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Additional Commissioner of Income-tax, Bombay City-ii Vs. Lalit Bros - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 112 of 1972
Judge
Reported in[1983]141ITR392(Bom); [1982]8TAXMAN72(Bom)
ActsIncome Tax Act, 1961 - Sections 139, 139(1), 139(2), 139(4), 139(4)(a), 139(4)(b), 148, 271, 271(1)
AppellantAdditional Commissioner of Income-tax, Bombay City-ii
RespondentLalit Bros
Excerpt:
.....(a), 139 (4) (b), 148, 271 and 271 (1) of income tax act, 1961 - whether in case of assessee who filed return under section 139 (2) or 148 within time entitled to penalty proceedings for default in filing return under section 139 (1) - contention of assessee that case being covered under section 139 (4) no penalty attracted - contention had no substance as section 139 (4) deals with cases not covered by section 139 (1) or 139 (2) - section 139 (4) has no application to said case - reference to precedent made - even if assessee filed return as per section 139 (2) he would be liable to penalty for default of section 139 (1) under section 271 (1) (a). - - act, 1961, made by the income-tax appellate tribunal, bombay bench 'd',both at the instance of the revenue and the assessee, the..........was attracted.16. the reasoning of the aac in his order that since it could not be presumed that a return filed under s. 139(2) of the i.t. act, 1961, was to be a return required to be filed under s. 139(1) default under s. 139(1) continues, was not correct, as such a default would continue only till a return was filed or assessment was otherwise completed.17. this view that we are taking is supported by certain decision cited across the bar. the first one is of the rajasthan high court in the case of cit v. indra and co. . the facts of the case were quite similar to the facts of this case. the court there held (headnote) :'an assessee is liable to penalty for not submitting his return as required in a notice under section 139(1) of the income-tax act, 1961, even though he subsequently.....
Judgment:

Rege, J.

1. In this reference under s. 256(1) of the I.T. Act, 1961, made by the Income-tax Appellate Tribunal, Bombay Bench 'D', both at the instance of the Revenue and the assessee, the following question has been referred to us for our opinion :

'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the penalty leviable on the assessee for the assessment year 1962-63 under clause (i) of section 271(1)(a) of the Income-tax Act, 1961, was properly levied and that the same should be on the net amount of tax payable by the assessee after deducting from the gross advance tax as well as provisional assessment tax, if any, paid by the assessee in relation to the said assessment year ?'

2. The Revenue in its reference application had asked the Tribunal to refer to this court for its opinion two questions of which the Tribunal while refusing to refer the first question had agreed to refer the second question for this court's question. The assessee in its reference application had asked the Tribunal to refer to this court's opinion six questions. The Tribunal while refusing to refer the last two questions, they being questions of fact, and the fourth question not being argued by the assessee, agreed to refer the first the questions to the court for its opinion. However, ultimately, the Tribunal appears to have rolled the said four questions, one by the Revenue and three by the assessee, into one question stated above and has referred the same to this court. We, however, feel that if the Tribunal had retained the said four questions as they were framed by the parties and accepted by the Tribunal for being referred to this court instead of rolling them into one, the controversy between the parties could have been brought out more clearly and plainly than does by the said single question. We, therefore, have reframed the said one question referred to us into four questions as they originally stood. The said question are :

'(1) Whether, on the facts and in the circumstances of the case, penalty for failure to furnish the return of income within the time allowed under section 139(1) of the Income-tax Act, 1961, can be levied under section 271(1)(a)(i) of the Income-tax Act, 1961, on the assessee ?

(2) Whether, on the facts and in the circumstances of the case, penalty under section 271(1)(a)(i) can be levied on the assessee when it serve with the notice under section 148 and when it has filed the return of income within the time mentioned in the said notice ?

(3) Whether, on the facts and in the circumstances of the case, penalty under section 271(1)(a)(i) can be levied on the assessee when the return has been filed before the assessment was made and before the expiry of the period specified in sub-clause (b) of section 139(4) ?

(4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in holding that the penalty leviable on the assessee for the assessment year 1962-63 under clause (i) of section 271(1)(a) of the Income-tax Act, 1961, could be on the net amount of tax payable by the assessee after deducting from the gross tax, advance tax as well as provisional tax, if any, paid by the assessee in relation to the said assessment year ?'

3. In this case the assessee is a registered firm carrying on business in paper, both in retail as well as in wholesale. The assessment year in question is 1962-63. The assessee failed to file a return as required under s. 139(1) of the I.T. Act, 1961. The ITO, therefore, issued a notice dated September 12, 1963, under s. 148 of the said Act calling upon the assessee to file a return. In pursuance of the said notice, the assessee filed a return on September 30, 1963, that is, within the time prescribed under the notice, disclosing a total income of Rs. 53,659. However, the ITO completed the assessment on December 20, 1965, on the total income of Rs. 57,248.

4. The ITO thereafter initiated penalty proceedings against the assessee under s. 271(1)(a)(i) of the said Act, as, according to him, the assessee had committed default under s. 139(1) by not filing the return in time as required under the said section. The assessee sought to explain the delay on the ground that as its accountant had left for his native place and was required to stay there for a long time due to his father's illness and death, the return could not be filed in time. The ITO did not accept the said explanation for delay as being reasonable to exonerate the assessee from default in filing a return and from consequent levy of penalty for such default. The ITO, therefore, imposed a penalty of Rs. 6,295 at the rate of 2% per month of the tax determined, by treating the assessee as an unregistered firm.

5. Against the said order of the ITO imposing penalty, the assessee appealed to the AAC. Before the AAC the main contention of the assessee was that since in pursuance of the notice dated October 12, 1963, issued by the ITO under s. 139(2) or s. 148 it had filed the return within the period of one month prescribed under the notice, the ITO could not adopt penalty proceedings under s. 271(1)(a) of the I.T. Act, 1961, for default under s. 139(1) of the said Act and such proceedings being invalid, the order of the ITO could not be sustained. The AAC accepted the said contention of the assessee by observing that as there was no provision for presuming that the return submitted in response to a notice under s. 139(2) or s. 148 can be presumed to have been submitted under s. 139(1), default under s. 139(1) never ceased but still continued and so no penalty could be levied for a default under that section. He accordingly cancelled the penalty levied by the ITO. The AAC, however, did not accept the explanation for the delay given by the assessee as being reasonable.

6. Against the said order of the AAC, the Revenue went in appeal to the Tribunal. The Revenue in the said appeal contended that in respect of the assessment year 1962-63, the assessee ordinarily should have filed its return on September 30, 1962, which time was extended by the Government till August 31, 1963, and, therefore, even though the assessee had filed the return within the time prescribed under the notice under s. 139(2) or s. 148, the assessee had still committed a default under s. 139(1), for which it was liable for penalty. The Tribunal accepted the said contention of the Revenue, and relying on the decision of the Rajasthan High Court in the case of CIT v. Indra and Co. and on its earlier decisions, set aside the order of the AAC and confirmed the order of penalty by the ITO. The said finding of the Tribunal is challenged before us.

7. The first three questions can be dealt with at the same time. The main question is whether in case where the assessee had filed the return in response to the notice under s. 139(2) or s. 148 of the I.T. Act, 1961, within the time prescribed in the said notice, penalty proceedings could be taken for default in filing a return under s. 139(1) of the said Act.

8. Section 139(1) provides for the filing of the return by a person having a taxable income before the time or the date stated therein.

9. Section 139(2) provides for the filing of the return within the time prescribed in the notice issued by the ITO to a person who in his opinion was assessable under the said Act.

10. Section 139(4)(a) of the I.T. Act, 1961, deals with cases where no return is filed under s. 139(2) or no notice is issued under s. 139(1), and the assessee, before the assessment is made, furnishes a return for any previous year at any time before the end of the period specified in cl. (b).

11. Section 271(1)(a)(i)(b) of the I.T. Act, 1961, relevant for the purpose in this case, provides for levying of penalty as under :

'271. Failure to furnish returns, comply with notices, concealment of income, etc. - (1) If the Income-tax Officer or the Appellate Assistant Commissioner or the Commissioner (Appeal) s. in the course of any proceedings under this Act, is satisfied that any person -

(a) has without reasonable cause failed to furnish the return of total income which he was required to furnish under sub-section (1) of section 139 or by notice given under sub-section (2) of section 139 or section 148 or has without reasonable cause failed to furnish it, within the time allowed and in the manner required by sub-section (1) of section 139 or by such notice, as the case may be, or......

he may direct that such person shall pay by way of penalty, -

(i) in the cases referred to in clause (a), - ....

(b) in any other case, in addition to the amount of the tax, if any, payable by him, a sum equal to two percent. of the assessed tax for every month during which the default continued ;....'

12. In this case it is not disputed that the assessee has failed to file a return of income voluntarily as required under s. 139(1) of the I.T. Act, 1961, but had failed the same in pursuance of a notice issued under s. 139(2) or s. 148 of the said Act within the time prescribed therein. It, therefore, cannot be disputed that the assessee has committed a default in not filing its return of income under s. 139(1).

13. The question is whether there was anything in the said provisions to hold that in view of the assessee filing the return in compliance with a notice under s. 139(2) or s. 148 of the I.T. Act, 1961, the initial default of the assessee in not filing a return under s. 139(1) was extinguished.

14. Broadly put, s. 271(1)(a) of the I.T. Act, 1961, deals with four different types of defaults, namely :-

(i) total failure to furnish without a reasonable cause a return as required under s. 139(1) of the I.T. Act, 1961 ;

(ii) total failure to furnish without a reasonable cause a return as required to be furnished by a notice under s. 139(2) or s. 148 of the I.T. Act, 1961 ;

(iii) furnishing a return but failing to do so without a reasonable cause within the time allowed and in the manner prescribed under s. 139(1) of the I.T. Act, 1961 ; and

(iv) furnishing a return but failing to do so without a reasonable cause within the time prescribed by the notice.

15. Defaults spoken of in the said provisions are independent of each other, and there is nothing in the said provisions to suggest that for the purpose of penalty, the filing of a return under s. 139(2) of the I.T. Act, 1961, was to be considered as the filing of the return under s. 139(1), or that compliance with the provisions for s. 139(2) in furnishing a return in pursuance of the notice would extinguish the default already committed under s. 139(1) in not filing return by that section. The default contemplated under s. 139(1) lies only in the fact that a return as required therein was not filed and once that was provided, penalty under s. 271 was attracted.

16. The reasoning of the AAC in his order that since it could not be presumed that a return filed under s. 139(2) of the I.T. Act, 1961, was to be a return required to be filed under s. 139(1) default under s. 139(1) continues, was not correct, as such a default would continue only till a return was filed or assessment was otherwise completed.

17. This view that we are taking is supported by certain decision cited across the Bar. The first one is of the Rajasthan High Court in the case of CIT v. Indra and Co. . The facts of the case were quite similar to the facts of this case. The court there held (headnote) :

'An assessee is liable to penalty for not submitting his return as required in a notice under section 139(1) of the Income-tax Act, 1961, even though he subsequently filed a return in pursuance of a notice under section 139(2) and an assessment is made on the basis of that return. '

18. Similar view has been taken by the Orissa High Court in the case of CIT v. Gangaram Chapolia : [1976]103ITR613(Orissa) . The court there negatived allowed under s. 139(4) of the I.T. Act, 1961, he should be deemed to have filed the return within the time allowed under s. 139(1) and consequently no penalty under s. 271(1)(a) was imposable.

19. The third decision was of the Allahabad High Court in the case of Metal India Products v. CIT : [1978]113ITR830(All) . In that case, the assessee had failed to file a return under s. 139(1) of the I.T. Act, 1961. Also no notice was served under s. 139(2) on him. But the assessee had filed the return under s. 139(4)(a) providing for filing of return for any previous year before the assessment is made or any time before the end of the period specified in s. 139(4)(b). The court, dealing with such a case held (headnote) :

'Where the assessee did not file his return within the time prescribed by section 139(1) of the Income-tax Act, 1961, and where no notice was issued by the Income-tax Officer to the assessee under section 139(2) of the Act, even if the assessee filed his return under section 139(4), that is, within four years from the end of the assessment year and before the assessment order was passed, the assessee is liable to pay penalty under section 271(1)(a) of the Act, for not having filed the return within the time prescribed in section 139(1) or the time given under section 139(2). For the purposes of penalty, the filing of the return within the time prescribed by sub-section (4) cannot be treated as a return filed within the time prescribed by sub-section (1). The emphasis of section 271(1)(a) is on checking evasion of the time prescribed by sub-section (1) or sub-section (2) of section 139. If the time prescribed by sub-section (1) or (2) passes, default takes place, attracting liability to penalty.'

20. The learned counsel for the assessee did not seriously dispute the finding of the Tribunal, as according to him, the matter was covered by the said three decisions.

21. This would also answer the contention of the assessee that the case being covered under s. 139(4) no penalty was attracted for default under s. 139(4). The said contention has no substance, for, s. 139(4) deals with cases not covered under s. 139(1) or s. 139(1). In this case, admittedly, the assessee had furnished a return under s. 139(2) within the time prescribed in the return (notice ?). Hence, s. 139(4) could have no application to this case.

22. In this case the Tribunal has rejected the contention of the assessee that it had reasonable ground for not furnishing the return under s. 139(1). The assessee's failure a return under s. 139(1) is not disputed. In that view of the matter, in this case under s. 271(1)(a)(i)(b), the assessee was liable for penalty.

23. The fourth question, referred at the instance of the Revenue, is as regards the manner of calculation of penalty leviable under the Act. The Tribunal, while making the order for payment of penalty, had provided that it shall be payable by the assessee after deducting from the gross tax the advance tax as well as the provisional tax, if any, paid by the assessee.

24. Initially as the provisions of s. 271(1) stood, the words were that the penalty to be paid was to be calculated on 'the tax' paid. The said provisions were amended subsequently by the Direct Taxes (Amendment) Act of 1974, with retrospective effect from the commencement of the Act of 1961, by replacing the word 'tax', as appearing in the said section, by the words 'assessed tax'. The Explanation to the said amendment Act (s. 13) provides :

'In the said clause, 'assessed tax' means tax reduced by the sum, if any, deducted at source under Chapter XVII-B or paid in advance under Chapter XVII-C.'

25. The said Explanation, therefore, provided for a deduction from the tax of only the tax deducted at source or the tax paid in advance and not the provisional tax, as directed by the Tribunal in its order. In fact, the Tribunal provided for a deduction of the provisional tax by correcting its original order which provided for the self-assessment tax instead. However, in view of the said Explanation, the Tribunal's order for deduction of the provisional tax cannot stand.

26. In the circumstances, the questions would be answered as under :

Questions Nos. 1, 2 and 3 : In the affirmative and against the assessee.

Questions Nos. 4 : So far as the order of the Tribunal provides for the deduction of advance tax from the gross tax, it was justified in passing the order. However, so far as it provides for the deduction of provisional tax, the Tribunal was not justified in provided for such deduction.

27. The parties to bear their own costs of the reference.


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