Per Krishnamurthy, President - This is an appeal directed against the imposition of penalty under section 140A(3) of the Income-tax Act, in a sum of Rs. 5,760.

2. The ITO levied a penalty of Rs. 5,760 on the ground that the assessee failed to make the payment of tax under self-assessment under section 140A(1) of the Income-tax Act. The assessee filed a return of income on 19-7-1982 showing an income of Rs. 36,300 on which the tax payable worked out to Rs. 9,290 which was not paid by the assessee. Before the ITO, the assessee pleaded that the assessee filed an appeal against the assessment and after giving effect of the appellate order, the income came down to below taxable limit and consequently there was no liability to pay the tax at all and, therefore, the question of paying self-assessment tax under section 140A(1) did not arise. He, therefore, pleaded for the dropping of the proceedings. This explanation was rejected by the ITO on the ground that for the purpose of section 140A(3) what was relevant to see was whether any tax liability arose on the income returned and not what the effect would be after the appeal was decided. Since on the date when the return was filed, there was a liability to pay tax of Rs. 9,290 and as that was not paid, the assessee was liable to penalty under section 140A(3). He, therefore, imposed a penalty of Rs. 5,760 aggrieved by which the assessee preferred an appeal to the Appellate Assistant Commissioner who also confirmed it for the very same reason.

3. It is now brought to our notice at the time of hearing of this appeal byway of written arguments that the assessee made a Mistake in filing the return of income. The assessee was deriving income from interest on fixed deposits. In respect of one F.D.R. No. 31177 dated 3-1-1977, it has disclosed the income for 62 months for the period from 3-1-1977 to 3-3-1982 of a sum of Rs. 31,167 as against showing only the income relatable to the-year under appeal, namely Rs. 3,206. As against showing the correct income of Rs. 3,206 in the F.D. Rs, the assessee had under a Mistake disclosed a much higher income of Rs. 31,167. Had he shown the correct income, there was no liability to pay any self-assessment tax. It was because of Mistake committed by the assessee in showing much higher income which was not taxable, the liability to pay the self-assessment tax under section 140A arose. This Mistake was shown to the AAC and AAC accepted the assessee’s claim and directed to adopt only Rs. 3,206 as income from the F.D.R., subject to deduction under section 80L of Rs. 3,000. Since the assessee committed a Mistake in disclosing the income correctly and since there was no liability to tax at all, there was no question of paying any self-assessment tax more particularly if the object of enacting Section 140A was kept in view which was only to collect the tax due from the assessee along with the return of income. On this plea, it was submitted that the penalty levied ought to have been cancelled.

4. The Departmental Representative objected to the cancellation of penalty on the ground that under the provisions of Section 140A, there was a liability subsisting on the date when the return was filed and, therefore, failure to deposit the tax as required under section 140A attracted the imposition of penalty. Penalty imposed being reasonable, should not be interfered with.

5. We are unable to agree with the contention advanced on behalf of the revenue and sustain the imposition of this penalty. Section 140A lays down provisions of self- assessment on payment of tax or self-assessment along with the furnishing of the return. It says:

"(1) Where any taxis payable on the basis of any return required to be furnished under section 139 or section 148, after taking into account the amount of tax, if any, already paid under any provision of this Act, (the assessee shall be liable to pay such tax . . . before furnishing the return and the return shall be accompanied by proof of p