing" against other income is the subject-matter of reference to this court under Section 256(2) of the Act and a question of law is, therefore, involved in the assessee's case and this court has directed the Tribunal to refer the question of law to it for its opinion. The Tribunal, therefore, has taken the view that the bona fides of the assessee cannot be doubted. As a result, the penalty levied by the Income-tax Officer and upheld by the Commissioner of Income-tax (Appeals) has been cancelled.

4. IT has been contended on behalf of the Revenue that in the facts and circumstances of the case penalty under Section 273(2)(b) is not exigible. It has further been submitted on behalf of the Revenue that notwithstanding the loss incurred, the assessee became liable for tax owing to the application in its case of the Explanation to Section 72. It has further been contended that there could have been no manner of doubt that the appellant's business during the year consisted in the purchase and sale of shares of other companies.

5. IT has further been argued that there is no plausible explanation for not filing an estimate in terms of provision of Section 209A(1)(b).

6. IN support of the respective contentions the following decisions were cited from the Bar. Cement Marketing Co. of India Ltd. v. Asst. CST. Jeewanlal (1929) Ltd. v. ITO [1980] 130 ITR 405 (Cal) ; ITO v. Burmah Shell Oil Storage and Distributing Co, of India Ltd. In the case of Cement Marketing Co. of India Ltd. v. Asst. CST, of the said report, the Supreme Court observed as