The effect of Board’s earlier instructions is that for the purpose of calculating the penalty imposable for a default under s. 271(l)(a) of the Act, the tax deducted at source is to be deducted but the advance tax paid by the assessee is not to be deducted.

2. On a representation made by the Gujarat Chamber of Commerce, the matter has been reconsidered by the Board in consultation with the Ministry of Law. Under s. 271(l)(a) of the IT Act, 1961, the penalty is to be 2 per cent of the tax, if any, payable by the assessee. Sec. 219 of the IT Act, 1961 makes it clear that any sum, other than penalty or interest, paid by or recovered from an assessee as advance tax in pursuance of Chapter XVII shall be treated as payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable and credit, therefore, shall be given to the assessee in the regular assessment. The two sections read together make it perfectly clear that tax payable by an assessee as referred to in s. 271(1)(a) is the tax payable after giving credit for the advance tax paid by him as contemplated under s. 219.

3. It has, therefore, been decided that the net amount of tax payable by the assessee for the purpose of s. 271(l)(a) of the Act, is to be arrived at by excluding the tax deducted at source as well as the advance tax actually paid by the assessee under ss, 207 to 219 of the Act.

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