855. Treatment of losses carried forward in making self-assessment

In making a self-assessment, losses carried forward, from earlier years either as per assessments or where assessments have not been completed as per returns, have to be treated in the same way as in the case of provisional assessments under section 141 [prior to its omission with effect from 1-4-1971].

Letter : F. No. 16/140/64-IT(B), dated 19-10-1964.

856. Payment of tax on self-assessment/regular assessment, in cases where capital gains have not been invested, for the purposes of availing exemption under sections 54, 54B and 54D, before filing return - Whether time therefor could be extended under the section

1. Section 45 provides for the taxation of capital gains arising on the transfer of capital assets. Sections 54, 54B and 54D grant exemption in respect of capital gains arising on transfer of property used for self-residence, land used for agricultural purposes and compulsory acquisition of lands and buildings under any law, provided the conditions laid down in the three sections are satisfied. These sections, inter alia, provide investment of the capital gains  in the house building and land, as the case may be, within  the stipulated period which is 2 to 3 years. If the assessee is able to do so between the date of the transfer and that of filing the return of income, there is no difficulty. But if he is not able to do so but wishes to avail of the exemption in the subsequent years, he will have to disclose the capital gain in the return of income of the relevant year.

2. The question of payment of the tax on self-assessment and regular assessment in cases where the capital gains have not been invested before filing the return, although assessee proposes to do so later, has been considered, and I am directed to convey the following instructions :

(a)  in cases where the assessee has received the sale proceeds of the capital asset transferred, the time for payment of tax under  sections 140A and 220 need not be extended as the assessee has the necessary funds to pay the taxes;

(b)  in cases where sale proceeds of the asset transferred have not been received for any reason the Income-tax Officer may not formally extend time for payment under sections 140A and 220  but may not impose penalty for non-payment of the tax in view of the special circumstances due to which the assessee is prevented from paying the tax. However, as soon as the sale proceeds are received the collection may be enforced and failure to pay the taxes may be visited with penalty.

Circular : No. 119 [F. No. 207/5/73-IT (A-II)], dated 26-9-1973.

857. Penalty under sub-section (3) - Whether automatic and leviable only in appropriate cases - Assurance given by Minister of Finance on the floor of the House - Effect of

Sub-section (3) of section 140A provides that if an assessee does not pay the tax or a part of the tax due on self-assessment within the specified period of 30 days from the date of the furnishing the return under section 139, he shall be liable to pay a penalty of such amount as the Income-tax Officer may direct, subject to a maximum limit of 50 per cent of the amount of tax which was due but was not paid within the aforesaid period of 30 days. No penalty under this provision will be impossible if a provisional assessment under section 141 or a regular assessment under section 143 or 144 for the relevant assessment year has been made before the expiry of the period of 30 days from the date on which the return was furnished by the assessee. Further, it has to be noted that under the proviso to sub-section (3) of section 140A, the assessee is entitled to be given a reasonable opportunity of being heard before the imposition of any penalty under that sub-section. The order of imposition of penalty is also appealable before the AAC, vide the  new sub-clause (ia) inserted in clause (o) of section 246 by section 38(i) of the Finance Act, 1964.

In regard to the imposition of a penalty under section 140A(3), the following observations of the Minister of Finance in the Lok Sabha in his reply to the debate on clause by clause consideration of the Finance Bill, 1964, have to be carefully borne in mind :

“The amount of penalty is only the maximum that has been mentioned. The idea is, in cases where a man has assessed himself, he should remit the money along with the assessment. A time of one month is given... I can certainly assure honourable Members that while the intention is that the money should be paid along with the assessment, the penalty of 50 per cent is not something which is obligatory. It only gives the extent to which it can be imposed. I certainly agree to issue instructions to see that this should not be imposed unless other conditions are all adverse so far as collection is concerned, and some time should be given... I can give the assurance that instructions will be issued to officers that wherever it is justifiable, no penalty should be imposed.”

Circular : No. 20(LXXXVI)-D of 1964 (extracts), dated 7-7-1964.


Explained in - In Addl. CIT v. Sarvaraya Textiles Ltd. [1982] 137 ITR 369 (AP), the above circular was explained with the following observations:

“In the circular, the speech made by the then Finance Minister has been extracted. We may notice the last sentence of the speech of the then Finance Minister :

‘I can give the assurance that instructions will be issued to officers that, wherever it is justifiable, no penalty should be imposed.’

The aforesaid speech of the then Finance Minister in the Lok Sabha was given in his reply to the debate on clause by clause consideration of the Finance Bill, 1964, when the imposition of penalty under section 140A(3) came in for consideration. The Board, through this circular, directs all the ITOs to follow the observations made by the then Finance Minister. This speech and the circular would clearly indicate that the levy of penalty is not automatic, but the assessing authority has to consider each case and levy penalty only in appropriate cases.

We shall now deal with the submission of Mr. P. Rama Rao that the circular issued by the CBDT under section 119 of the Act has no statutory force. This submission of the standing counsel cannot be acceded to in view of the two decisions [Navnitlal C. Jhaveri v. K.K. Sen, AAC [1965] 56 ITR 198 (SC), and Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC)] of the Supreme Court to which we shall refer....” (pp. 376-377)