1. A return of income to be filed by the assessee for the assessment year 1960-61 was due on August 5, 1960. However, prior to that date, the ITO issued a notice under s. 22(2) of the Indian I.T. Act, 1922 (hereinafter referred to as 'the 1922 Act'), on June 28, 1960. In response to this notice, the assessee filed his return on March 29, 1962. He then filed a revised return on March 31, 1964, and another revised return on February 8, 1965. Penalty proceedings under s. 271(1)(a) of the I.T. Act, 1961 (hereinafter referred to as 'the 1961 Act'), were initiated by the ITO. The explanation given by the assessee for the delay in filing the return was his old age and want of figures in respect of the share income from firms. This explanation was, however, rejected by the ITO who found that the assessee had committed default by filing return late without any reasonable cause. The ITO rejected the objection of the assessee that penalty proceedings under the 1961 Act cannot be taken against him. A penalty of Rs. 1,818 was, therefore, levied against the assessee. The order of the ITO was upheld by the AAC.
2. However, in the appeal filed by the assessee, the Appellate Tribunal set aside the order of penalty. The Tribunal seems to have taken the view that s. 22(3) of the 1922 Act contemplates that if any assessee does not furnish the return within the time allowed by sub-s. (1) or sub-s. (2), law permitted him to file a return or revised return at any time before the assessment was completed and that, in the instant case, the original return as well as the revised return must be considered as having been filed within the time prescribed by law since the returns were filed before the assessment was made. The Tribunal expressed the view that since s. 22(3) of the 1922 Act has been complied with, it logically followed that s. 22(2) must be held to have been complied with and, if such compliance has been made, the provisions of s. 271(1)(a) of the 1961 Act were not attracted. The Tribunal has relied on the decision of the Supreme Court in CIT v. Kulu Valley Transport Co. P. Ltd. : 77ITR518(SC) , in which the Supreme Court has observed that s. 22(3) of the 1922 Act must be read as a proviso to s. 22(1) of the Act. The Tribunal thus set aside the orders of penalty and directed the penalty to be refunded.
3. Arising out of this order of the Tribunal, the following two questions have been referred to this court under s. 256(1) of the 1961 Ac :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that though the assessee had failed without reasonable cause to file his return of income for the assessment year 1960-61, within the time allowed to him by the notice dated 18-6-1960, issued under section 22(2) of the Indian Income-tax Act, 1922, and served on him on 1-7-1960, the assessee was not liable to be proceeded against for levying penalty under s. 271(1)(a) of the Income-tax Act, 1961, inasmuch as he had filed his return of income within the time specified in section 22(3) of the Indian Income-tax Act, 1922 ?
(2) Whether, on the facts and in the circumstances of the case, and having regard to the specific provisions contained in sub-section (1)(a), sub-section (3)(b) and sub-section (4A)(ii) of section 271 of the Income-tax Act, 1961, the Tribunal erred in extending the ratio of the decision of the Supreme Court in Commissioner of Income-tax v. Kulu Valley Transport Co. P. Ltd. : 77ITR518(SC) , to the penalty proceedings under section 271(1)(a) ibid ?'
4. There is no appearance here on behalf of the assessee in this case.
5. Mr. Joshi appearing on behalf of the Revenue has contended that the decision of the Supreme Court in Kulu Valley Transport Co's case : 77ITR518(SC) does not deal at all with the question of penalty under s. 28 of the 1922 Act and that any observations made by the Supreme Court in Kulu Valley Transport Co.'s case cannot affect the provisions of s. 28 which reasonable cause, after the issue of a notice under s. 22(2), penal.
6. Now, before we go to the decision of the Supreme Court in Kulu Valley Transport Co.'s case : 77ITR518(SC) , it is necessary to point out that question No. 1, which had been referred, proceeds on the footing that the assessee has failed without reasonable cause to file his return of income for the assessment year 1960-61 within the time allowed to him by notice issued under s. 22(2) of the 1922 Act. The provision which then becomes material in order to decide the validity of the view taken by the Tribunal is s. 28 of the 1922 Act, the material part of which reads as follow :
'28. (1) If the Income-tax Officer, the Appellate Assistant Commissioner or the Appellate Tribunal, in the course of any proceedings under the Act, is satisfied that any person -
(a) has without reasonable cause failed to furnish the return of his total income which he was required to furnish by notice given under sub-section (1) or sub-section (2) of section 22 or section 34 or has without reasonable cause failed to furnish it within the time allowed and in the manner required by such notice, or...
he or it may direct that such person shall pay by way of penalty, in the case referred to in clause (a), in addition to the amount of the income-tax and super-tax, if any, payable by him a sum not exceeding one and a half times that amount...'
7. A bare reading of this provision will show that in so far as the present case is concerned, the omission to furnish a return of total income by the person who has been given a notice under sub-s. (2) of s. 22 or the failure to furnish a return without reasonable cause within the time allowed by a notice under sub-s. (2) of s. 22 has been made penal. A liability to penalty is, therefore, immediately attracted in case a person either fails to file a return as required by the notice under s. 22(2) or, though he files a return, he does not file it within the time prescribed by the notice under s. 22(2). It is no doubt true that he may be relieved of this penalty if he shows a reasonable cause explaining the omission. Now, unless there is any other provision in the Act which relieves the assessee of the liability which results from the omission specified in s. 28(1)(a), the provisions of s. 28 must prevail. It has to be pointed out that in so far as the omission to comply with the notice under s. 22(2) is concerned, there may be an omission to comply with the notice under s. 22(2) is concerned, there may be an omission to comply with it where the assessee does not file a return at all even though the notice is served or the omission can be when he fails to file the return 'within the time allowed... by such notice'. Therefore, when a question arises as to whether an assessee becomes liable to penalty under s. 28 in a case where a notice under s. 22(2) has been served on him and he has filed the return, the question to be considered is whether he has filed the return within the time allowed by the notice. If it is found that the return has been filed beyond the time allowed by the notice, it is difficult for us to see why the provisions of s. 28(1)(a) will not be attracted.
8. When we go back to s. 22(2) of the 1922 Act, it refers to the time within which an assessee can be called upon to file his return. The material portion of s. 22(2) reads as follow :
'In the case of any person whose total income is, in the Income-tax Officer's opinion, of such an amount as to render such person liable to income-tax, the Income-tax Officer may serve a notice upon him requiring him to furnish, within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form... setting forth his total income... during the previous yea :
Provided that the Income-tax Officer may in his discretion extend the date for the delivery of the return.'
9. Section 22(2), therefore, prescribes a period within which the return must be filed by the assessee on whom the notice is served. It is this period which is specified in the notice that is referred to in s. 28(1)(a) of the 1922 Act. Now, it is no doubt true that sub-s. (3) of s. 22 enables a person to furnish a return or a revised return at any time before the assessment is made. But this provision, it appears to us, has no relevance when the question of liability under s. 28 to penalty is to be decided. Sub-s. (3) of s. 22 reads as follow :
'If any person has not furnished a return within the time allowed by or under sub-section (1) or sub-section (2), or having furnished a return under either of those sub-sections, discovers any omission or wrong statement therein, he may furnish a return or a revised return, as the case may be, at any time before the assessment is made.'
10. In the face of the express reference in s. 28 to the failure to file a return when required to do so by notice under s. 22(2) altogether or the failure to file such a return within the time prescribed by the notice under s. 22(2), the fact that s. 22(3) enables a return to be filed at any time before the assessment is made would be wholly irrelevant for the purposes of determining the liability to penalty under s. 28.
11. Now, it is true that sub-s. (3) of s. 22 has been described by the Supreme Court as a proviso to sub-s. (1) of s. 22. But those observations cannot be extended to affect the construction of s. 28 and, as we shall presently point out, the provisions of s. 28 were not at all relevant for the decision in Kulu Valley Transport Co.'s case : 77ITR518(SC) . It is rather surprising that in the long order written by the Tribunal, the Tribunal did not find it necessary even to refer to the wording of s. 28 of the 1922 Act. In the Kulu Valley Transport Co.'s case : 77ITR518(SC) , the question was whether the losses returned by the assessee in January, 1956, for the assessment years 1953-54 and 1954-55. No notice had been served on the assessee under s. 22(2). The ITO held that since the returns had been filed after the statutory period, the company was not entitled to carry forward the losses for both the years in the subsequent assessments. Before the AAC, apart from the contention that the delay in the submission of the returns should have been condoned, the other submission made was that the returns should have been treated as having been made under s. 22(3) in which case also they would be returns under s. 22(2A) by reading sub-ss. (3) and (1) together. Both the contentions were, however, rejected by the AAC and the Tribunal also held that the company was not entitled to the benefit of carrying forward the losses as it had not filed the returns in accordance with s. 22(2A) of the 1922 Act. The Supreme Court took the view that the ITO could not have ignored the return and had to determine the losses and that s. 24(2) conferred the benefit of losses being set off and carried forward and there was no provision in s. 22 under which losses had to be determined for the purpose of s. 24(2). The question then posed by the Supreme Court was whether s. 22(2A) places any limitation on that right. While dealing with this question, the Supreme Court made the following observations (p. 529 :
'This sub-section (2A) which has been reproduced before simply says that in order to get the benefit of section 24(2) the assessee must submit his loss return within the time specified by section 22(1). That provision must be read with section 22(3), for the purpose of determining the time within which a return has to be submitted. It can well be said that section 22(3) is merely a proviso to section 22(1). Thus, a return submitted at any time before the assessment is made is a valid return. In considering whether a return made is within time, sub-section (1) of section 22 must be read along with sub-section (3) of that section. A return whether it is a return of income, profits or gains or of loss must be considered as having been made within the time prescribed if it is made within the time specified in section 22(3). In other words, if section 22(3) is complied with, section 22(1) also must be held to have been complied with. If compliance has been made with the latter provision the requirements of section 22(2A) would stand satisfied.'
12. There is nothing in the observations quoted above which has the effect of affecting the penalty provisions expressly made in s. 28 of the 1922 Act. The decision of the Supreme Court would show that the relevant provision concerned in that case was s. 22(2A) because the question in the Kulu Valley Transport Co.'s case : 77ITR518(SC) was whether in the case of a voluntary return in which a loss has been shown and determined, the ITO can decline to give the benefit of s. 24(2) of carrying forward the losses on the ground that the assessee did not comply with the provisions of s. 22(2A) of the 1922 Act which was inserted by the Income-tax (Amendment) Act, 1953, with effect from April 1, 1952. The observations made by the Supreme Court that if s. 22(3) is complied with, s. 22(1) also must be held to have been complied with do not affect the power of the ITO to levy a penalty if the requirements of s. 28 are satisfied. The question relating to penalty must be determined expressly with reference to the provisions of s. 28 and those provisions would become operative even though a return filed late is treated as a valid return for the purposes of assessment. Therefore, so far as question No. 1 is concerned, the answer has to be in the negative and against the assessee.
13. So far as the second question is concerned, it is difficult to see as to how it has been referred. We find that there is no reference in the order of the Tribunal to sub-s. (3)(b) or sub-s. (4A)(ii) of s. 271 of the 1961 Act at all. Indeed, it has not been possible for us to appreciate the relevance of those sub-sections. Sub-s. (3)(b) refers to a case where a person has failed to comply with a notice under sub-s. (2) of 139 or s. 148 and proves that the has no income liable to tax and in such a case, under that provision, the penalty imposable under sub-s. (1) is not to exceed Rs. 25. In the instant case, the assessee has been assessed on a substantial income on which the tax payable has been found to be Rs. 3,635. The provisions in sub-s. (4A)(ii) of s. 271 of the 1961 of the 1961 Act also do not seem to have any relevance because that sub-section deals with the discretion of the Commissioner to reduce or waive the minimum amount of penalty imposable on a person under cl. (iii) of sub-s. (1) of s. 271 and cl. (iii) refers to penalty in the case of an assessee who has concealed the particulars of his income or furnished inaccurate particulars of his income. We, therefore, decline to answer the question because it does not arise out of the order of the Tribunal in appeal.
14. Accordingly, question No. 1 is answered in the negative and against the assessee. Question No. 2 is not answered. In the circumstances of the case, we make no order as to costs.